<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1998
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. 7 /x/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 9 /x/
The Galaxy VIP Fund
(Exact Name of Registrant as Specified in Charter)
4400 Computer Drive
Westboro, Massachusetts 01581
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (800) 628-0414
W. Bruce McConnel, III
DRINKER BIDDLE & REATH LLP
1345 Chestnut Street, Suite 1100
Philadelphia, Pennsylvania 19107
(Name and Address of Agent for Service)
Copies to:
Jylanne Dunne, Vice President
First Data Investor Services Group, Inc.
4400 Computer Drive
P.O. Box 5108
Westboro, Massachusetts 01581
It is proposed that this filing will become effective (check appropriate box)
/x/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of beneficial interest.
<PAGE>
THE GALAXY VIP FUND
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C>
I. Cover Page. . . . . . . . . . . . . . Cover Page
II. Synopsis. . . . . . . . . . . . . . . Not Applicable
III. Financial Highlights. . . . . . . . . Financial Highlights
IV. General Description of
Registrant. . . . . . . . . . . . . . Investment Objectives and
Policies; Investment
Limitations; Types of
Obligations and Other
Investment Information
V. Management of the Fund. . . . . . . . Management of Galaxy VIP;
Investment Objectives and
Policies; Investment Advisers;
Authority to Act as Investment
Adviser; Administrator;
Custodian; Expenses;
Performance and Yield
Information; Miscellaneous
VI. Capital Stock and Other
Securities. . . . . . . . . . . . . . Dividends and Distributions;
Taxes; Description of Galaxy
VIP and its Shares;
Miscellaneous
VII. Purchase of Securities
Being Offered . . . . . . . . . . . . Purchase and Redemption of
Shares; Distributor; Pricing
of Shares
VIII. Redemption or
Repurchase . . . . . . . . . . . . Purchase and Redemption of
Shares; Distributor
IX. Pending Legal
Proceedings. . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE>
THE GALAXY VIP FUND
4400 COMPUTER DRIVE
WESTBORO, MASSACHUSETTS 01581
PROSPECTUS
APRIL 30, 1998
The Galaxy VIP Fund ("GALAXY VIP") is an open-end, diversified series
investment company established exclusively for the purpose of providing an
investment vehicle for variable annuity contracts and variable life insurance
policies offered by the separate accounts of various life insurance companies
("Participating Insurance Companies"). Shares of GALAXY VIP are not offered to
the general public but solely to such separate accounts ("Separate Accounts").
Shares of GALAXY VIP may be sold to and held by Separate Accounts funding
variable annuity contracts and variable life insurance policies issued by both
affiliated and unaffiliated life insurance companies. As of the date of this
Prospectus, shares of GALAXY VIP are offered only to Separate Accounts funding
variable annuity contracts issued by American Skandia Life Assurance Corporation
and its affiliated life insurance companies. GALAXY VIP currently offers eight
investment portfolios (collectively, the "Funds") with investment objectives as
follows. There is, of course, no assurance that a Fund will achieve its stated
objective.
The investment objective of the MONEY MARKET FUND is to seek as high a level
of current income as is consistent with liquidity and stability of principal.
The Fund invests in "money market" instruments with remaining maturities of 397
days or less, such as domestic and foreign bank certificates of deposit,
bankers' acceptances, commercial paper and corporate bonds in addition to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
The investment objective of the EQUITY FUND is to seek long-term growth by
investing in companies that the Fund's investment adviser believes have
above-average earnings potential. Under normal market and economic conditions,
the Fund will invest at least 75% of its total assets in common stock, preferred
stock, common stock warrants and securities convertible into common stock of
such companies.
The investment objective of the GROWTH AND INCOME FUND is to seek a
relatively high total return through long-term capital appreciation and current
income. The Fund attempts to achieve this objective by investing primarily in
common stocks of companies believed to have prospects for above-average growth
and dividends or of companies where significant fundamental changes are taking
place. Under normal market and economic conditions, the Fund will invest at
least 65% of its total assets in common stock, preferred stock, common stock
warrants and securities convertible into common stock.
The investment objective of the SMALL COMPANY GROWTH FUND is to seek capital
appreciation. The Fund attempts to achieve this objective by investing primarily
in the securities of companies with market capitalizations of $750 million or
less that the Fund's investment adviser believes have the potential for
significant capital appreciation. Under normal market and economic conditions,
the Fund will invest at least 65% of its total assets in the equity securities
of companies with market capitalizations of $750 million or less.
The investment objective of the COLUMBIA REAL ESTATE EQUITY FUND II is to
seek, with equal emphasis, capital appreciation and above-average current income
by investing primarily in the equity securities of companies in the real estate
industry. With respect to current income, the Fund seeks to provide a yield that
exceeds the composite yield of the securities in the S&P 500. Under normal
market and economic conditions, the Fund will invest at least 65% of its total
assets in the equity securities of companies principally engaged in the real
estate industry, including real estate investment trusts ("REITs").
The investment objective of the ASSET ALLOCATION FUND is to seek a high
total return by providing both a current level of income that is greater than
that produced by the popular stock market averages as well as long-term growth
in the value of the Fund's assets. The Fund attempts to achieve this objective
and at the same time reduce volatility by allocating its assets in varying
amounts among short-term obligations, common stocks, preferred stocks and bonds.
The investment objective of the HIGH QUALITY BOND FUND is to seek a high
level of current income consistent with prudent risk of capital. Under normal
market and economic conditions, the Fund will invest at least 80% of its total
assets in high quality debt obligations that are rated at the time of purchase
within the three highest rating categories assigned by a nationally recognized
statistical rating organization (a "Rating Agency"), such as Standard & Poor's
Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") (or which,
if unrated, are of comparable quality), and in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and other "money
market" instruments.
The primary investment objective of the COLUMBIA HIGH YIELD FUND II is to
provide shareholders with a high level of current income by investing primarily
in lower-rated fixed income securities. Capital appreciation is a secondary
objective when consistent with the objective of high current income. In
attempting to achieve this objective, the Fund generally will invest at least
65% of its total assets in high yielding fixed income securities rated BB or
lower by S&P or Ba or lower by Moody's. Such lower-rated securities are commonly
referred to as "junk bonds." INVESTMENTS OF THIS TYPE ARE SUBJECT TO GREATER
RISK OF LOSS OF PRINCIPAL AND NONPAYMENT OF INTEREST THAN ARE HIGHER-RATED
INVESTMENTS. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING.
SEE "INVESTMENT OBJECTIVES AND POLICIES -- SPECIAL RISK CONSIDERATION" BELOW.
--------------------
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.
<PAGE>
The Money Market Fund, Equity Fund, Growth and Income Fund, Small Company
Growth Fund, Asset Allocation Fund and High Quality Bond Fund are advised by
Fleet Investment Advisors Inc. The Columbia Real Estate Equity Fund II and
Columbia High Yield Fund II are advised by Columbia Management Co., an affiliate
of Fleet Investment Advisors Inc. Each of the Funds is sponsored and distributed
by First Data Distributors, Inc., which is not affiliated with Fleet Investment
Advisors Inc., Columbia Management Co. or their parent, Fleet Financial Group,
Inc., and affiliates.
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.
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, FLEET FINANCIAL GROUP INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., COLUMBIA MANAGEMENT CO. OR ANY FLEET BANK. SHARES OF
THE FUNDS ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY.
INVESTMENT RETURN AND 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.
2
<PAGE>
TABLE OF CONTENTS
PAGE
----
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVES AND POLICIES.................................... 8
TYPES OF OBLIGATIONS AND OTHER INVESTMENT INFORMATION................. 18
INVESTMENT LIMITATIONS................................................ 30
PRICING OF SHARES..................................................... 32
PURCHASE AND REDEMPTION OF SHARES..................................... 33
DIVIDENDS AND DISTRIBUTIONS........................................... 34
TAXES................................................................. 34
MANAGEMENT OF GALAXY VIP.............................................. 35
DESCRIPTION OF GALAXY VIP AND ITS SHARES.............................. 37
CUSTODIAN............................................................. 38
EXPENSES.............................................................. 38
PERFORMANCE AND YIELD INFORMATION..................................... 38
MISCELLANEOUS......................................................... 39
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights have been audited by Coopers & Lybrand
L.L.P., GALAXY VIP's independent accountants, whose unqualified report on the
financial statements containing such information for each of the years or
periods in the five year period ended December 31, 1997 is contained in GALAXY
VIP's Annual Report to Shareholders dated December 31, 1997 (the "Annual
Report") and incorporated by reference into the Statement of Additional
Information. Such financial highlights should be read in conjunction with the
Funds' financial statements and notes thereto contained in the Annual Report and
incorporated by reference into 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. During the periods shown, the Growth and Income Fund,
Small Company Growth Fund, Columbia Real Estate Equity Fund II and Columbia High
Yield Fund II were not operational.
MONEY MARKET FUND
(Selected per share data for a Fund share outstanding throughout each of the
periods indicated)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993(1)
----------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------------- ------------- ------------- -------
Income from Investment Operations:
Net investment income(2).............. 0.05 0.05 0.05 0.04 0.03
Net realized and unrealized gain
(loss) on investments............... -- -- -- -- --
------- ------------- ------------- ------------- -------
Total from Investment Operations:... 0.05 0.05 0.05 0.04 0.03
------- ------------- ------------- ------------- -------
Less Dividends:
Dividends from net investment
income.............................. (0.05) (0.05) (0.05) (0.04) (0.03)
Dividends from net realized capital
gains............................... -- -- -- -- --
------- ------------- ------------- ------------- -------
Total Dividends:.................... (0.05) (0.05) (0.05) (0.04) (0.03)
------- ------------- ------------- ------------- -------
Net increase (decrease) in net asset
value................................. -- -- -- -- --
------- ------------- ------------- ------------- -------
Net Asset Value, End of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------------- ------------- ------------- -------
------- ------------- ------------- ------------- -------
Total Return............................ 4.99% 4.91% 5.38% 3.89% 2.74%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....... $15,330 $16,295 $17,925 $13,276 $10,864
Ratios to average net assets:
Net investment income including
reimbursement/waiver................ 4.88% 4.80% 5.25% 3.85% 3.00%(4)
Operating expenses including
reimbursement/waiver................ 0.67% 0.60% 0.63% 0.42% 0.13%(4)
Operating expenses excluding
reimbursement/waiver................ 1.12% 1.02% 1.11% 1.21% 2.00%(4)
</TABLE>
- ------------
(1) The Fund commenced operations on February 2, 1993.
(2) Net investment income per share before reimbursement/waiver of fees by the
investment adviser and/or administrator for the years ended December 31,
1997, 1996, 1995 and 1994 and for the period ended December 31, 1993 were
$0.05, $0.05, $0.05, $0.03 and $0.01, respectively.
(3) Not Annualized.
(4) Annualized.
4
<PAGE>
EQUITY FUND
(Selected per share data for a Fund share outstanding throughout each of the
periods indicated)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993(1)
---------------- ---------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 15.58 $ 12.99 $ 10.40 $ 10.25 $ 10.00
------- ------- ------- ------- -------------
Income from Investment Operations:
Net investment income(2).............. 0.21 0.19 0.18 0.20 0.16
Net realized and unrealized gain on
investments......................... 4.10 2.59 2.59 0.15 0.25
------- ------- ------- ------- -------------
Total from Investment
Operations:..................... 4.31 2.78 2.77 0.35 0.41
------- ------- ------- ------- -------------
Less Dividends:
Dividends from net investment
income.............................. (0.21) (0.19) (0.18) (0.20) (0.16)
Dividends from net realized capital
gains............................... -- -- -- -- --
------- ------- ------- ------- -------------
Total Dividends:.................. (0.21) (0.19) (0.18) (0.20) (0.16)
------- ------- ------- ------- -------------
Net increase in net asset value......... 4.10 2.59 2.59 0.15 0.25
------- ------- ------- ------- -------------
Net Asset Value, End of Period.......... $ 19.68 $ 15.58 $ 12.99 $ 10.40 $ 10.25
------- ------- ------- ------- -------------
------- ------- ------- ------- -------------
Total Return............................ 27.74% 21.49% 26.76% 3.47% 4.15%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....... $69,863 $46,242 $30,826 $19,391 $12,909
Ratios to average net assets:
Net investment income including
reimbursement/ waiver............... 1.20% 1.34% 1.55% 2.06% 2.23%(4)
Operating expenses including
reimbursement/ waiver............... 1.08% 1.10% 1.21% 0.71% 0.20%(4)
Operating expenses excluding
reimbursement/ waiver............... 1.08% 1.10% 1.24% 1.42% 2.60%(4)
Portfolio Turnover Rate................. 1% 8% 3% 2% 5%(3)
Average Commission Rate Paid(5)......... $0.0691 $0.0676 N/A N/A N/A
</TABLE>
- ------------
(1) The Fund commenced operations on January 11, 1993.
(2) Net investment income per share before reimbursement/waiver of fees by the
investment adviser and/or administrator for the years ended December 31,
1997, 1996, 1995 and 1994 and for the period ended December 31, 1993 were
$0.21, $0.19, $0.18, $0.13 and $(0.02), respectively.
(3) Not Annualized.
(4) Annualized.
(5) Required disclosure for fiscal years beginning on or after September 1,
1995.
5
<PAGE>
ASSET ALLOCATION FUND
(Selected per share data for a Fund share outstanding throughout each of the
periods indicated)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993(1)
---------------- ---------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 13.37 $ 12.38 $ 9.80 $ 10.33 $ 10.00
------- ------- ------- ------- -------------
Income from Investment Operations:
Net investment income(2).............. 0.40 0.30 0.28 0.31 0.18
Net realized and unrealized gain
(loss) on investments............... 2.11 1.53 2.58 (0.53) 0.35
------- ------- ------- ------- -------------
Total from Investment
Operations:..................... 2.51 1.83 2.86 (0.22) 0.53
------- ------- ------- ------- -------------
Less Dividends:
Dividends from net investment
income.............................. (0.40) (0.30) (0.28) (0.31) (0.18)
Dividends from net realized capital
gains............................... (0.94) (0.54) -- -- (0.02)
------- ------- ------- ------- -------------
Total Dividends:.................. (1.34) (0.84) (0.28) (0.31) (0.20)
------- ------- ------- ------- -------------
Net increase (decrease) in net asset
value................................. 1.17 0.99 2.58 (0.53) 0.33
------- ------- ------- ------- -------------
Net Asset Value, End of Period.......... $ 14.54 $ 13.37 $ 12.38 $ 9.80 $ 10.33
------- ------- ------- ------- -------------
------- ------- ------- ------- -------------
Total Return............................ 19.03% 14.64% 29.42% (2.15)% 5.33%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....... $42,535 $24,114 $17,246 $10,572 $11,800
Ratios to average net assets:
Net investment income including
reimbursement/ waiver............... 2.90% 2.31% 2.54% 3.02% 3.01%(4)
Operating expenses including
reimbursement/ waiver............... 1.19% 1.33% 1.37% 0.78% 0.26%(4)
Operating expenses excluding
reimbursement/ waiver............... 1.25% 1.33% 1.54% 1.68% 3.11%(4)
Portfolio Turnover Rate................. 74% 45% 46% 28% 10%(3)
Average Commission Rate Paid(5)......... $0.0664 $0.0693 N/A N/A N/A
</TABLE>
- ------------
(1) The Fund commenced operations on February 6, 1993.
(2) Net investment income per share before reimbursement/waiver of fees by the
investment adviser and/or administrator for the years ended December 31,
1997, 1996, 1995 and 1994 and for the period ended December 31, 1993 were
$0.39, $0.30, $0.26, $0.22 and $0.01, respectively.
(3) Not Annualized.
(4) Annualized.
(5) Required disclosure for fiscal years beginning on or after September 1,
1995.
6
<PAGE>
HIGH QUALITY BOND FUND
(Selected per share data for a Fund share outstanding throughout each of the
periods indicated)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993(1)
---------------- ---------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 9.99 $ 10.37 $ 8.97 $10.11 $10.00
------- ------- ------- ------ ------
Income from Investment Operations:
Net investment income(2).............. 0.58 0.58 0.57 0.56 0.47
Net realized and unrealized gain
(loss) on investments............... 0.32 (0.38) 1.40 (1.14) 0.12
------- ------- ------- ------ ------
Total from Investment Operations:... 0.90 0.20 1.97 (0.58) 0.59
------- ------- ------- ------ ------
Less Dividends:
Dividends from net investment
income.............................. (0.58) (0.58) (0.57) (0.56) (0.47)
Dividends from net realized capital
gains............................... -- -- -- -- (0.01)
------- ------- ------- ------ ------
Total Dividends:.................... (0.58) (0.58) (0.57) (0.56) (0.48)
------- ------- ------- ------ ------
Net increase (decrease) in net asset
value................................. 0.32 (0.38) 1.40 (1.14) 0.11
------- ------- ------- ------ ------
Net Asset Value, End of Period.......... $ 10.31 $ 9.99 $ 10.37 $ 8.97 $10.11
------- ------- ------- ------ ------
------- ------- ------- ------ ------
Total Return............................ 9.36% 1.57% 22.55% (5.85)% 6.04%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....... $14,457 $11,814 $11,067 $8,012 $9,802
Ratios to average net assets:
Net investment income including
reimbursement/ waiver............... 5.82% 5.78% 5.86% 5.90% 5.30%(4)
Operating expenses including
reimbursement/ waiver............... 0.77% 0.72% 0.80% 0.57% 0.22%(4)
Operating expenses excluding
reimbursement/ waiver............... 1.44% 1.38% 1.57% 1.63% 2.92%(4)
Portfolio Turnover Rate................. 160% 132% 21% 32% 7%(3)
</TABLE>
- ------------
(1) The Fund commenced operations on January 21, 1993.
(2) Net investment income per share before reimbursement/waiver of fees by the
investment adviser and/or administrator for the years ended December 31,
1997, 1996, 1995 and 1994 and for the period ended December 31, 1993 were
$0.51, $0.51, $0.50, $0.46 and $0.23, respectively.
(3) Not Annualized.
(4) Annualized.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
Fleet Investment Advisors Inc. ("Fleet"), the investment adviser for the
Money Market Fund, Equity Fund, Growth and Income Fund, Small Company Growth
Fund, Asset Allocation Fund and High Quality Bond Fund, and Columbia Management
Co. ("Columbia"), the investment adviser for the Columbia Real Estate Equity
Fund II and Columbia High Yield Fund II, will use their best efforts to achieve
the investment objectives of the respective Funds, although such achievement
cannot be assured. The investment objective of a Fund may not be changed without
the approval of the holders of a majority of its outstanding shares (as defined
under "Miscellaneous"). Except as noted below under "Investment Limitations," a
Fund's investment policies may be changed without shareholder approval.
INVESTMENT OBJECTIVE AND POLICIES OF THE MONEY MARKET FUND
The investment objective of the Money Market Fund is to seek as high a level
of current income as is consistent with liquidity and stability of principal.
The Fund seeks to achieve its objective by investing in "money market"
instruments that are determined by Fleet to present minimal credit risk and meet
certain rating criteria. Instruments that may be purchased by the Money Market
Fund include obligations of domestic and foreign banks (including negotiable
certificates of deposit, non-negotiable time deposits, savings deposits and
bankers' acceptances); commercial paper; corporate bonds; obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities; and
repurchase agreements issued by financial institutions such as banks and
broker/dealers. These instruments have remaining maturities of 397 days or less
(except for certain variable and floating rate notes and securities underlying
certain repurchase agreements). See "Types of Obligations and Other Investment
Information" below for information regarding additional investment policies of
the Money Market Fund.
In accordance with a rule promulgated by the Securities and Exchange
Commission ("SEC"), the Money Market Fund will purchase only those instruments
which meet the applicable quality requirements described below. In general, the
Money Market Fund will not purchase a security (other than a U.S. Government
security) unless the security (or, in certain cases, the guarantee) or the
issuer (or guarantee provider) with respect to comparable securities (i) is
rated by at least two Rating Agencies (such as S&P, Moody's or Fitch IBCA, Inc.
("Fitch IBCA")) in the highest category for short-term debt securities, (ii) is
rated by the only Rating Agency that has issued a rating with respect to such
security or issuer in such Rating Agency's highest category for short-term debt,
or (iii) if not rated, the security is determined to be of comparable quality.
These rating categories are determined without regard to sub-categories and
gradations. Fleet will follow applicable regulations in determining whether a
security rated by more than one Rating Agency can be treated as being in the
highest short-term rating category. See "Investment Limitations" below.
Determinations of comparable quality shall be made in accordance with
procedures established by the Board of Trustees. Generally, if a security has
not been rated by a Rating Agency, the Fund may acquire the security if Fleet
determines that the security is of comparable quality to securities that have
received the requisite ratings. Fleet also considers other relevant information
in its evaluation of unrated short-term securities. See Appendix A to the
Statement of Additional Information for a description of the rating categories
of S&P, Moody's, Fitch IBCA and certain other Rating Agencies.
The Fund will maintain a dollar-weighted average portfolio maturity of 90
days or less in an effort to maintain a stable net asset value per share of
$1.00. The value of the Fund's portfolio securities will generally vary
inversely with changes in prevailing interest rates.
8
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES OF THE EQUITY FUND
The investment objective of the Equity Fund is to seek long-term growth by
investing in companies that Fleet believes have above-average earnings
potential. The Fund seeks to achieve its investment objective by investing,
under normal market and economic conditions, at least 75% of its total assets in
a broadly diversified portfolio of equity securities such as common stock,
preferred stock, common stock warrants and securities convertible into common
stock of companies that Fleet believes will increase future earnings to a level
above the average earnings of similar issuers. Such companies often retain their
earnings to finance current and future growth and, for this reason, generally
pay little or no dividends. Equity securities in which the Fund invests are
selected based on analyses of trends in industries and companies, earning power,
growth features, quality and depth of management, marketing and manufacturing
skills, financial conditions and other investment criteria. By investing in
convertible securities, the Fund will seek the opportunity, through the
conversion feature, to participate in the capital appreciation of the common
stock into which the securities are convertible.
All debt obligations, including convertible bonds, purchased by the Fund
will be rated at the time of purchase in one of the four highest rating
categories assigned by S&P ("AAA," "AA," "A" and "BBB") or Moody's ("Aaa," "Aa,"
"A" and "Baa") or, if not rated, will be determined to be of an equivalent
quality by Fleet. Debt securities rated BBB by S&P or Baa by Moody's are
generally considered to be investment grade securities although they may have
speculative characteristics and changes in economic conditions or circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher grade debt obligations. See Appendix A to
the Statement of Additional Information for a description of S&P's and Moody's
rating categories.
The Equity Fund may invest up to 20% of its total assets indirectly in
foreign securities through the purchase of American Depository Receipts ("ADRs")
and European Depository Receipts ("EDRs") as described below under "Types of
Obligations and Other Investment Information -- American, European and Global
Depository Receipts." In addition, the Fund may invest in securities issued by
foreign branches of U.S. banks and foreign banks, Canadian commercial paper and
Canadian securities listed on a national securities exchange, and Europaper
(U.S. dollar-denominated commercial paper of foreign issuers). The Fund may also
write covered call options. See "Types of Obligations and Other Investment
Information -- Options and Futures Contracts" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Types of
Obligations and Other Investment Information -- Money Market Instruments" below)
and obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities at such times and in such proportions as, in the opinion of
Fleet, prevailing market or economic conditions warrant. See "Types of
Obligations and Other Investment Information" below for information regarding
additional investment policies of the Equity Fund.
INVESTMENT OBJECTIVE AND POLICIES OF THE GROWTH AND INCOME FUND
The investment objective of the Growth and Income Fund is to seek a
relatively high total return through long-term capital appreciation and current
income. The Fund attempts to achieve this objective by investing primarily in
common stocks of companies believed to have prospects for above-average growth
and dividends or of companies where significant fundamental changes are taking
place. Under normal market and economic conditions, the Fund will invest at
least 65% of its total assets in common stock, preferred stock, common stock
warrants and securities convertible into common stock.
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Stocks acquired by the Fund may include those of issuers with smaller
capitalizations. See "Investment Objective and Policies of the Small Company
Growth Fund" below for a description of the risks associated with investments in
small capitalization stocks. Investors should expect that the Fund will be more
volatile than, and may fluctuate independently of, broad stock market indexes
such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of bonds and
warrants or a combination of the features of several of these securities.
Convertible bonds purchased by the Fund will be rated BB or higher by S&P or
Fitch IBCA or Ba or higher by Moody's at the time of investment. See "Types of
Obligations and Other Investment Information -- Convertible Securities" below
for a discussion of the risks of investing in convertible bonds rated "BB" or
"Ba." The Fund may also buy and sell options and futures contracts and utilize
stock index futures contracts, options, swap agreements, indexed securities and
options on futures contracts. See "Types of Obligations and Other Investment
Information -- Options and Futures Contracts" and "Types of Obligations and
Other Investment Information -- Derivative Securities" below.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs, EDRs and Global Depository Receipts
("GDRs"). See "Special Risk Considerations -- Foreign Securities" and "Types of
Obligations and Other Investment Information -- American, European and Global
Depository Receipts" below.
As a temporary defensive measure, in such proportions as, in the judgment of
Fleet, prevailing market conditions warrant, the Fund may invest in: (i)
short-term "money market" instruments (such as those listed below under "Types
of Obligations and Other Investment Information -- Money Market Instruments")
rated in one of the top two rating categories by a Rating Agency, such as S&P,
Moody's or Fitch IBCA; (ii) securities issued and/or guaranteed as to payment of
principal and interest by the U.S. Government, its agencies, or
instrumentalities; and (iii) repurchase agreements. Additional information about
the types of money market instruments and U.S. Government obligations in which
the Fund is permitted to invest is contained in the Statement of Additional
Information. See Appendix A to the Statement of Additional Information for a
description of the rating categories of S&P, Moody's, Fitch IBCA and certain
other Rating Agencies. See "Types of Obligations and Other Investment
Information" below for information regarding additional investment policies of
the Growth and Income Fund.
INVESTMENT OBJECTIVE AND POLICIES OF THE SMALL COMPANY GROWTH FUND
The investment objective of the Small Company Growth Fund is to seek capital
appreciation. The Fund attempts to achieve this objective by investing primarily
in the securities of companies with market capitalizations of $750 million or
less ("Small Capitalization Securities") which Fleet believes have the potential
for significant capital appreciation.
Small Capitalization Securities in which the Fund may invest include common
stock, preferred stock, securities convertible into common stock, rights and
warrants. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in the equity securities of companies with
market capitalizations of $750 million or less. For temporary defensive
purposes, the Fund may also invest in corporate debt obligations. All debt
obligations purchased by the Fund will be rated at the time of purchase in one
of the four highest rating categories assigned by S&P ("AAA," "AA," "A" and
"BBB") or Moody's ("Aaa," "Aa," "A" and "Baa") or, if not rated, will be
determined to be of an equivalent quality by Fleet. See "Investment Objective
and Policy of the Equity Fund" above for a description of the risks associated
with investments in securities rated BBB
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by S&P or Baa by Moody's. See Appendix A to the Statement of Additional
Information for a description of S&P's and Moody's rating categories.
The issuers of Small Capitalization Securities tend to be companies which
are smaller or newer than those listed on the New York or American Stock
Exchanges. As a result, Small Capitalization Securities are primarily traded on
the over-the-counter market, although they may also be listed for trading on the
New York or American Stock Exchanges. Because the issuers of Small
Capitalization Securities tend to be smaller or less well-established companies,
they may have limited product lines, markets or financial resources. As a
result, Small Capitalization Securities are often less marketable and may
experience a higher level of price volatility than the securities of larger or
more well-established companies.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs, EDRs and GDRs. See "Special Risk
Considerations -- Foreign Securities" and "Types of Obligations and Other
Investment Information -- American, European and Global Depository Receipts"
below.
The Fund may also buy and sell options and futures contracts and utilize
stock index futures contracts, options, swap agreements, indexed securities and
options on futures contracts. See "Types of Obligations and Other Investment
Information -- Options and Futures Contracts" and "Types of Obligations and
Other Investment Information -- Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Types of
Obligations and Other Investment Information -- Money Market Instruments" below)
and U.S. Government obligations at such times and in such proportions as, in the
opinion of Fleet, prevailing market or economic conditions warrant. See "Types
of Obligations and Other Investment Information" below for information regarding
additional investment policies of the Small Company Growth Fund.
INVESTMENT OBJECTIVE AND POLICIES OF THE COLUMBIA REAL ESTATE EQUITY FUND II
The investment objective of the Columbia Real Estate Equity Fund II is to
seek, with equal emphasis, capital appreciation and above-average current income
by investing primarily in the equity securities of companies in the real estate
industry. With respect to current income, the Fund seeks to provide a yield that
exceeds the composite yield of the securities in the S&P 500.
Under normal market and economic conditions, the Fund will invest at least
65% of its total assets in the equity securities of companies principally
engaged in the real estate industry. A company is "principally engaged" in the
real estate industry if at least 50% of its gross income or net profits are
attributable to the ownership, construction, management, or sale of residential,
commercial, or industrial real estate. Equity securities include common stock,
preferred stock and debt or equity securities that are convertible into common
stock. The Fund may invest without limit in real estate investment trusts
("REITs") and may invest up to 20% of its total assets in foreign companies that
are principally engaged in the real estate industry. The Fund will not invest
directly in real estate but may be subject to risks similar to those associated
with the direct ownership of real estate because of its policy of concentration
in the securities of companies in the real estate industry. See "Special Risk
Considerations -- Real Estate Securities," "Special Risk Considerations --
Foreign Securities" and "Types of Obligations and Other Investment Information
- -- REITs" below.
The Fund may also invest up to 35% of its total assets in the equity
securities of companies that are not principally engaged in the real estate
industry and in non-convertible debt securities. Columbia anticipates that
investments in companies not principally engaged in the real estate
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industry will be primarily in securities of companies some of whose products and
services are related to the real estate industry. They may include manufacturers
and distributors of building supplies, financial institutions that make or
service mortgages, or companies with substantial real estate assets relative to
their stock market valuations, such as certain retailers and railroads.
The types of non-convertible debt securities in which the Fund may invest
include corporate debt securities (bonds, debentures and notes), asset-backed
securities, bank obligations, collateralized bonds, loan and mortgage
obligations, commercial paper, repurchase agreements, savings and loan
obligations and U.S. Government and agency obligations. The Fund will only
invest in debt securities which are rated at the time of purchase in one of the
four highest rating categories assigned by S&P ("AAA," "AA," "A" and "BBB") or
Moody's ("Aaa," "Aa," "A" and "Baa") or, if not rated, are determined to be of
an equivalent quality by Columbia. See "Investment Objective and Policies of the
Equity Fund" above for a description of the risks associated with investments in
debt securities rated BBB by S&P or Baa by Moody's. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
As a temporary defensive measure, the Fund may invest without limitation in
cash, prime commercial paper, high grade debt securities, securities of the U.S.
Government, its agencies and instrumentalities, high quality "money market"
instruments (such as those listed under "Types of Obligations and Other
Investment Information -- Money Market Instruments" below) and repurchase
agreements at such times and in such proportions as, in the opinion of Columbia,
prevailing market or economic conditions warrant. See "Types of Obligations and
Other Investment Information" below for information regarding additional
investment policies of the Columbia Real Estate Equity Fund II.
INVESTMENT OBJECTIVE AND POLICIES OF THE ASSET ALLOCATION FUND
The investment objective of the Asset Allocation Fund is to seek a high
total return by providing both a current level of income that is greater than
that provided by the popular stock market averages as well as long-term growth
in the value of the Fund's assets. Fleet interprets the objective to refer to
the Dow Jones Industrial Averages (of 30 companies listed on the New York Stock
Exchange) and the S&P 500. Due to the Fund's expenses, net income distributed to
shareholders may be less than that of these averages.
The Fund seeks to achieve its investment objective and at the same time
reduce volatility by allocating its assets among short-term obligations, common
stock, preferred stock and bonds. The proportion of the Fund's assets invested
in each type of security will vary from time to time as a result of Fleet's
interpretation of economic and market conditions. However, at least 25% of the
Fund's total assets will at all times be invested in fixed income senior
securities, including debt securities and preferred stock. In selecting common
stock for purchase by the Fund, Fleet will analyze the potential for changes in
earnings and dividends for a foreseeable period. Debt securities purchased by
the Fund will be rated at the time of purchase in one of the four highest rating
categories assigned by S&P ("AAA," "AA," "A" and "BBB") or Moody's ("Aaa," "Aa,"
"A" and "Baa") (or which, if unrated, are determined by Fleet to be of
comparable quality). See "Investment Objective and Policies of the Equity Fund"
above for a description of the risks associated with investments in debt
securities rated BBB by S&P or Baa by Moody's. See Appendix A to the Statement
of Additional Information for a description of S&P's and Moody's rating
categories.
The Fund may also invest up to 20% of its total assets in foreign
securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks, or governments
or their political subdivisions or instrumentalities, or by supranational banks
or other organizations, or indirectly by purchasing ADRs and EDRs. Supranational
entities
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include international organizations designated or supported by governmental
entities to promote economic reconstruction and development and international
banking institutions and related governmental agencies. Examples of these
include the International Bank for Reconstruction and Development ("World
Bank"), the Asia Development Bank and the InterAmerican Development Bank.
Obligations of supranational banks may be supported by appropriated but unpaid
commitments of their member countries and there is no assurance that those
commitments will be undertaken or met in the future. See "Special Risk
Considerations -- Foreign Securities" and "Types of Obligations and Other
Investment Information -- American, European and Global Depository Receipts"
below. The Fund may also invest in dollar-denominated high quality debt
obligations of U.S. corporations issued outside the United States. The Fund may
write covered call options, purchase asset-backed securities and mortgage-backed
securities and enter into foreign currency exchange transactions. See "Types of
Obligations and Other Investment Information -- Options and Futures Contracts",
"Types of Obligations and Other Investment Information -- Asset-Backed
Securities," "Types of Obligations and Other Investment Information --
Mortgage-Backed Securities" and "Types of Obligations and Other Investment
Information -- Foreign Currency Exchange Transactions" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Types of
Obligations and Other Investment Information -- Money Market Instruments" below)
and obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities at such times and in such proportions as, in the opinion of
Fleet, prevailing market and economic conditions warrant. See "Types of
Obligations and Other Investment Information" below for information regarding
additional investment policies of the Asset Allocation Fund.
INVESTMENT OBJECTIVE AND POLICIES OF THE HIGH QUALITY BOND FUND
The investment objective of the High Quality Bond Fund is to seek a high
level of current income consistent with prudent risk of capital. The Fund
invests its assets in corporate debt obligations such as bonds and debentures,
obligations convertible into common stock, "money market" instruments such as
bank obligations and commercial paper, in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, and in asset-backed and
mortgage-backed securities.
Under normal market and economic conditions, the Fund will invest at least
80% of its assets in high quality debt obligations that are rated, at the time
of purchase, within the three highest rating categories assigned by S&P ("AAA,"
"AA" and "A") or Moody's ("Aaa," "Aa" and "A") (or which, if unrated, are
determined by Fleet to be of comparable quality) and in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and other
"money market" instruments such as those listed below under "Types of
Obligations and Other Investment Information -- Money Market Instruments."
Unrated securities will be determined to be of comparable quality to high
quality debt obligations if, among other things, other outstanding obligations
of the issuers of such securities are rated A or better. When, in Fleet's
opinion, a defensive investment posture is warranted, the Fund may invest
temporarily and without limitation in high quality, short-term "money market"
instruments. See Appendix A to the Statement of Additional Information for a
description of S&P's and Moody's rating categories.
The Fund may also invest, from time to time, in obligations issued by state
and local governmental issuers ("municipal securities"). The purchase of
municipal securities may be advantageous when, as a result of prevailing
economic, regulatory or other circumstances, the performance of such securities,
on a pretax basis, is comparable to that of corporate or U.S. debt obligations.
See "Types of Obligations and Other Investment Information -- Municipal
Securities" below. The High Quality Bond Fund may enter into interest rate
futures contracts to hedge against changes in market values
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<PAGE>
of fixed income instruments that the Fund holds or intends to purchase. See
"Types of Obligations and Other Investment Information -- Options and Futures
Contracts" below. At least 65% of the Fund's total assets will be invested in
non-convertible bonds. Any common stock received through the conversion of
convertible debt obligations will be sold in an orderly manner as soon as
possible.
In addition, the Fund may acquire high quality obligations issued by
Canadian Provincial Governments, which are similar to U.S. municipal securities
except that the income derived therefrom is fully subject to U.S. federal
taxation. These instruments are denominated in U.S. dollars and have an
established over-the-counter market in the United States. The Fund may also
invest in debt obligations of supranational entities. See "Investment Objective
and Policies of the Asset Allocation Fund" above. The Fund may also invest in
dollar-denominated high quality debt obligations of U.S. corporations issued
outside the United States.
The Fund seeks to provide a current yield greater than that generally
available from a portfolio of high quality short-term obligations. The Fund's
average weighted maturity will vary from time to time depending on, among other
things, current market and economic conditions and the comparative yields on
instruments with different maturities. The Fund adjusts its average weighted
maturity and its holdings of corporate and U.S. Government debt securities in a
manner consistent with Fleet's assessment of prospective changes in interest
rates. The success of this strategy depends upon Fleet's ability to predict
changes in interest rates.
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. The high quality credit criteria
applied to the selection of portfolio securities are intended to reduce adverse
price changes due to credit considerations. See "Types of Obligations and Other
Investment Information" below for information regarding additional investment
policies of the High Quality Bond Fund.
INVESTMENT OBJECTIVE AND POLICIES OF THE COLUMBIA HIGH YIELD FUND II
The primary investment objective of the Columbia High Yield Fund II is to
seek to provide shareholders with a high level of current income by investing
primarily in lower-rated fixed income securities. Capital appreciation is a
secondary objective when consistent with the objective of high current income.
The Fund may invest in a broad range of fixed income securities, consisting of
corporate debt securities (bonds, debentures and notes), asset-backed
securities, bank obligations, collateralized bonds, loan and mortgage
obligations, commercial paper, preferred stock, repurchase agreements, savings
and loan obligations, and U.S. Government and agency obligations.
In attempting to achieve its investment objective, the Fund generally will
invest at least 65% of its total assets in high yielding fixed income securities
rated BB or lower by S&P or Ba or lower by Moody's. The Fund intends to invest
primarily in "upper tier" non-investment grade securities (that is, securities
rated BB/Ba or B) and no more than 10% of the Fund's total assets will be
invested in fixed income securities rated CCC or lower by S&P or Caa or lower by
Moody's. The Fund may also invest in unrated fixed income securities when
Columbia believes the security is of comparable quality to that of securities
eligible for purchase by the Fund. Securities rated BB or less by S&P or Ba or
less by Moody's are considered to be non-investment grade. These types of bonds
are commonly referred to as "junk bonds." They are subject to a high degree of
risk and are considered speculative by the major Rating Agencies with respect to
the issuer's ability to meet principal and interest payments. The Fund is
designed for investors who are willing to assume substantial risks of
significant fluctuations in principal value in order to achieve a high level of
current income. The Fund should represent only a portion of a balanced
investment program. See "Special Risk Considerations -- Lower-Rated Securities"
for a description of the risks of investing in lower-rated securities.
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See Appendix A to the Statement of Additional Information for a description of
S&P's and Moody's rating categories.
There are no limitations on the average maturity of the Fund's portfolio.
Securities will be selected on the basis of Columbia's assessment of interest
rate trends and the liquidity of various instruments under prevailing market
conditions. Shifting the average maturity of the Fund's portfolio in response to
anticipated changes in interest rates generally will be carried out through the
sale of securities and the purchase of different securities within the desired
maturity range. This may result in greater realized gains and losses than if the
Fund held all securities to maturity.
The Fund may invest in corporate debt securities or preferred stocks that
are convertible into or exchangeable for common stock. The Fund may acquire
common stock in the following circumstances: (i) in connection with the purchase
of a unit of securities that includes both fixed income securities and common
stock; (ii) when fixed income securities held by the Fund are converted by the
issuer into common stock; (iii) upon the exercise of warrants attached to fixed
income securities held by the Fund; and (iv) when purchased as part of a
corporate transaction in which the holders of common stock will receive newly
issued fixed income securities. Common stock acquired by the Fund in these
circumstances may be held to permit orderly disposition or to establish
long-term holding periods for federal income tax purposes.
The Fund may invest up to 20% of its total assets in fixed income securities
of foreign issuers, including foreign governments, denominated in U.S. dollars.
Special tax considerations are associated with investing in lower-rated debt
securities structured as zero coupon or pay-in-kind securities. A zero coupon
security has no cash coupon payments. Instead, the issuer sells the security at
a substantial discount from its maturity value. The interest equivalent received
by the investor from holding this security to maturity is the difference between
the maturity value and the purchase price. Pay-in-kind securities are securities
that pay interest in either cash or additional securities, at the issuer's
option, for a specified period. The price of pay-in-kind securities is expected
to reflect the market value of the underlying debt plus an amount representing
accrued interest since the last payment. Zero coupon and pay-in-kind securities
are more volatile than cash pay securities. The Fund accrues income on these
securities prior to the receipt of cash payments. The Fund intends to distribute
substantially all of its income to its shareholders to qualify for pass-through
treatment under the tax laws and may, therefore, need to use its cash reserves
to satisfy distribution requirements.
The Fund generally will not trade in securities for short-term profits but,
when circumstances warrant, it may purchase and sell securities without regard
to the length of time held. A high portfolio turnover may increase transaction
costs and may affect taxes paid by shareholders to the extent short-term or
mid-term gains are distributed.
As a temporary defensive measure, the Fund may invest without limitation in
cash, prime commercial paper, high grade debt securities, securities of the U.S.
Government, its agencies and instrumentalities, high quality "money market"
instruments (such as those listed under "Types of Obligations and Other
Investment Information-- Money Market Instruments" below) and repurchase
agreements at such times and in such proportions as, in the opinion of Columbia,
prevailing market or economic conditions warrant. See "Types of Obligations and
Other Investment Information" below for information regarding additional
investment policies of the Columbia High Yield Fund II.
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SPECIAL RISK CONSIDERATIONS
MARKET RISK
The Equity Fund, Growth and Income Fund, Small Company Growth Fund and
Columbia Real Estate Equity Fund II invest primarily, and the Asset Allocation
Fund invests to a significant degree, in equity securities. As with other mutual
funds that invest primarily or to a significant degree in equity securities, the
Funds are subject to market risk. That is, the possibility exists that common
stocks will decline over short or even extended periods of time and both the
U.S. and certain foreign equity markets tend to be cyclical, experiencing both
periods when stock prices generally increase and periods when stock prices
generally decrease. As of the date of this Prospectus, U.S. equity markets were
trading at or close to record high levels and there can be no guarantee that
such levels will continue.
INTEREST RATE RISK
To the extent that the Funds invest in fixed income securities, including
municipal securities, their holdings of such securities are sensitive to changes
in interest rates and the interest rate environment. Generally, the prices of
bonds and debt securities fluctuate inversely with interest rate changes.
CREDIT RISK
Credit risk refers to the ability of a bond issuer to meet interest and
principal payments when due. Generally, lower-rated (but higher yielding) bonds,
such as those acquired by the Columbia High Yield Fund II, are subject to
greater credit risk than higher quality (but lower yielding) bonds, such as
those acquired by the High Quality Bond Fund. See "Lower-Rated Securities"
below. The ratings of fixed income securities by S&P, Moody's and other Rating
Agencies are a generally accepted barometer of credit risk. See Appendix A to
the Statement of Additional Information for a description of the rating
categories of S&P, Moody's and certain other Rating Agencies.
FOREIGN SECURITIES
Investments in foreign securities involve higher costs for the Growth and
Income Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund II,
Asset Allocation Fund and Columbia High Yield Fund II than investments in U.S.
securities, including higher transaction costs as well as the imposition in some
cases of additional taxes by foreign governments. For example, fixed commissions
on foreign stock exchanges are generally higher than the negotiated commissions
on U.S. exchanges and the Funds may be subject in some cases to withholding
and/or transfer taxes. In addition, foreign investments may include additional
risks associated with currency exchange rates, less complete financial
information about the issuers, less market liquidity, and political instability.
Future political and economic developments, the possible seizure or
nationalization of foreign holdings, the possible establishment of exchange
controls, or the adoption of other governmental restrictions, might adversely
affect the payment of dividends or principal and interest on foreign
obligations.
Although the Growth and Income Fund, Small Company Growth Fund, Columbia
Real Estate Equity Fund II and Asset Allocation Fund may invest in securities
denominated in foreign currencies, the Funds value their securities and other
assets in U.S. dollars. As a result, the net asset value of the Funds' shares
may fluctuate with U.S. dollar exchange rates as well as with price changes of
the
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Funds' securities in the various local markets and currencies. Thus, an increase
in the value of the U.S. dollar compared to the currencies in which the Funds
make their investments could reduce the effect of increases and magnify the
effect of decreases in the price of the Funds' securities in their local
markets. Conversely, a decrease in the value of the U.S. dollar will have the
opposite effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Funds' securities in their local markets. In
addition to favorable and unfavorable currency exchange-rate developments, the
Funds are subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
REAL ESTATE SECURITIES
Although the Columbia Real Estate Equity Fund II will not invest in real
estate directly, it may be subject to risks similar to those associated with the
direct ownership of real estate because of its policy of concentration in the
securities of companies in the real estate industry. These risks include
declines in the value of real estate, risks related to general, local, and
regional economic conditions, dependence on management skills and heavy cash
flow, possible lack of availability of mortgage funds, overbuilding, extended
vacancies of properties, increased competition, increases in property taxes and
operating expenses, changes in zoning laws, losses due to costs resulting from
the clean-up of environmental problems, liability to third parties for damages
resulting from environmental problems, casualty or condemnation losses, natural
disasters, limitations on rents, changes in neighborhood values and the appeal
of properties to tenants, and changes in interest rates. These risks may be more
significant to the extent the Fund's investments are concentrated in a
particular geographic region.
In addition to these risks, equity REITs may be affected by changes in the
value of the underlying property owned by the REIT, while mortgage REITs may be
affected by the quality of any credit extended. Further, REITs are dependent
upon management skills, may not be diversified, and are subject to heavy cash
flow dependency, defaults by borrowers, and self-liquidation. In addition, a
REIT could fail to qualify for pass-through of income under the Internal Revenue
Code of 1986, as amended, (the "Code"), or fail to maintain its exemption from
registration under the Investment Company Act of 1940, as amended, (the "1940
Act"). The above factors may also adversely affect a borrower's or a lessee's
ability to meet its obligations to the REIT. If a borrower or lessee defaults, a
REIT may experience delays in enforcing its rights as a mortgagee or lessor and
may incur substantial costs associated with protecting its investments.
LOWER-RATED SECURITIES
The lower-rated but higher yielding bonds purchased by the Columbia High
Yield Fund II may be issued in connection with corporate restructurings, such as
leveraged buyouts, mergers, acquisitions, debt recapitalizations, or similar
events. In addition, high yield bonds are often issued by smaller, less
creditworthy companies or by companies with substantial debt. The securities
ratings assigned by S&P, Moody's and other Rating Agencies are based largely on
the issuer's historical financial condition and the Rating Agency's investment
analysis at the time of the rating. As a result, the rating assigned to a
security does not necessarily reflect the issuer's current financial condition,
which may be better or worse than the rating indicates. Credit ratings are only
one factor Columbia relies on in evaluating lower-rated fixed income securities.
The analysis by Columbia of a lower-rated security may also include
consideration of the issuer's experience and managerial strength, changing
financial condition, borrowing requirements or debt maturity schedules,
regulatory concerns, and responsiveness to changes in business conditions and
interest rates. Columbia also may consider relative values based on anticipated
cash flow, interest or dividend coverage, balance sheet analysis, and earnings
prospects. Because of the number of investment considerations involved in
investing in
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lower-rated securities, achievement of the Fund's investment objective may be
more dependent upon Columbia's credit analysis than is the case with investing
in higher quality debt securities.
The recent growth in the market for lower-rated debt securities has
paralleled a long economic expansion. Past experience, therefore, may not
provide an accurate indication of future performance of this market,
particularly during a significant economic recession. An economic downturn or
increase in interest rates is likely to have a greater negative effect on the
ability of the issuers of the Fund's securities to pay principal and interest,
meet projected business goals, and obtain additional financing. These
circumstances also may result in a higher incidence of defaults compared to
higher-rated securities. As a result, adverse changes in economic conditions and
increases in interest rates may adversely affect the market for lower-rated debt
securities, the value of such securities in the Fund's portfolio, and,
therefore, the Fund's net asset value. As a result, investment in the Fund is
more speculative than investment in a fund that invests primarily in
higher-rated debt securities.
Although the Fund intends generally to purchase lower-rated securities that
have secondary markets, these markets may be less liquid and less active than
markets for higher-rated securities. These factors may limit the ability of the
Fund to sell lower-rated securities at their expected value. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of lower-rated debt securities, especially in
a thinly traded market.
TYPES OF OBLIGATIONS AND OTHER INVESTMENT INFORMATION
The investment methods and techniques described in this Prospectus are among
those which one or more of the Funds have the ability to utilize. Some may be
employed on a regular basis; others may not be used at all. Accordingly,
reference to any particular method or technique carries no implication that it
will be utilized or, if it is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS
Each Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities to the extent described above
under "Investment Objectives and Policies." Such obligations include U.S.
Treasury securities, which differ only in their interest rates, maturities and
times of issuance: Treasury bills have initial maturities of one year or less;
Treasury notes have initial maturities of one to ten years; and Treasury bonds
generally have initial maturities of more than ten years. Obligations of certain
agencies and instrumentalities of the U.S. Government, such as the Government
National Mortgage Association ("GNMA"), are supported by the full faith and
credit of the U.S. Treasury; others, such as those of Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the Treasury; others,
such as those of the Federal National Mortgage Association ("FNMA"), are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Home Loan
Mortgage Corporation, 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 corporate
obligations, including commercial paper and corporate bonds with remaining
maturities of 397 days or less.
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
("FDIC"), or by a savings and loan association or savings bank that is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments in non-negotiable time
deposits are limited to no more than 5% of the Money Market Fund's total assets
at the time of purchase.
Domestic and foreign banks are subject to extensive but different government
regulations which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional investment risks,
including future political and economic developments, possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and U.S. branches of foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and recordkeeping standards than those applicable to
domestic branches of U.S. banks. Investments in the obligations of U.S. branches
of foreign banks or foreign branches of U.S. banks will be made only when Fleet
or Columbia, as the case may be, believes that the credit risk with respect to
the instrument is minimal.
Commercial paper may include securities issued by corporations without
registration under the Securities Act of 1933, as amended, (the "1933 Act") in
reliance on the so-called "private placement" exemption in Section 4(2)
("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under
the federal securities laws in that any resale must similarly be made in an
exempt transaction. Section 4(2) Paper is normally resold to other institutional
investors through or with the assistance of investment dealers which make a
market in Section 4(2) Paper, thus providing liquidity. For purposes of each
Fund's limitation on purchases of illiquid instruments described under
"Investment Limitations" below, Section 4(2) Paper will not be considered
illiquid if Fleet or Columbia, as the case may be, has determined, in accordance
with the guidelines approved by Galaxy VIP's Board of Trustees, that an adequate
trading market exists for such securities. The Funds may also purchase Rule 144A
securities. See "Investment Limitations" below for a discussion of possible
consequences to the Funds as a result of investing in Rule 144A securities.
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of municipal securities which may be held
by the High Quality Bond Fund are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
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
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are in most cases revenue securities and are not payable from the unrestricted
revenues of the issuer. Consequently, the credit quality of such private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
The High Quality Bond Fund's portfolio may also include "moral obligation"
securities, which are normally issued by special purpose public authorities. If
the issuer of moral obligation securities is unable to meet its debt service
obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer. The failure by a state or
municipality to restore such a reserve fund could adversely affect the ability
of an issuer of moral obligation securities to meet its payment obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS
Securities purchased by the Funds may include variable and floating rate
instruments. 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. Variable or floating rate instruments issued or
guaranteed by the U.S. Government or its agencies or instrumentalities are
similar in form but may have a more active secondary market. Substantial
holdings of variable and floating rate instruments could reduce portfolio
liquidity.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet or Columbia, as the case may be, under guidelines approved
by GALAXY VIP's Board of Trustees. No Fund will enter into repurchase agreements
with Fleet, Columbia or any of their affiliates. Securities subject to
repurchase agreements may bear maturities exceeding thirteen months. Unless a
repurchase agreement has a remaining maturity of seven days or less or may be
terminated on demand by notice of seven days or less, the repurchase agreement
will be considered an illiquid security and will be subject to each Fund's 10%
limit (15% with respect to the Growth and Income Fund, Small Company Growth
Fund, Columbia Real Estate Equity Fund II and Columbia High Yield Fund II) on
such investments described under "Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve
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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 or Columbia, as the case may be, to be of good
standing and only when, in Fleet's or Columbia's judgment, the income to be
earned from the loan justifies the attendant risks. The Funds currently intend
to limit the lending of their portfolio securities so that, at any given time,
securities loaned by a Fund represent not more than one-third of the value of
its total assets.
INVESTMENT COMPANY SECURITIES
Each Fund except the Money Market Fund may invest in securities issued by
other investment companies which invest in high quality, short-term debt
securities and which determine their net asset value per share based on the
amortized cost or penny-rounding method. Investments in other investment
companies will cause a Fund (and, indirectly, the Fund's shareholders) to bear
proportionately the costs incurred in connection with the investment companies'
operations. Securities of other investment companies will be acquired by a Fund
within the limits prescribed by the 1940 Act. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of other investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund; and (d) not more than 10% of the outstanding voting stock of any one
closed-end investment company will be owned in the aggregate by the Funds or any
other investment companies advised by Fleet or Columbia. Any change by the Funds
in the future with respect to their policies concerning investments in
securities issued by other investment companies will be made only in accordance
with the requirements of the 1940 Act.
REITS
The Columbia Real Estate Equity Fund II may invest without limit in REITs.
The Equity Fund, Growth and Income Fund, Small Company Growth Fund and Asset
Allocation Fund may invest up to 10% of their respective net assets in REITs.
REITs pool investors' funds for investment primarily in income-producing real
estate or real-estate related loans or interests. A REIT is not taxed on income
distributed to shareholders if it complies with several requirements relating to
its organization, ownership, assets and income, and a requirement that it
distribute to its shareholders at least 95% of its taxable income (other than
net capital gains) for each taxable year.
REITs can generally be classified as equity REITs, mortgage REITs and hybrid
REITs. Equity REITs invest the majority of their assets directly in real
property and derive their income primarily from rental and lease payments.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs make loans to commercial real estate
developers and derive their income primarily from interest payments on such
loans. Hybrid REITs combine the characteristics of both equity and mortgage
REITs. REITs may be subject to certain risks associated
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with the direct ownership of real estate, including declines in the value of
real estate, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of the REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for pass-through of income under the Code and to maintain
exemption from the 1940 Act. See "Investment Objectives and Policies -- Special
Risk Considerations -- Real Estate Securities" above.
REITs pay dividends to their shareholders based upon available funds from
operations. It is quite common for these dividends to exceed a REIT's taxable
earnings and profits resulting in the excess portion of such dividends being
designated as a return of capital. Each Fund intends to include the gross
dividends from such REITs in its periodic distributions to its shareholders and,
accordingly, a portion of the Fund's distributions may also be designated as a
return of capital.
GUARANTEED INVESTMENT CONTRACTS
The Money Market Fund and High Quality Bond Fund may invest in guaranteed
investment contracts ("GICs") issued or guaranteed by United States insurance
companies. The High Quality Bond Fund may also enter into GICs issued or
guaranteed by Canadian insurance companies. Pursuant to such contracts, the Fund
makes cash contributions to a deposit fund of the insurance company's general
account. The insurance company then credits to the Fund payments at negotiated,
floating or fixed interest rates. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a GIC
becomes part of the general assets of the insurance company, and the contract is
paid from the company's general assets. The Money Market Fund will only purchase
GICs that are issued or guaranteed by insurance companies that at the time of
purchase are rated in accordance with the Fund's quality requirements as
described above under "Investment Objectives and Policies -- Investment
Objectives and Policies of the Money Market Fund." The High Quality Bond Fund
will only purchase GICs that are issued or guaranteed by insurance companies
that at the time of purchase are rated at least AA by S&P or receive a similar
high rating from a nationally recognized service which provides ratings of
insurance companies. The Funds will not purchase GICs from Participating
Insurance Companies or their affiliated life insurance companies. GICs are
considered illiquid securities and will be subject to the Funds' 10% limitation
on illiquid investments, unless there is an active and substantial secondary
market for the particular instrument and market quotations are readily
available.
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.
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ASSET-BACKED SECURITIES
The Money Market Fund, Columbia Real Estate Equity Fund II, Asset Allocation
Fund, High Quality Bond Fund and Columbia High Yield Fund II may purchase
asset-backed securities, which represent a participation in, or are secured by
and payable from, a stream of payments generated by particular assets, most
often a pool of assets similar to one another. Assets generating such payments
will consist of such instruments as motor vehicle installment purchase
obligations, credit card receivables, home equity loans, manufactured housing
loans, and other securitized assets. Payment of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit issued by a financial institution unaffiliated with entities issuing the
securities. The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. The rate
of such prepayments, and hence the life of the asset-backed security, will be
primarily a function of current market rates, although other economic and
demographic factors will be involved. The Money Market Fund will invest not more
than 10% of its total assets in asset-backed securities and will only purchase
asset-backed securities that meet the Fund's applicable quality requirements as
described above under "Investment Objectives and Policies -- Investment
Objective and Policies of the Money Market Fund." See "Mortgage-Backed and
Asset-Backed Securities" in the Statement of Additional Information.
MORTGAGE-BACKED SECURITIES
The Asset Allocation Fund, High Quality Bond Fund and Columbia High Yield
Fund II may invest in mortgage-backed securities (including collateralized
mortgage obligations) that represent pools of mortgage loans assembled for sale
to investors by various governmental agencies and government-related
organizations, such as the GNMA, the FNMA, and the Federal Home Loan Mortgage
Corporation. Mortgage-backed securities provide a monthly payment consisting of
interest and principal payments. Additional payment may be made out of
unscheduled repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs that may
be incurred. Prepayments of principal on mortgage-backed securities may tend to
increase due to refinancing of mortgages as interest rates decline. To the
extent that a Fund purchases mortgage-backed securities at a premium, mortgage
foreclosures and prepayments of principal by mortgagors (which may be made at
any time without penalty) may result in some loss of the Fund's principal
investment to the extent of the premium paid. The yield of a Fund, should it
invest in mortgage-backed securities, may be affected by reinvestment of
prepayments at higher or 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.
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MORTGAGE DOLLAR ROLLS
The Asset Allocation Fund, High Quality Bond Fund and Columbia High Yield
Fund II may enter into mortgage "dollar rolls" in which a Fund sells securities
for delivery in the current month and simultaneously contracts with the same
counterparty to repurchase similar (same type, coupon and maturity) but not
identical securities on a specified future date not exceeding 120 days. During
the roll period, a Fund loses the right to receive principal and interest paid
on the securities sold. However, a Fund would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of a Fund compared with what such performance would have been without the use of
mortgage dollar rolls. All cash proceeds will be invested in instruments that
are permissible investments for each Fund. The Funds will hold and maintain in a
segregated account until the settlement date, cash or liquid securities in an
amount equal to the forward purchase price.
For financial reporting and tax purposes, the Funds propose to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom a
Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than an instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's or Columbia's ability to predict correctly interest rates
and mortgage prepayments. For these reasons, there is no assurance that mortgage
dollar rolls can be successfully employed.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objectives, the Asset
Allocation Fund, High Quality Bond Fund and Columbia High Yield Fund II may
purchase Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Funds may fail to fully recoup
their initial investments in these securities. The market value of the class
consisting entirely of principal payments generally is extremely volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest are generally higher than prevailing market
yields on other mortgage-backed obligations because their cash flow
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patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped. SMBS which are not issued by the U.S.
Government (or a U.S. Government agency or instrumentality) are considered
illiquid. Obligations issued by the U.S. Government may be considered liquid
under guidelines established by GALAXY VIP's Board of Trustees if they can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of net asset value per share. Fleet or
Columbia, as the case may be, may determine that SMBS acquired by a Fund are
liquid under guidelines established by the Board of Trustees.
OPTIONS AND FUTURES CONTRACTS
OPTIONS. Each Fund other than the Money Market Fund and High Quality Bond
Fund may engage in writing covered call options. The Equity Fund, Growth and
Income Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund II,
Asset Allocation Fund and Columbia High Yield Fund II may also buy put options,
buy call options and, with respect to each such Fund other than the Equity Fund
and Asset Allocation Fund, sell, or "write," secured put options on particular
securities or various securities indices or foreign currencies. A call option
for a particular security gives the purchaser of the option the right to buy,
and a writer the obligation to sell, the underlying security at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the writer is the
consideration for undertaking the obligations under the options contract. A put
option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
In contrast to an option on a particular security, an option on a securities
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option.
Options purchased by a Fund will not exceed 5%, and options written by a
Fund will not exceed 25%, of its net assets. Options must be listed on a
national securities exchange and issued by the Options Clearing Corporation.
Options trading is a highly specialized activity and carries greater than
ordinary investment risk. Purchasing options may result in the complete loss of
the amounts paid as premiums to the writer of the option. In writing a covered
call option, a Fund gives up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price (except to the
extent the premium represents such a profit). Moreover, it will not be able to
sell the underlying security until the covered call option expires or is
exercised or a Fund closes out the option. In writing a secured put option, a
Fund assumes the risk that the market value of the security will decline below
the exercise price of the option.
FUTURES AND RELATED OPTIONS. The Growth and Income Fund, Small Company
Growth Fund, Columbia Real Estate Equity Fund II, High Quality Bond Fund and
Columbia High Yield Fund II may invest to a limited extent in futures contracts,
and the Growth and Income Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II and Columbia High Yield Fund II may invest in options on futures
contracts in order to gain fuller exposure to movements of securities prices
pending investment, for hedging purposes or to maintain liquidity. Futures
contracts obligate a Fund, at maturity, to take or make delivery of certain
securities or the cash value of a securities index. A Fund may not purchase or
sell a futures contract (or related option) unless immediately after any such
transaction the sum of the aggregate amount of margin deposits on its existing
futures positions and the amount of premiums paid for related options is 5% or
less of its total assets (after taking into account certain technical
adjustments).
The Growth and Income Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II and Columbia High Yield Fund II may also purchase and sell call
and put options on futures
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contracts traded on an exchange or board of trade. When a Fund purchases an
option on a futures contract, it has the right to assume a position as a
purchaser or seller of a futures contract at a specified exercise price at any
time during the option period. When a Fund sells an option on a futures
contract, it becomes obligated to purchase or sell a futures contract if the
option is exercised. In anticipation of a market advance, a Fund may purchase
call options on futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of securities which
that Fund intends to purchase. Similarly, if the value of a Fund's portfolio
securities is expected to decline, the Fund might purchase put options or sell
call options on futures contracts rather than sell futures contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by a Fund are subject to Fleet's or
Columbia's ability to predict correctly movements in the direction of the
market. In addition, there may be an imperfect correlation, or no correlation at
all, between movements in the price of futures contracts and movements in the
price of the instruments being hedged. There is no assurance that a liquid
market will exist for any particular futures contract at any particular time.
Consequently, a Fund may realize a loss on a futures transaction that is not
offset by a favorable movement in the price of securities which it holds or
intends to purchase or may be unable to close a futures position in the event of
adverse price movements.
More information regarding futures contracts and related options can be
found in Appendix B to the Statement of Additional Information.
CONVERTIBLE SECURITIES
Each Fund except the Money Market Fund may from time to time, in accordance
with its investment policies, invest in convertible securities. Convertible
securities are fixed income securities which may be exchanged or converted into
a predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or debentures,
units consisting of bonds and warrants or a combination of the features of
several of these securities.
Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in the
underlying equity securities. The holder is entitled to receive the fixed income
of a bond or the dividend preference of a preferred stock until the holder
elects to exercise the conversion privilege. Usable bonds are corporate bonds
that can be used in whole or in part, customarily at full face value, in lieu of
cash to purchase the issuer's common stock. When owned as part of a unit along
with warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and
therefore, have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar non-convertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. In
selecting convertible securities for the Funds, Fleet or Columbia, as the case
may be, evaluates the investment characteristics of the convertible security as
a fixed income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, Fleet and Columbia consider numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
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The Growth and Income Fund may invest in convertible bonds rated BB or
higher by S&P or Fitch IBCA, or Ba or higher by Moody's at the time of
investment. Securities rated BB by S&P or Fitch IBCA or Ba by Moody's provide
questionable protection of principal and interest in that such securities either
have speculative characteristics or are predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation. Debt obligations that are not rated, or determined to be,
investment grade are high-yield, high-risk bonds, typically subject to greater
market fluctuations, and securities in the lowest rating category may be in
danger of loss of income and principal due to an issuer's default. To a greater
extent than investment grade bonds, the value of lower-rated bonds tends to
reflect short-term corporate, economic, and market developments, as well as
investor perceptions of the issuer's credit quality. In addition, lower-rated
bonds may be more difficult to dispose of or to value than high-rated,
lower-yielding bonds. Fleet will attempt to reduce the risks described above
through diversification of the Fund's portfolio and by credit analysis of each
issuer, as well as by monitoring broad economic trends and corporate and
legislative developments. If a convertible bond is rated below BB or Ba after
the Fund has purchased it, the Fund is not required to eliminate the convertible
bond from its portfolio, but will consider appropriate action. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for different investment objectives. The
Fund does not intend to invest in such lower-rated bonds during the current
fiscal year.
Convertible bonds acquired by the Columbia High Yield Fund II will generally
be rated BB or lower by S&P or Ba or lower by Moody's. See "Investment
Objectives and Policies -- Special Risk Considerations -- Lower-Rated
Securities" above for a description of the risks associated with investments in
such lower-rated securities.
SWAP AGREEMENTS AND INDEXED SECURITIES
The Growth and Income Fund and Small Company Growth Fund may enter into
interest rate swaps, currency swaps and other types of swap agreements such as
caps, collars and floors as a way to manage their exposure to different types of
investments. These Funds may also invest in indexed securities. The value of
indexed securities is linked to foreign currencies, interest rates, commodities,
indices or other financial indicators. Neither Fund intends to invest more than
5% of its total assets in swap agreements or indexed securities.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and include,
but are not limited to, options, futures, indexed securities, swap agreements
and foreign currency exchange transactions.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that a Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
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Fleet or Columbia, as the case may be, will evaluate the risks presented by
the derivative securities purchased by the Funds, and will determine, in
connection with its day-to-day management of the Funds, how such securities will
be used in furtherance of the Funds' investment objectives. It is possible,
however, that Fleet's or Columbia's evaluations will prove to be inaccurate or
incomplete and, even when accurate and complete, it is possible that the Funds
will, because of the risks discussed above, incur loss as a result of their
investments in derivative securities. See "Investment Objectives and Policies --
Derivative Securities" in the Statement of Additional Information for additional
information.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
The Equity Fund, Growth and Income Fund, Small Company Growth Fund and Asset
Allocation Fund may invest in ADRs and EDRs. The Growth and Income Fund and
Small Company Growth Fund may also invest in GDRs. ADRs are receipts issued in
registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. GDRs are
receipts structured similarly to EDRs and are marketed globally. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. GDRs are designed for trading in non-U.S. securities
markets. ADRs, EDRs and GDRs traded in the over-the-counter market which do not
have an active or substantial secondary market will be considered illiquid and
therefore will be subject to the Funds' respective limitations with respect to
such securities. ADR prices are denominated in U.S. dollars although the
underlying securities are denominated in a foreign currency. Investments in
ADRs, EDRs and GDRs involve risks similar to those accompanying direct
investments in foreign securities. Certain of these risks are described above
under "Investment Objectives and Policies -- Special Risk Considerations --
Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Growth and Income Fund, Small Company Growth Fund, Columbia Real
Estate Equity Fund II and Asset Allocation Fund may buy and sell securities and
receive interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Funds from time to time may enter into foreign currency exchange
transactions to convert the U.S. dollar to foreign currencies, to convert
foreign currencies to the U.S. dollar and to convert foreign currencies to other
foreign currencies. The Funds either enter into these transactions on a spot
(i.e. cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward contracts to purchase or sell foreign currencies. Forward
foreign currency exchange contracts are agreements to exchange one currency for
another -- for example, to exchange a certain amount of U.S. dollars for a
certain amount of Japanese yen -- at a future date and at a specified price.
Typically, the other party to a currency exchange contract will be a commercial
bank or other financial institution.
Forward foreign currency exchange contracts also allow the Funds to hedge
the currency risk of portfolio securities denominated in a foreign currency. By
separating the asset and the currency decision, this technique permits the
assessment of the merits of a security separately from the currency risk.
Although forward foreign currency exchange contracts are of short duration,
generally between one and twelve months, the forward foreign currency exchange
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to the Funds if the other party does
not complete the transaction, forward foreign currency exchange contracts will
be entered into only with parties approved by GALAXY VIP's Board of Trustees.
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The Funds may maintain "short" positions in forward foreign currency
exchange transactions, which would involve a Fund's agreeing to exchange
currency that it currently does not own for another currency -- for example, to
exchange an amount of Japanese yen that it does not own for a certain amount of
U.S. dollars -- at a future date and at a specified price in anticipation of a
decline in the value of the currency sold short relative to the currency that
the Fund has contracted to receive in the exchange. In order to ensure that the
short position is not used to achieve leverage with respect to the Fund's
investments, the Fund would establish with its custodian a segregated account
consisting of cash or liquid securities equal in value to the fluctuating market
value of the currency as to which the short position is being maintained. The
value of the cash and securities in the segregated account will be adjusted at
least daily to reflect changes in the market value of the short position. See
the Statement of Additional Information for additional information regarding
foreign currency exchange transactions.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell eligible securities on a "forward commitment" basis. Each Fund
may also purchase and sell eligible securities on a "delayed settlement" basis.
When-issued and forward commitment transactions, which involve a commitment by a
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase regardless
of future changes in interest rates. Delayed settlement describes settlement of
a securities transaction in the secondary market which will occur sometime in
the future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. It is expected that forward commitments,
when-issued purchases and delayed settlements will not exceed 25% of a Fund's
total assets absent unusual market conditions. In the event a Fund's forward
commitments, when-issued purchases and delayed settlements ever exceeded 25% of
the value of its total assets, the Fund's liquidity and the ability of Fleet or
Columbia, as the case may be, to manage the Fund might be adversely affected.
The Funds will not engage in when-issued purchases, forward commitments and
delayed settlements for speculative purposes, but only in furtherance of their
respective investment objectives. See the Statement of Additional Information
for additional information regarding when-issued, forward commitment and delayed
settlement transactions.
STAND-BY COMMITMENTS
The High Quality Bond Fund may acquire "stand-by commitments" with respect
to municipal securities held by it. Under a stand-by commitment, a dealer agrees
to purchase, at the Fund's option, specified municipal securities at a specified
price. The Fund will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield otherwise
available for the same securities). Stand-by commitments acquired by the Fund
would be valued at zero in determining the Fund's net asset value.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet or Columbia, as the case may be, believes that such a disposition is
consistent with the Fund's investment objective. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. The rate of portfolio turnover will not be a limiting factor in
making portfolio decisions.
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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 Fleet or Columbia) and then in amounts not in
excess of 10% with respect to the Money Market Fund and High Quality Bond
Fund, or 33% with respect to the Equity Fund, Growth and Income Fund, Small
Company Growth Fund, Columbia Real Estate Equity Fund II, Asset Allocation
Fund and Columbia High Yield Fund II, of the value of its total assets at
the time of such borrowing (provided that each Fund may borrow pursuant to
reverse repurchase agreements in accordance with its investment policies and
in amounts not in excess of 10% with respect to the Money Market Fund and
High Quality Bond Fund, or 33% with respect to the Equity Fund, Growth and
Income Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund II,
Asset Allocation Fund and Columbia High Yield Fund II, of the value of its
total assets at the time of such borrowing); or mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing and in
amounts not in excess of the lesser of the dollar amounts borrowed or 10%
with respect to the Money Market Fund and High Quality Bond Fund, or 33%
with respect to the Equity Fund, Growth and Income Fund, Small Company
Growth Fund, Columbia Real Estate Equity Fund II, Asset Allocation Fund and
Columbia High Yield Fund II, of the value of the Fund's total assets at the
time of such borrowing. No Fund will purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding. With respect to each Fund other than the Money
Market Fund, if the securities held by a Fund should decline in value while
borrowings are outstanding, the net asset value of the Fund's outstanding
shares will decline in value by more than the proportionate decline in value
suffered by the Fund's securities.
3. Invest more than 10% (15% with respect to the Growth and Income
Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund II and
Columbia High Yield Fund II) of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of the
value of its total assets would be invested in such issuer (the "5%
Limitation"), except that up to 25% of the value of the total assets of the
Equity Fund, Growth and Income
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Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund II, Asset
Allocation Fund, High Quality Bond Fund and Columbia High Yield Fund II may
be invested without regard to such 5% Limitation, provided that the Money
Market Fund will be able to invest more than 5% (but no more than 25%) of
its total assets in the securities of a single issuer for a period of up to
three business days after the purchase thereof, but the Fund may not hold
more than one such investment at any one time.
5. Purchase any securities which would cause 25% or more of the value
of its total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry; provided, however, that (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of the parents, and (c)
utilities will be classified according to their services (for example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry); and further provided that the Columbia Real
Estate Equity Fund II will invest at least 65% of its total assets in the
equity securities of companies principally engaged in the real estate
industry.
With respect to Investment Limitation No. 4 above: (a) a security is
considered to be issued by the governmental entity or entities whose assets and
revenues back the security, or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental user, such
non-governmental user; (b) in certain circumstances, the guarantor of a
guaranteed security may also be considered to be an issuer in connection with
such guarantee; and (c) securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities (including securities backed by the full faith
and credit of the United States) are deemed to be U.S. Government obligations.
With respect to Investment Limitation No. 4 above, adherence by the Money
Market Fund to the diversification requirements of Rule 2a-7 under the 1940 Act
is deemed to constitute adherence to the diversification requirements of Section
5(b)(i) of the 1940 Act.
Rule 144A under 1933 Act 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 1933 Act for resale of certain securities to qualified institutional
buyers. A Fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of the limitations on purchases of illiquid instruments described
in Investment Limitation No. 3 above, Rule 144A securities will not be
considered to be illiquid if Fleet or Columbia, as the case may be, has
determined, in accordance with guidelines established by the Board of Trustees,
that an adequate trading market exists for such securities.
In addition to the restrictions set forth above and those set forth in the
Statement of Additional Information, each Fund may be subject to investment
restrictions imposed under state insurance laws and regulations. These
restrictions are non-fundamental and, in the event of amendments to the
applicable statutes or regulations, each Fund will comply, without the approval
of its shareholders, with the requirements as so modified.
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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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, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Net asset value per share of a Fund for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to the Fund, less the liabilities charged to the Fund, by the
number of outstanding shares of the Fund.
VALUATION OF THE MONEY MARKET FUND
The Money Market Fund's assets are valued based upon the amortized cost
method. Pursuant to this method, a security is valued by reference to the Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount, regardless of the impact of fluctuating interest rates on the market
value of the security. Although GALAXY VIP seeks to maintain the net asset value
per share of the Fund at $1.00, there can be no assurance that the net asset
value per share will not vary.
VALUATION OF THE EQUITY FUND, GROWTH AND INCOME FUND, SMALL COMPANY GROWTH FUND,
COLUMBIA REAL ESTATE EQUITY FUND II, ASSET ALLOCATION FUND AND COLUMBIA HIGH
YIELD FUND II
The assets in the Equity Fund, Growth and Income Fund, Small Company Growth
Fund, Columbia Real Estate Equity Fund II, Asset Allocation Fund and Columbia
High Yield Fund II which are traded on a recognized stock exchange are valued at
the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities quoted on the NASD National Market System are also valued at the last
sale price. Other securities traded on over-the-counter markets are valued on
the basis of their closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid and
asked prices. Investments in debt securities with remaining maturities of 60
days or less are valued based upon the amortized cost method. Restricted
securities, securities for which market quotations are not readily available,
and other assets are valued at fair value by Fleet or Columbia, as the case may
be, under the supervision of GALAXY VIP's Board of Trustees. An option is
generally valued at the last sale price or, in the absence of a last sale price,
the last offer price.
VALUATION OF THE HIGH QUALITY BOND FUND
The assets in the High Quality Bond Fund are valued for purposes of pricing
sales and redemptions by an independent pricing service ("Service") approved by
GALAXY VIP's Board of Trustees. When, in the judgment of the Service, quoted bid
prices for portfolio securities are readily available and are representative of
the bid side of the market, these investments are valued at the mean between
quoted bid prices (as obtained by the Service from dealers in such securities)
and asked prices (as calculated by the Service based upon its evaluation of the
market for such securities). Other investments are carried at fair value as
determined by the Service, based on methods which include considerations of
yields or prices of bonds of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. The
Service may also employ electronic data processing techniques and matrix systems
to determine value. Short-term securities are valued at amortized cost, which
approximates market value.
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PURCHASE AND REDEMPTION OF SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by GALAXY VIP's
distributor, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. and an indirect
wholly-owned subsidiary of First Data Corporation. FD Distributors is a
registered broker/dealer with principal offices located at 4400 Computer Drive,
Westboro, Massachusetts 01581.
PURCHASE AND REDEMPTION OF SHARES
Investors may not purchase or redeem shares of the Funds directly, but only
through variable annuity contracts and variable life insurance policies offered
through the Separate Accounts of Participating Insurance Companies. You should
refer to the prospectus of the Participating Insurance Company's Separate
Account for information on how to purchase a variable annuity contract or
variable life insurance policy, how to select specific Funds of GALAXY VIP as
investment options for your contract or policy and how to redeem monies from
GALAXY VIP.
The Separate Accounts of the Participating Insurance Companies place orders
to purchase and redeem shares of the Funds based on, among other things, the
amount of premium payments to be invested and the amount of surrender and
transfer requests (as defined in the prospectus describing the variable annuity
contracts and variable life insurance policies issued by the Participating
Insurance Companies) to be effected on that day pursuant to variable annuity
contracts and variable life insurance policies. Orders received by GALAXY VIP
are effected on days on which the Exchange is open for trading. Orders for the
purchase of shares of a Fund are effected at the net asset value per share next
calculated after an order is received in good order by the Fund. Redemptions are
effected at the net asset value per share next calculated after receipt of a
redemption request in good order by a Fund. Payment for redemptions will be made
by the Funds 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
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orderly portfolio management to the potential detriment of such holders. The
variable annuity contracts and variable life insurance policies are described in
the separate prospectuses issued by the Participating Insurance Companies.
GALAXY VIP assumes no responsibility for such prospectuses.
DIVIDENDS AND DISTRIBUTIONS
Each Fund expects to distribute substantially all of its net investment
income and capital gains each year. Dividends for the Money Market Fund, High
Quality Bond Fund and Columbia High Yield Fund II are declared daily and paid
monthly. Dividends for the Equity Fund, Growth and Income Fund, Small Company
Growth Fund, Columbia Real Estate Equity Fund II and Asset Allocation Fund are
declared and paid quarterly. Net capital gains, if any, will be distributed at
least annually. All dividends and capital gain distributions will be
automatically reinvested in additional shares of a Fund at the net asset value
of such shares on the payment date.
TAXES
Each of the Money Market Fund, Equity Fund, Asset Allocation Fund and High
Quality Bond Fund qualified during its last taxable year and intends to continue
to qualify, and each of the Growth and Income Fund, Small Company Growth Fund,
Columbia Real Estate Equity Fund II and Columbia High Yield Fund II intends to
qualify, as a "regulated investment company" under the Code, which would
generally relieve a Fund of liability for federal income taxes to the extent the
Fund's earnings are distributed in accordance with the Code. In order to so
qualify, a Fund must comply with certain distribution, diversification, source
of income and other applicable requirements. If for any taxable year a Fund does
not qualify for the special federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In such
event, a Fund's distributions to segregated asset accounts holding shares of the
Fund would be taxable as ordinary income to the extent of the Fund's current and
accumulated earnings and profits. A failure of a Fund to qualify as a regulated
investment company also could result in the loss of the tax favored status of
variable annuity contracts and variable life insurance policies based on a
segregated asset account which invests in the Fund.
Under Code Section 817(h), a segregated asset account upon which a variable
annuity contract or variable life insurance policy is based must be "adequately
diversified." A segregated asset account will be adequately diversified if it
complies with certain diversification tests set forth in Treasury regulations.
If a regulated investment company satisfies certain conditions relating to the
ownership of its shares, a segregated asset account investing in such investment
company will be entitled to treat its pro rata portion of each asset of the
investment company as an asset for purposes of these diversification tests. Each
Fund intends to meet these ownership conditions and to comply with the
diversification tests noted above. Accordingly, a segregated asset account
investing solely in shares of a Fund will be adequately diversified. However, a
failure of a Fund to meet such conditions and to comply with such tests could
cause the owners of variable annuity contracts and variable life insurance
policies based on such account to recognize ordinary income each year in the
amount of any net appreciation of such contract or policy during the year
(including the annual cost of life insurance, if any, provided under such
policy).
Provided that a Fund and a segregated asset account investing in the Fund
satisfy the above requirements, any distributions from the Fund to such account
will be exempt from current federal income taxation to the extent that such
distributions accumulate in a variable annuity contract or a variable life
insurance contract.
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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. The day-to-day operations of GALAXY VIP are delegated to its elected
officers, subject to the investment objectives and policies of GALAXY VIP, the
general supervision of the Board of Trustees and applicable state law. GALAXY
VIP's Statement of Additional Information contains the names of and general
background information concerning the Trustees.
INVESTMENT ADVISERS
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109-1810, serves as the investment adviser to the Money Market Fund, Equity
Fund, Growth and Income Fund, Small Company Growth Fund, Asset Allocation Fund
and High Quality Bond Fund. Fleet, which commenced operations in 1984, also
provides investment management and advisory services to individual and
institutional clients and manages the investment portfolios of The Galaxy Fund
and Galaxy Fund II. Columbia, with principal offices at 1300 S.W. Sixth Avenue,
P.O. Box 1350, Portland, Oregon 97207-1350, serves as investment adviser to the
Columbia Real Estate Equity Fund II and Columbia High Yield Fund II. Columbia,
which commenced operations in 1969, also manages the investment portfolios of
Columbia Funds. Fleet and Columbia are indirect wholly-owned subsidiaries of
Fleet Financial Group, Inc., a registered bank holding company with total assets
of approximately $85.5 billion at December 31, 1997.
Subject to the general supervision of GALAXY VIP's Board of Trustees and in
accordance with the Funds' respective investment policies, Fleet and Columbia
manage the respective Funds, make decisions with respect to and place orders for
all purchases and sales of their portfolio securities and maintain related
records.
Harold A. Mackinney, Jr., Brendan Henebry, Stephen D. Barbaro, Donald Jones
and Marie M. Schofield are the portfolio managers of the Equity Fund, Growth and
Income Fund, Small Company Growth Fund, Asset Allocation Fund and High Quality
Bond Fund, respectively. Each portfolio manager is primarily responsible for the
day-to-day management of the respective Fund's investment portfolio. Messrs.
Mackinney and Jones have served as the respective portfolio managers of the
Equity Fund and Asset Allocation Fund since commencement of each Fund's
operations. Mr. Mackinney is Chairman of the Board of Fleet and has been engaged
in providing investment management services on behalf of Fleet and/or its
affiliates since 1962. Mr. Henebry has been associated with Fleet as a portfolio
manager since 1995 and currently serves as Vice President. Prior to joining
Fleet, Mr. Henebry was associated with Shawmut Bank where he served as Vice
President and managed the Growth and Income Equity Management Group. Mr.
Barbaro, a Vice President and Senior Portfolio Manager, has been with Fleet and
its predecessors since 1976. Mr. Jones has been associated with Fleet as a
portfolio manager since 1988 and currently serves as Vice President.
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Ms. Schofield, who became the portfolio manager of the High Quality Bond Fund on
March 1, 1996, is a Vice President, has been with Fleet since 1991 and has been
engaged in providing investment management services for over 20 years.
David W. Jellison and Jeffrey L. Rippey are the portfolio managers of the
Columbia Real Estate Equity Fund II and Columbia High Yield Fund II,
respectively. Each portfolio manager is primarily responsible for the day-to-day
management of the respective Fund's investment portfolio. Mr. Jellison is a Vice
President of Columbia and a Chartered Financial Analyst. Prior to joining
Columbia in 1992, Mr. Jellison was a Senior Research Associate for RCM Capital
Management. Mr. Rippey has been associated with Columbia since 1981 and
currently serves as Vice President. Mr. Rippey is a Chartered Financial Analyst.
For the services provided and expenses assumed with respect to the Money
Market Fund, Equity Fund, Growth and Income Fund, Small Company Growth Fund,
Asset Allocation Fund and High Quality Bond Fund, Fleet is entitled to receive
advisory fees, computed daily and paid monthly, at the annual rate of .40% of
the average daily net assets of the Money Market Fund, at the annual rate of
.75% of the average daily net assets of the Equity Fund, Growth and Income Fund,
Small Company Growth Fund and Asset Allocation Fund, respectively, and at the
annual rate of .55% of the average daily net assets of the High Quality Bond
Fund. For the services provided and expenses assumed with respect to the
Columbia Real Estate Equity Fund II and Columbia High Yield Fund II, Columbia is
entitled to receive advisory fees, computed daily and paid monthly, at the
annual rate of .75% of the average daily net assets of the Columbia Real Estate
Equity Fund II and at the annual rate of .60% of the average daily net assets of
the Columbia High Yield Fund II.
Fleet and Columbia may from time to time, in their discretion, waive
advisory fees payable by the Funds in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of their advisory
fees to subsidiaries of Fleet Financial Group, Inc. in consideration for
administrative and other services which they provide to beneficial shareholders.
Fleet is currently waiving a portion of the advisory fees payable to it by the
Money Market Fund and High Quality Bond Fund, but Fleet may in its discretion
revise or discontinue this waiver at any time. For the fiscal year ended
December 31, 1997, Fleet received advisory fees (after fee waivers) at the
effective rates of .15% of the Money Market Fund's average daily net assets,
.75% of the Equity Fund's average daily net assets, .75% of the Asset Allocation
Fund's average daily net assets and .15% of the High Quality Bond Fund's average
daily net assets, respectively. In addition to fee waivers, during the fiscal
year ended December 31, 1997, Fleet also reimbursed the Money Market Fund, the
Asset Allocation Fund and the High Quality Bond Fund for certain operating
expenses, which reimbursement may be revised or discontinued at any time.
Fleet and Columbia are authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, to the extent
permitted by law or order of the SEC, financial institutions that are affiliated
with Fleet or Columbia or that have sold shares of the Funds, if Fleet or
Columbia, as the case may be, believes that the quality of the transaction and
the commission are comparable to what they would be with other qualified
brokerage firms.
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,
36
<PAGE>
transfer agent or custodian to such an investment company or from purchasing
shares of such a company as agent for and upon the order of customers. Fleet,
Columbia and the Funds' custodian are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Funds, GALAXY VIP might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Funds' method of
operation would not affect a Fund's net asset value per share or result in
financial losses to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"), a
wholly-owned subsidiary of First Data Corporation, is the Funds' administrator.
Investor Services Group's offices are located at 4400 Computer Drive, Westboro,
Massachusetts 01581.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the
portfolios of The Galaxy Fund and Galaxy Fund II. For the services provided to
the Funds, Investor Services Group 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, Investor Services
Group 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, Investor Services Group may waive
voluntarily all or a portion of the administration fee payable to it by the
Funds.
DESCRIPTION OF GALAXY VIP AND ITS SHARES
GALAXY VIP was organized as a Massachusetts business trust on May 27, 1992.
GALAXY VIP is a series fund authorized to issue the following eight classes of
units of beneficial interest: Class A shares, representing interests in the
Money Market Fund; Class B shares, representing interests in the Equity Fund;
Class C shares, representing interests in the Asset Allocation Fund; Class D
shares, representing interests in the High Quality Bond Fund; Class E shares,
representing interests in the Small Company Growth Fund; Class F shares,
representing interests in the Growth and Income Fund; Class G shares,
representing interests in the Columbia Real Estate Equity Fund II; and Class H
shares, representing interests in the Columbia High Yield Fund II. Each share of
GALAXY VIP has a par value of $.001 per share, represents an equal proportionate
interest in the related Fund with other shares of the same class, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to such Fund as are declared in the discretion of the Board of
Trustees. GALAXY VIP's Agreement and Declaration of 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
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<PAGE>
variable life insurance policies, as well as shares it owns, in the same
proportion as those shares for which voting instructions are received.
Additional information concerning voting rights of the participants in the
Separate Accounts are more fully set forth in the prospectuses relating to those
Accounts issued by the Participating Insurance Companies.
GALAXY VIP is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to call a meeting of shareholders to consider the
removal of one or more Trustees and such meeting will be called when requested
by the holders of record of 10% or more of GALAXY VIP's outstanding shares. To
the extent required by law, GALAXY VIP will assist in shareholder communications
in such matters.
CUSTODIAN
The Chase Manhattan Bank ("Chase"), located at One Chase Manhattan Plaza,
New York, New York 10081, a wholly-owned subsidiary of The Chase Manhattan
Corporation, serves as the custodian of the Funds' assets. Services performed by
Chase for the Funds are described in the Statement of Additional Information.
EXPENSES
GALAXY VIP bears the expenses in connection with the Funds' operations,
whether incurred directly or on its behalf by Fleet, Columbia, Investor Services
Group or the Participating Insurance Companies, including taxes; interest; fees
(including fees paid to its Trustees and officers who are not affiliated with
Investor Services Group); SEC fees; state securities fees; costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders; advisory, administration, fund accounting and custody
fees; certain insurance premiums; outside auditing and legal expenses; costs of
shareholders' reports and meetings; and any extraordinary expenses. Otherwise,
Fleet, Columbia and Investor Services Group 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, 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
38
<PAGE>
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" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in a
Fund for the specified period. Both methods of calculating total return assume
that 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 performance and yields fluctuate, performance and 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.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
YEAR 2000 RISKS. Like other investment companies, financial and business
organizations and individuals around the world, GALAXY VIP could be adversely
affected if the computer systems used by Fleet, Columbia and GALAXY VIP's other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known
39
<PAGE>
as the "Year 2000 Problem." Fleet and Columbia are taking steps to address the
Year 2000 Problem with respect to the computer systems that they use and to
obtain assurance that comparable steps are being taken by GALAXY VIP's other
major service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact on GALAXY VIP as a
result of the Year 2000 Problem.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of GALAXY VIP or a particular Fund means, with respect to
the approval of an investment advisory agreement or a change in an investment
objective or fundamental investment policy, the affirmative vote of the holders
of the lesser of (a) more than 50% of the outstanding shares of GALAXY VIP or
such Fund, or (b) 67% or more of the shares of GALAXY VIP or such Fund present
at a meeting if more than 50% of the outstanding shares of GALAXY VIP or such
Fund are represented at the meeting in person or by proxy.
Inquiries regarding GALAXY VIP should be made to GALAXY VIP's offices at
4400 Computer Drive, Westboro, Massachusetts 01581. Holders of variable annuity
contracts or variable life insurance policies issued by Participating Insurance
Companies for which shares of the Funds are the investment vehicle will receive
from the Participating Insurance Companies unaudited semi-annual financial
statements and year-end financial statements audited by the Funds' independent
certified public accountants. Each report will show the investments owned by the
Funds and the market values of the investments and will provide other
information about the Funds and their operations.
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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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; 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>
<PAGE>
THE GALAXY VIP FUND
STATEMENT OF ADDITIONAL INFORMATION
MONEY MARKET FUND
EQUITY FUND
GROWTH AND INCOME FUND
SMALL COMPANY GROWTH FUND
COLUMBIA REAL ESTATE EQUITY FUND II
ASSET ALLOCATION FUND
HIGH QUALITY BOND FUND
COLUMBIA HIGH YIELD FUND II
APRIL 30, 1998
<PAGE>
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 30, 1998
as it may from time to time be supplemented or revised. This Statement of
Additional Information is incorporated by reference in its entirety into such
Prospectus. No investment in shares of the Funds should be made without reading
the Prospectus. Copies of the Prospectus may be obtained by writing GALAXY VIP
c/o First Data Investor Services Group, Inc., 4400 Computer Drive, Westboro,
Massachusetts 01581 or by calling your Participating Insurance Company.
<PAGE>
TABLE OF CONTENTS
PAGE
----
INVESTMENT OBJECTIVES AND POLICIES.................................... 1
Variable and Floating Rate Obligations.............................. 1
Bank Obligations.................................................... 1
Mortgage-Backed and Asset-Backed Securities......................... 1
When-Issued, Forward Commitment and Delayed Settlement
Transactions....................................................... 2
Stand-By Commitments................................................ 3
Repurchase Agreements; Reverse Repurchase Agreements; Loans of
Portfolio Securities............................................... 3
U.S. Government Securities.......................................... 3
Derivative Securities............................................... 4
Portfolio Securities Generally -- Money Market Fund................. 7
Additional Investment Limitations................................... 7
NET ASSET VALUE -- MONEY MARKET FUND.................................. 8
DIVIDENDS -- MONEY MARKET FUND........................................ 9
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION........................ 9
DESCRIPTION OF SHARES................................................. 10
TRUSTEES AND OFFICERS................................................. 11
Shareholder and Trustee Liability................................... 13
ADVISORY, ADMINISTRATION AND CUSTODIAN AGREEMENTS..................... 13
Custodian........................................................... 14
PORTFOLIO TRANSACTIONS................................................ 15
DISTRIBUTOR........................................................... 16
AUDITORS.............................................................. 16
COUNSEL............................................................... 16
PERFORMANCE AND YIELD INFORMATION..................................... 16
Yield Quotations -- Money Market Fund............................... 16
Yield and Total Return Quotations -- Non-Money Market Funds......... 17
MISCELLANEOUS......................................................... 18
APPENDIX A............................................................ A-1
APPENDIX B............................................................ B-1
FINANCIAL STATEMENTS.................................................. FS-1
i
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
GALAXY VIP offers units of beneficial interest ("Shares") representing
interests in eight investment portfolios: the Money Market Fund, Equity Fund,
Growth and Income Fund, Small Company Growth Fund, Columbia Real Estate Equity
Fund II, Asset Allocation Fund, High Quality Bond Fund and Columbia High Yield
Fund II (collectively, the "Funds"). This Statement of Additional Information
provides additional investment information with respect to all Funds and should
be read in conjunction with the current Prospectus.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Money Market Fund may purchase variable and floating rate instruments as
described in the Prospectus. If such an instrument is not rated, the investment
adviser to the Fund, Fleet Investment Advisors Inc. ("Fleet"), must determine
that such instrument is comparable to rated instruments eligible for purchase by
the Fund and will consider the earning power, cash flows and other liquidity
ratios of the issuers and guarantors of such notes and will continuously monitor
their financial status in order to meet payment on demand. In determining
average weighted portfolio maturity of the Fund, a variable or floating rate
instrument issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligation's next interest rate adjustment.
Variable and floating rate obligations held by the Money Market Fund may
have maturities of more than thirteen months, provided the Fund is entitled to
payment of principal upon not more than 30 days' notice or at specified
intervals not exceeding one year (upon not more than 30 days' notice).
Long-term variable and floating rate obligations with a demand feature held
by the Money Market Fund will be deemed to have a maturity equal to the longer
of the period remaining to the next interest rate adjustment or the demand
notice period.
The Equity Fund, Growth and Income Fund, Small Company Growth Fund, Columbia
Real Estate Equity Fund II, Asset Allocation Fund, High Quality Bond Fund and
Columbia High Yield Fund II may also purchase variable and floating rate
instruments in accordance with their investment objectives and policies as
described in the Prospectus.
BANK OBLIGATIONS
For purposes of the Money Market Fund's investment policy with respect to
bank obligations, the assets of a bank or savings institution will be deemed to
include the assets of its U.S. and foreign branches. Investments by the Equity
Fund, Small Company Growth Fund, Asset Allocation Fund and High Quality Bond
Fund in non-negotiable time deposits are limited to no more than 5% of each such
Fund's total assets at the time of purchase.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Mortgage-backed securities include fixed and adjustable Mortgage
Pass-Through Certificates, which provide the holder with a pro-rata share of
interest and principal payments on a pool of mortgages, ordinarily on
residential properties. There are a number of important differences among the
agencies and instrumentalities of the U.S. Government that issue mortgage-backed
securities and among the securities that they issue. Pass-Through Certificates
guaranteed by the Government National Mortgage Association ("GNMA") (also known
as "Ginnie Maes") are guaranteed as to the timely payment of principal and
interest by GNMA, whose guarantee is backed by the full faith and credit of the
United States. Mortgage-backed securities issued by the Federal National
Mortgage Association ("FNMA") include FNMA guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes") which are guaranteed as to timely
payment of principal and interest by FNMA. They are not backed by or entitled to
the full faith and credit of the United States, but are supported by the right
of the FNMA to borrow from the Treasury. Mortgage-backed securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs"). Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Bank and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees
1
<PAGE>
either ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC is required to remit the amount due on account of its guarantee
of ultimate payment of principal no later than one year after it becomes
payable.
Mortgage-backed securities also include collateralized mortgage obligations
("CMOs"), which provide the holder with a specified interest in the cash flow of
a pool of underlying mortgages or other mortgage-backed securities. Issuers of
CMOs frequently elect to be taxed as pass-through entities known as real estate
mortgage investment conduits, or REMICs. CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. Although the relative payment rights of these classes can be structured in
a number of different ways, most often payments of principal are applied to the
CMO classes in order of respective stated maturities. CMOs can expose a Fund to
more volatility and interest rate risk than other types of mortgage-backed
securities.
Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties.
The yield characteristics of mortgage-backed and asset-backed securities
differ from traditional debt securities. A major difference is that the
principal amount of the obligations may be prepaid at any time because the
underlying assets (I.E., loans) generally may be prepaid at any time. As a
result, a decrease in interest rates in the market may result in increases in
the level of prepayments as borrowers, particularly mortgagors, refinance and
repay their loans. An increased prepayment rate will have the effect of
shortening the maturity of the security. If a Fund has purchased a
mortgage-backed or asset-backed security at a premium, a faster than anticipated
prepayment rate could result in a loss of principal to the extent of the premium
paid. Conversely, an increase in interest rates may result in lengthening the
anticipated maturity because expected prepayments are reduced. A prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected may have the opposite effect of increasing
yield to maturity.
In general, the assets supporting non-mortgage asset-backed securities are
of shorter maturity than the assets supporting mortgage-backed securities. Like
other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed income securities, and, as noted above,
changes in market rates of interest may accelerate or retard prepayments and
thus affect maturities.
These characteristics may result in a higher level of price volatility for
these assets under certain market conditions. In addition, while the trading
market for short-term mortgages and asset-backed securities is ordinarily quite
liquid, in times of financial stress the trading market for these securities
sometimes becomes restricted.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
When a Fund agrees to purchase securities on a "when-issued," "forward
commitment" or "delayed settlement" basis, the Fund's custodian will set aside
cash or liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities that
the custodian has set aside, a Fund may be required to place additional assets
in the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash. Because a Fund sets aside liquid assets
to satisfy its purchase commitments in the manner described, the Fund's
liquidity and ability to manage its portfolio might be affected in the event its
commitments to purchase "forward commitments," commitments to purchase
"when-issued" securities or commitments to purchase securities on a "delayed
settlement" basis exceeds 25% of the value of its total assets.
When a Fund engages in "when-issued," "forward commitment" or "delayed
settlement" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a
2
<PAGE>
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 a
Fund's portfolio, the maturity of "when-issued" securities is calculated from
the date of settlement of the purchase to the maturity date.
STAND-BY COMMITMENTS
Under a "stand-by commitment," a dealer agrees to purchase from the High
Quality Bond Fund, at the Fund's option, specified securities at a specified
price. "Stand-by commitments" are exercisable by the Fund at any time before the
maturity of the underlying security, and may be sold, transferred or assigned by
the Fund only with respect to the underlying instruments.
Although "stand-by commitments" are often available without the payment of
any direct or indirect consideration, if necessary or advisable, the Fund may
pay for a "stand-by commitment" either separately in cash or by paying a higher
price for securities which are acquired subject to the commitment. Where the
Fund pays any consideration directly or indirectly for a "stand-by commitment,"
its cost will be reflected as unrealized depreciation for the period during
which the commitment is held by the Fund.
The Fund will enter into "stand-by commitments" only with banks and
broker/dealers which present minimal credit risks. In evaluating the
creditworthiness of the issuer of a "stand-by commitment," Fleet, as the Fund's
investment adviser, will review periodically the issuer's assets, liabilities,
contingent claims and other relevant financial information.
The Fund will acquire "stand-by commitments" solely to facilitate liquidity
and does not intend to exercise its rights thereunder for trading purposes.
"Stand-by commitments" will be valued at zero in determining the Fund's net
asset value.
REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF PORTFOLIO
SECURITIES
Each Fund may enter into repurchase agreements. The repurchase price under a
repurchase agreement generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement). Securities
subject to repurchase agreements will be held by a Fund's custodian in a
segregated account or in the Federal Reserve/ Treasury book-entry system.
Repurchase agreements are considered to be loans by a Fund under the Investment
Company Act of 1940, as amended, (the "1940 Act").
Each Fund may enter into reverse repurchase agreements. Whenever a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account cash or other liquid portfolio securities equal to the
repurchase price (including accrued interest). The Fund will monitor the account
to ensure such equivalent value is maintained. Reverse repurchase agreements are
considered to be borrowings by a Fund under the 1940 Act.
A Fund that loans portfolio securities would continue to accrue interest on
the securities loaned and would also earn income on the loans. Any cash
collateral received by the Fund in connection with such loans would be invested
in high quality, short-term "money market" instruments.
U.S. GOVERNMENT SECURITIES
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, GNMA, FNMA, General Services
Administration, Central Bank for Cooperatives, FHLMC, Federal Intermediate
Credit Banks, Resolution Trust Corporation and Maritime Administration.
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DERIVATIVE SECURITIES
OPTIONS TRADING
As stated in the Prospectus, (i) each Fund other than the Money Market Fund
and High Quality Bond Fund may write covered call options on securities and (ii)
the Growth and Income Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II and Columbia High Yield Fund II may purchase put and call options
based on any type of security, index or currency. Options trading is a highly
specialized activity which entails greater than ordinary investment risks.
Regardless of how much the market price of the underlying security, index or
currency increases or decreases, the option buyer's risk is limited to the
amount of the original investment for the purchase of the option. However,
options may be more volatile than the underlying instruments, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying instruments themselves. Put and
call options purchased by a Fund will be valued at the last sale price each day
or, in the absence of such a price, at the mean between bid and asked prices.
A listed call option for a particular security gives the purchaser of the
option the right to buy from a clearing corporation, and a writer has the
obligation to sell to the clearing corporation, the underlying security at the
stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligations under the option contract. A
listed put option gives the purchaser the right to sell to a clearing
corporation the underlying security at the stated exercise price at any time
prior to the expiration date of the option, regardless of the market price of
the security. In contrast to an option on a particular security, an option on an
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
The call options written by a Fund will be "covered", which means that the
Fund writing the option owns the security underlying the call or has an absolute
and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, liquid assets
in such amount as are held in a segregated account by its custodian) upon
conversion or exchange of other securities held by it. For a call option on an
index, the option is covered if the Fund involved owns securities whose price
changes, in the opinion of Fleet or Columbia Management Co. ("Columbia"), the
investment adviser for the Columbia Real Estate Equity Fund II and Columbia High
Yield Fund II, are expected to be substantially similar to those of the index or
maintains with its custodian liquid assets equal to the contract value. A call
option is also covered if the Fund involved holds a call on the same security or
index as the call written where the exercise price of the call held is (i) equal
to or less than the exercise price of the call written, or (ii) greater than the
exercise price of the call written provided the difference is maintained by the
Fund in liquid assets in a segregated account with its custodian. A secured put
option written by a Fund means that the Fund maintains in a segregated account
with the custodian cash or U.S. Government securities in an amount not less than
the exercise price of the option at all times during the option period.
The principal reason for writing call options on a securities portfolio is
the attempt to realize, through the receipt of premiums, a greater current
return than would be realized on the securities alone. In return for the
premium, the covered option writer gives up the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
its obligation as a writer continues, but retains the risk of loss should the
price of the security decline. Unlike one who owns securities not subject to an
option, the covered option writer has no control over when it may be required to
sell its securities, since it may be assigned an exercise notice at any time
prior to the expiration of its obligation as a writer.
A Fund's obligation to sell a security subject to a covered call option
written by it, or to purchase a security subject to a secured put option written
by it, may be terminated prior to the expiration date of the option by the
Fund's executing a closing purchase transaction, which is effected by purchasing
on an exchange an option of the same series (I.E., same underlying security,
exercise price and expiration date) as the option previously written. Such a
purchase does not result in the ownership of an option. A closing purchase
transaction will ordinarily be effected to prevent the underlying security from
being called, to permit the sale of the underlying security, or to permit the
writing of a new option containing different terms on the underlying security.
The cost of such a
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liquidation purchase plus transaction costs may be greater than the premium
received upon the original option, in which event the Fund will have incurred a
loss in the transaction. An option position may be closed out only on an
exchange which provides a secondary market for an option of the same series.
There is no assurance that a liquid secondary market on an exchange will exist
for any particular option. A covered call option writer, unable to effect a
closing purchase transaction, would not be able to sell the underlying security
until the option expires or the underlying security is delivered upon exercise.
As a result, the writer in such circumstances would be subject to the risk of
market decline in the underlying security during such period. A Fund will write
an option on a particular security only if Fleet or Columbia believes that a
liquid secondary market will exist on an exchange for options of the same series
which will permit the Fund to make a closing purchase transaction in order to
close out its position.
When a Fund writes a covered call option, an amount equal to the net premium
(the premium less the commission) received by the Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the average of the closing bid and asked prices. If an option expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. Any gain on a covered
call option may be offset by a decline in the market price of the underlying
security during the option period. If a covered call option is exercised, the
Fund involved may deliver the underlying security held by it or purchase the
underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss. If a secured put option is exercised, the amount paid by
the Fund for the underlying security will be partially offset by the amount of
the premium previously paid to the Fund. Premiums from expired options written
by a Fund and net gains from closing purchase transactions are treated as short-
term capital gains for federal income tax purposes, and losses on closing
purchase transactions are short-term capital losses.
As noted previously, there are several risks associated with transactions in
options on securities and indices. For example, there are significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objectives. In addition, a liquid secondary market for particular
options, whether traded over-the-counter or on a national securities exchange
may be absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading volume; or one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the exercise
of skill and judgment, and even a well-conceived transaction may result in a
loss because of market behavior or unexpected events.
FUTURES CONTRACTS
The Growth and Income Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II, Asset Allocation, High Quality Bond Fund and Columbia High Yield
Fund II may enter into financial futures contracts, which are commodity
contracts that obligate the holder to take or make delivery of a specified
quantity of a financial instrument, such as a security or a foreign currency, or
the cash value of a securities index, during a specified future period at a
specified price. The High Quality Bond Fund will only write contracts (both
purchases and sales) for the future delivery of fixed income securities
(commonly known as interest rate futures contracts). The Asset Allocation Fund
will only write contracts (both purchases and sales) for the future delivery of
foreign currency. See Appendix B to this Statement of Additional Information for
additional information on futures contracts.
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INDEXED SECURITIES
The Growth and Income Fund and Small Company Growth Fund may invest in a
type of derivative security known as indexed securities. The value of these
securities is linked to foreign currencies, interest rates, commodities, indices
or other financial indicators. Most indexed securities are short- to
intermediate-term fixed income securities whose values at maturity or interest
rates rise or fall according to the change in one or more specified underlying
instruments. Indexed securities may be positively or negatively indexed (I.E.,
their value may increase or decrease if the underlying instrument appreciates),
and may have return characteristics similar to direct investments in the
underlying instrument or to one or more options on the underlying instrument.
Indexed securities may be more volatile than the underlying instrument itself.
SWAP AGREEMENTS
As one way of managing their exposure to different types of investments, the
Growth and Income Fund and Small Company Growth Fund may enter into interest
rate swaps, currency swaps and other types of swap agreements such as caps,
collars and floors. In a typical interest rate swap, one party agrees to make
regular payments equal to a floating interest rate times a "notional principal
amount," in return for payments equal to a fixed rate times the same amount, for
a specified period of time. If a swap agreement provides for payments in
different currencies, the parties might agree to exchange the notional principal
amount as well. Swaps may also depend on other prices or rates, such as the
value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds a
designated level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one
type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve
a small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on a
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A Fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce its exposure
through offsetting transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Growth and Income Fund, Small Company Growth Fund, Columbia Real
Estate Equity Fund II and Asset Allocation Fund may buy and sell securities
denominated in currencies other than the U.S. dollar, and receive interest,
dividends and sale proceeds in currencies other than the U.S. dollar, the Funds
may enter into foreign currency exchange transactions to convert United States
currency to foreign currency and foreign currency to United States currency as
well as convert foreign currency to other foreign currencies. A Fund either
enters into these transactions on a spot (I.E., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a specified price and future date, which
may be any fixed number of days from the date of the contract. Forward foreign
currency exchange contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
foreign currency exchange contract generally has no deposit
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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 a Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
A Fund may enter into foreign currency hedging transactions in an attempt to
protect against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Since consideration of the prospect for currency
parities will be incorporated into a Fund's long-term investment decisions, a
Fund will not routinely enter into foreign currency hedging transactions with
respect to portfolio security transactions; however, it is important to have the
flexibility to enter into foreign currency hedging transactions when it is
determined that the transactions would be in a Fund's best interest. Although
these transactions tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
these securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
PORTFOLIO SECURITIES GENERALLY -- MONEY MARKET FUND
Subsequent to its purchase by the Money Market Fund, the rating for an issue
of securities may be reduced below the minimum rating required for purchase by
the Fund. The Board of Trustees or Fleet, pursuant to guidelines established by
the Board, will promptly consider such an event in determining whether the Fund
should continue to hold the obligation. The Fund may continue to hold the
obligation if the Board of Trustees or Fleet determines that retention is in
accordance with the interests of the Fund and applicable regulations of the
Securities and Exchange Commission ("SEC").
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in the Prospectus, the
Funds are subject to the following investment limitations which may be changed
with respect to a particular Fund only by a vote of the holders of a majority of
such Fund's outstanding Shares (as defined under "Miscellaneous" in the
Prospectus).
No Fund may:
1. Purchase securities on margin (except such short-term credits as
may be necessary for the clearance of purchases), make short sales of
securities, or maintain a short position.
2. Act as an underwriter within the meaning of the Securities Act of
1933, except insofar as a Fund might be deemed to be an underwriter upon
disposition of restricted portfolio securities, and except to the extent
that the purchase of securities directly from the issuer thereof in
accordance with a Fund's investment objective, policies and limitations may
be deemed to be underwriting.
3. Purchase or sell real estate, except that each Fund may purchase
securities which are secured by real estate and may purchase securities of
issuers which deal in real estate or interests therein; however, the Funds
other than the Columbia Real Estate Equity Fund II and the Columbia High
Yield Fund II will not purchase or sell interests in real estate limited
partnerships.
4. Purchase or sell commodities or commodity contracts, or invest in
oil, gas or other mineral exploration or development programs or mineral
leases; provided, however, that (i) the High Quality Bond Fund may enter
into interest rate futures contracts to the extent permitted under the
Commodity Exchange Act and the 1940 Act; (ii) the Growth and Income Fund,
Small Company Growth Fund, Columbia Real Estate Equity Fund II and Columbia
High Yield Fund II may enter into futures contracts and options on futures
contracts; and (iii) the Growth and Income Fund, Small Company Growth Fund,
Columbia Real Estate Equity Fund II and Asset Allocation Fund may enter into
forward currency contracts and foreign
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currency futures contracts and related options to the extent permitted by
their respective investment objectives and policies.
5. Invest in or sell put options, call options, straddles, spreads,
or any combination thereof; provided, however, that (i) the Equity Fund,
Growth and Income Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II, Asset Allocation Fund and Columbia High Yield Fund II may
write covered call options with respect to their portfolio securities that
are traded on a national securities exchange, and may enter into closing
purchase transactions with respect to such options if, at the time of the
writing of such options, the aggregate value of the securities subject to
the options written by the Funds does not exceed 25% of the value of their
respective total assets; (ii) the Equity Fund and Asset Allocation Fund may
purchase put and call options to the extent permitted by their respective
investment objectives and policies; and (iii) the Growth and Income Fund,
Small Company Growth Fund, Columbia Real Estate Equity Fund II and Columbia
High Yield Fund II may purchase put and call options and sell or write
secured put options to the extent permitted by their respective investment
objectives and policies.
6. Invest in companies for the purpose of exercising management or
control.
7. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization, or acquisition of
assets; provided, however, that each Fund other than the Money Market Fund
may acquire such securities in accordance with the 1940 Act.
In addition to the above limitations:
8. The Money Market Fund may not purchase any securities other than
"money-market" instruments, some of which may be subject to repurchase
agreements, but the Fund may make interest-bearing savings deposits not in
excess of 5% of the value of its total assets at the time of deposit and may
make time deposits.
9. The Money Market, Equity and High Quality Bond Funds may not
purchase foreign securities, except certificates of deposit, bankers'
acceptances, or other similar obligations issued by U.S. branches of foreign
banks or foreign branches of U.S. banks; provided, however, that (i) the
High Quality Bond Fund may also purchase obligations of Canadian Provincial
Governments in accordance with the Fund's investment objective and policies;
(ii) the Equity Fund may purchase securities issued by foreign banks,
commercial paper issued by Canadian issuers and other securities of Canadian
companies in accordance with its investment objective and policies; and
(iii) the Equity Fund may invest up to 20% of its total assets in American
Depository Receipts and European Depository Receipts.
NET ASSET VALUE -- MONEY MARKET FUND
GALAXY VIP uses the amortized cost method of valuation to value Shares of
the Money Market Fund. In order to use the amortized cost method, the Fund
complies with the various quality and maturity restrictions specified in Rule
2a-7 ("Rule 2a-7") promulgated under the 1940 Act. Pursuant to this method, a
security is valued at its initial acquisition cost, as adjusted for amortization
of premium or accretion of discount, regardless of the impact of fluctuating
interest rates on the market value of the security. Where it is not appropriate
to value a security by the amortized cost method, the security will be valued
either by market quotations or by fair value as determined by or under the
direction of GALAXY VIP's Board of Trustees. This method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the security. The value of securities in
the Fund can be expected to vary inversely with changes in prevailing interest
rates. Thus, if interest rates have increased from the time a security was
purchased, such security, if sold, might be sold at a price less than its cost.
Similarly, if interest rates have declined from the time a security was
purchased, such 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
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a stable net asset value per Share, provided that the Fund will not purchase any
security deemed to have a remaining maturity (as defined in the 1940 Act) of
more than thirteen months nor maintain a dollar-weighted average portfolio
maturity which exceeds 90 days. GALAXY VIP's Board of Trustees has established
procedures reasonably designed, taking into account current market conditions
and the Fund's investment objective, to stabilize the net asset value per Share
of the Fund for purposes of sales and redemptions at $1.00. These procedures
include review by the Board of Trustees, at such intervals as it deems
appropriate, to determine the extent, if any, to which the net asset value per
Share of the Fund, calculated by using available market quotations, deviates
from $1.00 per Share. In the event such deviation exceeds one-half of one
percent, the Board of Trustees will promptly consider what action, if any,
should be initiated. If the Board of Trustees believes that the extent of any
deviation from the Fund's $1.00 amortized cost price per Share may result in
material dilution or other unfair results to new or existing investors, it has
agreed to take such steps as it considers appropriate to eliminate or reduce, to
the extent reasonably practicable, any such dilution or unfair results. These
steps may include selling portfolio instruments prior to maturity; shortening
the average portfolio maturity; withholding or reducing dividends; redeeming
Shares in kind; reducing the number of the Fund's outstanding Shares without
monetary consideration; or utilizing a net asset value per Share determined by
using available market quotations.
DIVIDENDS -- MONEY MARKET FUND
As stated, GALAXY VIP uses its best efforts to maintain the net asset value
per Share of the Money Market Fund at $1.00. As a result of a significant
expense or realized or unrealized loss incurred by the Fund, it is possible that
the Fund's net asset value per Share may fall below $1.00. Should GALAXY VIP
incur or anticipate any unusual or unexpected significant expense or loss which
would affect disproportionately the income of the Fund for a particular period,
the Board of Trustees would at that time consider whether to adhere to the
present dividend policy with respect to the Fund or to revise it in order to
ameliorate to the extent possible the disproportionate effect of such expense or
loss on the income of the Fund. Such expense or loss may result in a
shareholder's receiving no dividends for the period in which it holds Shares of
the Fund and in its receiving upon redemption a price per Share lower than that
which it paid.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"). As described in the Prospectus, Shares
of the Funds are sold and redeemed at their net asset value as next determined
after receipt of the purchase or redemption order. Each purchase is confirmed to
the Separate Account in a written statement of the number of Shares purchased
and the aggregate number of Shares currently held.
Each Fund determines its net asset value per Share by subtracting the Fund's
liabilities (including accrued expenses and dividends payable) from its total
assets (the market value of the securities the Fund holds plus cash and other
assets, including income accrued and not yet received) and dividing the result
by the total number of Shares outstanding.
GALAXY VIP may suspend the right of redemption or postpone the date of
payment for Shares for more than seven days during any period when (a) trading
in the markets the Funds normally utilize is restricted, or an emergency, as
defined by the rules and regulations of the SEC, exists making disposal of a
Fund's investments or determination of its net asset value not reasonably
practicable; (b) the New York Stock Exchange is closed (other than customary
weekend and holiday closings); or (c) the SEC has by order permitted such
suspension.
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DESCRIPTION OF SHARES
GALAXY VIP is a Massachusetts business trust. GALAXY VIP's Declaration of
Trust authorizes the Board of Trustees to issue an unlimited number of Shares
and to classify or reclassify any unissued Shares into one or more additional
classes by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized the
issuance of eight classes of Shares, each representing interests in one of eight
separate investment portfolios: Money Market Fund, Equity Fund, Growth and
Income Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund II,
Asset Allocation Fund, High Quality Bond Fund and Columbia High Yield Fund II.
Shares have no preemptive rights and only such conversion or exchange rights
as the Board of Trustees may grant in its discretion. When issued for payment as
described in the Prospectus, Shares will be fully paid and non-assessable. In
the event of a liquidation or dissolution of GALAXY VIP or an individual Fund,
shareholders of a Fund are entitled to receive the assets available for
distribution belonging to the particular Fund, and a proportionate distribution,
based upon the relative asset values of the respective Funds, of any general
assets of GALAXY VIP not belonging to any particular Fund which are available
for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as GALAXY VIP shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding Shares of
each Fund affected by the matter. A particular Fund is deemed to be affected by
a matter unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not affect any interest of the
Fund. Under the Rule, the approval of an investment advisory agreement or any
change in fundamental investment policy would be effectively acted upon with
respect to a Fund only if approved by a majority of the outstanding Shares of
such Fund. However, the Rule also provides that the ratification of the
appointment of independent public accountants, the approval of principal
underwriting contracts and the election of trustees may be effectively acted
upon by shareholders of GALAXY VIP voting without regard to class.
Shareholders are entitled to one vote for each full Share held and
fractional votes for fractional Shares held, and will vote in the aggregate, and
not by class, except as otherwise required by the 1940 Act or other applicable
law or when the matter to be voted upon affects only the interests of the
shareholders of a particular class. Voting rights are not cumulative and,
accordingly, the holders of more than 50% of the aggregate of GALAXY VIP's
outstanding Shares may elect all of the trustees, irrespective of the votes of
other shareholders.
GALAXY VIP does not intend to hold annual shareholder meetings except as may
be required by the 1940 Act. GALAXY VIP's Agreement and Declaration of Trust
provides that a meeting of shareholders shall be called by the Board of Trustees
upon the written request of shareholders owning at least 10% of the outstanding
Shares of GALAXY VIP entitled to vote.
GALAXY VIP's Agreement and Declaration of Trust authorizes the Board of
Trustees, without shareholder approval (unless otherwise required by applicable
law), to (a) sell and convey the assets of a class of Shares to another
management investment company for consideration which may include securities
issued by the purchaser and, in connection therewith, to cause all outstanding
Shares of such class to be redeemed at a price which is equal to their net asset
value and which may be paid in cash or by distribution of the securities or
other consideration received from the sale and conveyance; (b) sell and convert
the assets belonging to a class of Shares into money and, in connection
therewith, to cause all outstanding Shares of such class to be redeemed at their
net asset value; or (c) combine the assets belonging to a class of Shares with
the assets belonging to one or more other classes of Shares of GALAXY VIP if the
Board of Trustees reasonably determines that such combination will not have a
material adverse effect on the shareholders of any class participating in such
combination and, in connection therewith, to cause all outstanding Shares of any
such class to be redeemed at their net asset value or converted into Shares of
another class of GALAXY VIP's Shares at their net asset value. However, the
exercise of such authority by the Board of Trustees may be subject to certain
restrictions under the 1940 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.
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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>
PRINCIPAL OCCUPATION
POSITIONS WITH DURING PAST 5 YEARS
NAME AND ADDRESS GALAXY VIP AND OTHER AFFILIATIONS
- --------------------------------------- --------------- -------------------------------------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks Lithograph & Printing
Vicks Lithograph & Trustee Corporation (book manufacturing and commercial
Printing Corporation printing); Director, Utica Fire Insurance
Commercial Drive Company; Trustee, Savings Bank of Utica;
P.O. Box 270 Director, Monitor Life Insurance Company;
Yorkville, NY 13495 Director, Commercial Travelers Mutual Insurance
Age 64 Company; Trustee, The Galaxy Fund; Trustee,
Galaxy Fund II.
John T. O'Neill1 President, Executive Vice President and CFO, Hasbro, Inc.
Hasbro, Inc. Treasurer & (toy and game manufacturer); Trustee, The Galaxy
200 Narragansett Park Drive Trustee Fund; Trustee, Galaxy Fund II.
Pawtucket, RI 02862
Age 53
Louis DeThomasis Trustee President, Saint Mary's College of Minnesota;
Saint Mary's College of Minnesota Director, Bright Day Travel, Inc.; Trustee,
Winona, MN 55987 Religious Communities Trust; Trustee, The Galaxy
Age 57 Fund; Trustee, Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington Funds;
Boynton Beach, FL 33436 Chairman, Executive Committee, Compton
Age 72 International, Inc. (advertising agency);
Trustee, Keuka College; Trustee, The Galaxy
Fund; Trustee, Galaxy Fund II.
James M. Seed Trustee Chairman and President, The Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President, The
One Citizens Plaza Astra Ventures, Incorporated (previously,
Providence, RI 02903 Buffinton Box Company -- manufacturer of
Age 57 cardboard boxes); Commissioner, Rhode Island
Investment Commission; Trustee, The Galaxy Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman1 Trustee Private Investor; Vice President and Director,
P.O. Box 2099 Acadia Management Company (investment services);
Bangor, ME 04402 Director, Essex County Gas Company, until
Age 67 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 law firm Drinker Biddle & Reath
1345 Chestnut Street LLP, Philadelphia, Pennsylvania.
Philadelphia, PA 19107
Age 55
Jylanne Dunne Vice President Vice President, First Data Investor Services
First Data Investor Services and Assistant Group, Inc., 1990 to present.
Group, Inc. Treasurer
4400 Computer Drive
Westboro, MA 01581-5108
Age 38
</TABLE>
- -------------
1 An interested person within the definition set forth in Section 2(a)(19) of
the 1940 Act.
11
<PAGE>
Effective March 5, 1998, 1998, each trustee receives an annual aggregate fee
of $40,000 for his services as a trustee of GALAXY VIP, The Galaxy Fund
("Galaxy") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus
an additional $2,500 for each in-person Galaxy Board meeting attended and $1,500
for each in-person GALAXY VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy Board meeting, and is reimbursed for
expenses incurred in attending all meetings. Each trustee also receives $750 for
each telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of 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.
Prior to March 5, 1998, each trustee was authorized to receive an annual
aggregate fee of $29,000 for his services as a trustee of the Trusts, plus an
additional $2,250 for each in-person Galaxy Board meeting attended, $1,500 for
each in-person GALAXY VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy Board meeting, and $500 for each telephone
Board meeting in which the trustee participated and was reimbursed for expenses
incurred in attending all meetings. Annual fees to the Chairman of the Boards
and the President and Treasurer of the Trusts were the same as the current fees,
as were the fees for Board committee meetings.
Beginning March 1, 1996, each trustee became entitled to participate in The
Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans
(the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the Shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments. Deferral
of trustees' fees will have no effect on a Fund's assets, liabilities and net
income per share, and will not obligate the Trusts to retain the services of any
trustee or obligate a Fund to any level of compensation to the trustee. The
Trusts may invest in underlying securities without shareholder approval.
No employee of First Data Investor Services Group, Inc. receives any
compensation from GALAXY VIP for acting as an officer. No person who is an
officer, director or employee of Fleet, Columbia, or any of their affiliates,
serves as a trustee, officer or employee of GALAXY VIP. As of the date of this
Statement of Additional Information, the trustees and officers of GALAXY VIP own
less than 1% of its outstanding Shares.
The following chart provides certain information about the fees received by
GALAXY VIP's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
PENSION OR 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.................................... $ 410 None $ 38,500
Dwight E. Vicks, Jr.................................... $ 453 None $ 42,500
Chairman
Donald B. Miller**..................................... $ 410 None $ 38,500
Brother Louis DeThomasis............................... $ 410 None $ 38,500
John T. O'Neill........................................ $ 437 None $ 41,000
President and Treasurer
James M. Seed**........................................ $ 410 None $ 38,500
</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 $433 and $443 accrued during GALAXY
VIP's fiscal year ended December 31, 1997 for Messrs. Miller and Seed,
respectively.
12
<PAGE>
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. However, GALAXY VIP's Agreement and Declaration of Trust provides that
shareholders shall not be subject to any personal liability in connection with
the assets of GALAXY VIP for the acts or obligations of GALAXY VIP, and that
every note, bond, contract, order or other undertaking made by GALAXY VIP shall
contain a provision to the effect that the shareholders are not personally
liable thereunder. The Agreement and Declaration of Trust provides for
indemnification out of GALAXY VIP property of any shareholder held personally
liable solely by reason of his being or having been a shareholder and not
because of his acts or for some other reason. The Agreement and Declaration of
Trust also provides that GALAXY VIP shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of GALAXY VIP,
and shall satisfy any judgment thereon. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which GALAXY VIP itself would be unable to meet its
obligations.
The Agreement and Declaration of Trust states further that no trustee,
officer or agent of GALAXY VIP shall be personally liable for or on account of
any contract, debt, tort, claim, damage, judgment or decree arising out of or
connected with the administration or preservation of GALAXY VIP property or the
conduct of any business of GALAXY VIP; nor shall any trustee be personally
liable to any person for any action or failure to act except by reason of his
own bad faith, willful misfeasance, gross negligence or reckless disregard of
his duties as trustee. The Agreement and Declaration of Trust also provides that
all persons having any claim against the trustees or GALAXY VIP shall look
solely to GALAXY VIP property for payment. With the exceptions stated, the
Agreement and Declaration of Trust provides that a trustee is entitled to be
indemnified against all liabilities and expenses reasonably incurred by him in
connection with the defense or disposition of any proceeding in which he may be
involved or with which he may be threatened by reason of his being or having
been a trustee, and that the Board of Trustees shall indemnify representatives
and employees of GALAXY VIP to the same extent to which they themselves are
entitled to indemnification.
ADVISORY, ADMINISTRATION AND CUSTODIAN AGREEMENTS
Fleet serves as investment adviser to the Money Market Fund, Equity Fund,
Growth and Income Fund, Small Company Growth Fund, Asset Allocation Fund and
High Quality Bond Fund. Columbia serves an investment adviser to the Columbia
Real Estate Equity Fund II and Columbia High Yield Fund II. In their respective
advisory agreements, Fleet and Columbia have agreed to provide investment
advisory services to the respective Funds as described in the Prospectus. Fleet
and Columbia have also agreed to pay all expenses incurred by them in connection
with their activities under the respective advisory agreements other than the
cost of securities (including brokerage commissions) purchased for the Funds.
See "Expenses" in the Prospectus. For the services provided and expenses assumed
pursuant to the advisory agreements, GALAXY VIP has agreed (i) to pay Fleet
advisory fees, accrued daily and paid monthly, at the annual rate of .40% of the
average daily net assets of the Money Market Fund, .75% of the average daily net
assets of the Equity Fund, Growth and Income Fund, Small Company Growth Fund and
Asset Allocation Fund, respectively, and .55% of the average daily net assets of
the High Quality Bond Fund, and (ii) to pay Columbia advisory fees, accrued
daily and paid monthly, at the annual rate of .75% of the average daily net
assets of the Columbia Real Estate Equity Fund II and .60% of the average daily
net assets of the Columbia High Yield Fund II. Fleet and Columbia may from time
to time, in their discretion, waive advisory fees payable by the respective
Funds in order to maintain competitive expense ratios.
For the fiscal year ended December 31, 1995, GALAXY VIP paid Fleet net
advisory fees of $20,155, $182,558, $77,415 and $11,048 for the Money Market
Fund, the Equity Fund, the Asset Allocation Fund and the High Quality Bond Fund,
respectively. For the fiscal year ended December 31, 1996, GALAXY VIP paid Fleet
net advisory fees of $26,160, $284,214, $152,669 and $16,778 for the Money
Market Fund, the Equity Fund, the Asset Allocation Fund and the High Quality
Bond Fund, respectively. For the fiscal year ended December 31, 1997, Galaxy VIP
paid Fleet net advisory fees of $22,042, $440,287, $219,457 and $15,830 for the
Money Market Fund, the Equity Fund, the Asset Allocation Fund and the High
Quality Bond Fund, respectively.
13
<PAGE>
Each advisory agreement provides that Fleet or Columbia, as the case may be,
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in connection with the performance of its duties under the
advisory agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Fleet or
Columbia, as the case may be, in the performance of its duties or from reckless
disregard by it of its duties and obligations thereunder. Unless sooner
terminated, the advisory agreement for a particular Fund will continue in effect
from year to year as long as such continuance is approved at least annually (i)
by the vote of a majority of trustees who are not parties to such advisory
agreement or interested persons (as defined in the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such approval;
and (ii) by GALAXY VIP's Board of Trustees, or by a vote of a majority of the
outstanding Shares of such Fund. Each advisory agreement may be terminated by
GALAXY VIP or by Fleet or Columbia, as the case may be, on sixty days' written
notice, and will terminate immediately in the event of its assignment.
First Data Investor Services Group, Inc. ("Investor Services Group") serves
as GALAXY VIP's administrator. Under the administration agreement, Investor
Services Group 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. Investor Services Group 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 Investor Services Group 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 Investor Services Group for its administration services. The minimum
aggregate annual fee payable for administration services is $100,000. In
addition, Investor Services Group 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, Investor
Services Group 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, 1995, GALAXY VIP paid Investor
Services Group 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 Investor Services Group 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. For the fiscal year ended
December 31, 1997, GALAXY VIP paid Investor Services Group net administration,
custody and fund accounting fees of $37,694, $74,956, $78,328 and $38,071 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 Investor Services Group. 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 Growth and Income Fund, Small Company Growth Fund,
14
<PAGE>
Columbia Real Estate Equity Fund II, Asset Allocation Fund and Columbia High
Yield Fund II upon prior approval by the Board of Trustees in accordance with
the regulations of the SEC, for the purpose of providing custodial services for
the foreign assets of those Funds held outside the United States. The assets of
the Funds are held under bank custodianship in compliance with the 1940 Act.
PORTFOLIO TRANSACTIONS
Debt securities purchased or sold by the Money Market Fund, Asset Allocation
Fund, High Quality Bond Fund and Columbia High Yield Fund II are generally
traded in the over-the-counter market on a net basis (I.E., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
Transactions in equity securities on U.S. stock exchanges for the Equity
Fund, Growth and Income Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II and Asset Allocation Fund involve the payment of negotiated
brokerage commissions. On U.S. stock exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers.
Transactions in the over-the-counter market are generally principal transactions
with dealers and the costs of such transactions involve dealer spreads rather
than brokerage commissions. With respect to over-the-counter transactions, Fleet
or Columbia, as the case may be, will normally deal directly with the dealers
who make a market in the securities involved except in those circumstances where
better prices and execution are available elsewhere or as described below.
For the fiscal years ended December 31, 1997, 1996 and 1995, the Equity Fund
paid brokerage commissions aggregating $7,285, $13,235 and $9,625, respectively.
For the fiscal years ended December 31, 1997, 1996 and 1995, the Asset
Allocation Fund paid brokerage commissions aggregating $19,552, $9,717 and
$8,136, respectively.
The Equity Fund, Growth and Income Fund, Small Company Growth Fund, Columbia
Real Estate Equity Fund II, Asset Allocation Fund, High Quality Bond Fund and
Columbia High Yield Fund II may engage in short-term trading to achieve their
investment objectives. Portfolio turnover may vary greatly from year to year as
well as within a particular year. The Money Market Fund does not intend to seek
profits from short-term trading. Its annual portfolio turnover will be
relatively high, but since brokerage commissions are normally not paid on money
market instruments, it should not have a material effect on the net income of
the Fund. The portfolio turnover rates for the Equity Fund, Asset Allocation
Fund and High Quality Bond Fund for each of the last four fiscal years and for
the period from the commencement of operations is disclosed in the Prospectus
under "Financial Highlights." Although the Growth and Income Fund, Small Company
Growth Fund, Columbia Real Estate Equity Fund II and Columbia High Yield Fund II
cannot accurately predict their respective annual portfolio turnover rates, it
is not expected to exceed 100% for any of these Funds.
In purchasing or selling securities for the Funds, Fleet or Columbia, as the
case may be, will seek to obtain the best net price and the most favorable
execution of orders. To the extent that the execution and price offered by more
than one broker/dealer are comparable, Fleet or Columbia may effect transactions
in portfolio securities with broker/dealers who provide research, advice or
other services such as (1) advice as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities or purchasers or sellers of securities and (2)
analyses and reports concerning industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts. It is possible that
certain of the research, advice or other services received will primarily
benefit one or more other investment companies or other accounts for which Fleet
or Columbia exercises investment discretion. Conversely, GALAXY VIP or any given
Fund may be the primary beneficiary of the research, advice or other services
received as a result of portfolio transactions effected for such other accounts
or investment companies.
Except as permitted by the SEC or applicable law, the Funds will not acquire
portfolio securities from, make savings deposits in, enter into repurchase or
reverse repurchase agreements with, or sell securities to,
15
<PAGE>
Fleet, Columbia, Investor Services Group or their affiliates, and will not give
preference to affiliates and correspondent banks of Fleet or Columbia with
respect to such transactions.
GALAXY VIP is required to identify any securities of its "regular brokers or
dealers" that GALAXY VIP has acquired during its most recent fiscal year. At
December 31, 1997, the Asset Allocation Fund held 2,000 shares of common stock
of Chase Manhattan Corp. valued at $219,000. The Chase Manhattan Bank (or
affiliates) is considered a "regular broker or dealer" of GALAXY VIP.
Investment decisions for each Fund are made independently from those for the
other Funds and for any other investment companies and accounts advised or
managed by Fleet or Columbia. When a purchase or sale of the same security is
made at substantially the same time on behalf of a Fund, another portfolio of
GALAXY VIP, and/or another investment company or account, the transaction will
be averaged as to price, and available investments allocated as to amount, in a
manner which Fleet or Columbia, as the case may be, believes to be equitable to
the Fund and such other portfolio, investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by such Fund. To
the extent permitted by law, Fleet or Columbia, as the case may be, may
aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for its other portfolios, or other investment companies or
accounts in order to obtain best execution.
DISTRIBUTOR
Unless otherwise terminated, the Distribution Agreement between GALAXY VIP
and FD Distributors remains in effect until May 31, 1999, and thereafter will
continue from year to year upon annual approval by GALAXY VIP's Board of
Trustees, or by the vote of a majority of the outstanding Shares of GALAXY VIP
and by the vote of a majority of the Board of Trustees of GALAXY VIP who are not
parties to the Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval. The Agreement
will terminate in the event of its assignment, as defined in the 1940 Act.
AUDITORS
Coopers & Lybrand L.L.P., independent certified public accountants, with
offices at One Post Office Square, Boston, Massachusetts 02109, serve as
auditors to GALAXY VIP. Coopers & Lybrand L.L.P. performs an annual audit of the
Funds' financial statements and provides other services related to filings with
respect to securities regulations. Reports of its activities are provided to the
Board of Trustees.
COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of GALAXY VIP,
is a partner), Philadelphia National Bank Building, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107, are counsel to GALAXY VIP and will pass upon
certain legal matters pertaining to the Shares offered hereby.
PERFORMANCE AND YIELD INFORMATION
YIELD QUOTATIONS -- MONEY MARKET FUND
The standardized annualized seven-day yield for the Money Market Fund is
computed by: (1) determining the net change, exclusive of capital changes, in
the value of a hypothetical pre-existing account in the Fund having a balance of
one Share at the beginning of a seven-day period, for which the yield is to be
quoted, (2) dividing the net change in 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
16
<PAGE>
Shares, and all fees that are charged by the Fund to all shareholder accounts in
proportion to the length of the base period, other than nonrecurring account and
sales charges. For any account fees that vary with the size of the account, the
amount of fees charged is computed with respect to the Fund's mean (or median)
account size. The capital changes to be excluded from the calculation of the net
change in account value are realized gains and losses from the sale of the
securities and unrealized appreciation and depreciation. The effective compound
yield quotation for the Fund is computed by adding 1 to the unannualized base
period return (calculated as described above), raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
The current yield for the Money Market Fund may be obtained by calling
GALAXY VIP at 1-800-628-0414. For the seven-day period ended December 31, 1997,
the annualized yield of the Money Market Fund was 5.10% and the effective yield
was 5.22%.
YIELD AND TOTAL RETURN QUOTATIONS -- NON-MONEY MARKET FUNDS
The Equity Fund's, Growth and Income Fund's, Small Company Growth Fund's,
Columbia Real Estate Equity Fund II's, Asset Allocation Fund's, High Quality
Bond Fund's or Columbia High Yield Fund II's 30-day (or one month) yield
described in the Prospectus is calculated for each Fund in accordance with the
method prescribed by the SEC for mutual funds:
a-b 6
YIELD = 2[(----+1)- 1]
cd
<TABLE>
<S> <C> <C>
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of Shares outstanding during the period, entitled to receive
dividends;
and
d = maximum offering price per Share on the last day of the period.
</TABLE>
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 Fund, Asset
Allocation Fund and High Quality Bond Fund for the 30-day period ended December
31, 1997 were 1.34%, 2.67% and 5.71%, respectively.
17
<PAGE>
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:
ERV 1/n
T = [(-----)- 1]
P
<TABLE>
<S> <C> <C>
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning
of the 1, 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.
</TABLE>
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 =[(-----) - 1]
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, 1997
were 27.74%, 19.03% and 9.36%, 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, 1997 were 16.32%, 13.06% and 6.51%, 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 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 April 1, 1998, 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.
18
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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 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.
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"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.
"D-5" Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA 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 IBCA 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.
"B" 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.
"C" Securities possess very weak credit quality. Issues assigned this
rating have a real possibility of default.
"D" Securities are in actual or imminent payment default.
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.
"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.
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CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for corporate
and municipal debt:
"AAA" This designation represents the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" Debt is considered to have a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
"A" Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
"BBB" Debt is regarded as having an adequate capacity to pay interest and
repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
"BB," "B," "CCC," "CC" and "C" -- Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which
could lead to inadequate capacity to meet timely interest and
principal payments. The "BB" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
"BBB-" rating.
"B" Debt has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The "B"
rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "BB" or "BB-" rating.
"CCC" Debt has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions
to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The
"CCC" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "B" or "B-" rating.
"CC" This rating is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
"C" This rating is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition
has been filed, but debt service payments are continued.
"CI" This rating is reserved for income bonds on which no interest is
being paid.
"D" Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes
that such payments will be made during such grace period. "D" rating
is also used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
PLUS (+) OR MINUS (-) -- The ratings from "AA" through "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
"r" This rating is attached to highlight derivative, hybrid, and certain
other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or
interest return is indexed to
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equities, commodities, or currencies; certain swaps and options; and
interest only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" Bonds are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
"Aa" Bonds are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or
there may 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.
"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.
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"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 IBCA 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.
"BB," "B," "CCC," "CC," "C," and "D" -- Bonds that possess one of these
ratings are considered by Fitch IBCA to be speculative investments. The ratings
"BB" to "C" represent Fitch IBCA'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 "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.
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,
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<PAGE>
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.
"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 IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
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APPENDIX B
As stated in the Prospectus and in this Statement of Additional Information,
certain of the Funds may enter into futures transactions and options thereon for
hedging purposes. Such transactions are described in this Appendix.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both
the cash market and the futures market. In the cash market, bonds are purchased
and sold with payment for the full purchase price of the bond being made in
cash, generally within five business days after the trade. In the futures
market, only a contract is made to purchase or sell a bond in the future for a
set price on a certain date. Historically, the prices for bonds established in
the futures markets have tended to move generally in the aggregate in concert
with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Fund may use interest rate futures contracts as a
defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it hopes to
achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market, the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by a Fund, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by a Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's entering
into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, a Fund immediately is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, a Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by a Fund
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, a Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, a Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. A Fund would deal
only in standardized contracts on recognized exchanges. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. A Fund may trade in any interest rate futures contracts for
which there exists a public market, including, without limitation, the foregoing
instruments.
EXAMPLE OF FUTURES CONTRACT SALE. A Fund would engage in an interest rate
futures contract sale to maintain the income advantage from continued holding of
a long-term bond while endeavoring to avoid part or
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all of the loss in market value that would otherwise accompany a decline in
long-term securities prices. Assume that the market value of a certain security
held by a Fund tends to move in concert with the futures market prices of
long-term United States Treasury bonds ("Treasury bonds"). Fleet or Columbia, as
the case may be, wishes to fix the current market value of this portfolio
security until some point in the future. Assume the portfolio security has a
market value of 100, and Fleet or Columbia believes that, because of an
anticipated rise in interest rates, the value will decline to 95. A Fund might
enter into futures contract sales of Treasury bonds for an equivalent of 98. If
the market value of the portfolio security does indeed decline from 100 to 95,
the equivalent futures market price for the Treasury bonds might also decline
from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Fleet or Columbia could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, a Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter term securities
whose yields are greater than those available on long-term bonds. A Fund's basic
motivation would be to maintain for a time the income advantage from investing
in the short-term securities; a Fund would be endeavoring at the same time to
eliminate the effect of all or part of an expected increase in market price of
the long-term bonds that a Fund may purchase.
For example, assume that the market price of a long-term bond that a Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. Fleet or Columbia, as the case may be, wishes
to fix the current market price (and thus 10% yield) of the long-term bond until
the time (four months away in this example) when it may purchase the bond.
Assume the long-term bond has a market price of 100, and Fleet or Columbia
believes that, because of an anticipated fall in interest rates, the price will
have risen to 105 (and the yield will have dropped to about 9 1/2%) in four
months. A Fund might enter into futures contracts purchases of Treasury bonds
for an equivalent price of 98. At the same time, a Fund would assign a pool of
investments in short-term securities that are either maturing in four months or
earmarked for sale in four months, for purchase of the long-term bond at an
assumed market price of 100. Assume these short-term securities are yielding
15%. If the market price of the long-term bond does indeed rise from 100 to 105,
the equivalent futures market price for Treasury bonds might also rise from 98
to 103. In that case, the 5 point increase in the price that a Fund pays for the
long-term bond would be offset by the 5 point gain realized by closing out the
futures contract purchase.
Fleet or Columbia could be wrong in its forecast of interest rates;
long-term interest rates might rise to above 10%; and the equivalent futures
market price could fall below 98. If short-term rates at the same time fall to
10% or below, it is possible that a Fund would continue with its purchase
program for long-term bonds. The market price of available long-term bonds would
have decreased. The benefit of this price decrease, and thus yield increase,
will be reduced by the loss realized on closing out the futures contract
purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that a Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued incremental
income will be reduced by the loss realized on closing out the futures contract
purchase. In each transaction, expenses would also be incurred.
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II. INDEX FUTURES CONTRACTS.
A stock or bond index assigns relative values to the stocks or bonds
included in the index and the index fluctuates with changes in the market values
of the stocks or bonds included. A stock or bond index futures contract is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the stock index value (which assigns relative values to the common
stocks or bonds included in the index) at the close of the last trading day of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the underlying stocks in the index is made. Some stock
index futures contracts are based on broad market indices, such as the Standard
& Poor's 500 or the New York Stock Exchange Composite Index. In contrast,
certain exchanges offer futures contracts on narrower market indices, such as
the Standard & Poor's 100 or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a decrease in
market value of its portfolio securities that might otherwise result from a
market decline. A Fund may do so either to hedge the value of its portfolio as a
whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, a Fund will purchase such securities
upon termination of the long futures position, but a long futures position may
be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in anticipation of
changes in the composition of its portfolio holdings. For example, in the event
that a Fund expects to narrow the range of industry groups represented in its
holdings it may, prior to making purchases of the actual securities, establish a
long futures position based on a more restricted index, such as an index
comprised of securities of a particular industry group. A Fund may also sell
futures contracts in connection with this strategy, in order to protect against
the possibility that the value of the securities to be sold as part of the
restructuring of their respective portfolios will decline prior to the time of
sale.
The following are examples of transactions in stock index futures (net of
commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
PORTFOLIO FUTURES
- ----------------------------------------------------- -----------------------------------------------------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/Contract
Increase in Purchase Price = $2,500 Gain on Futures = $2,500
</TABLE>
B-3
<PAGE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
PORTFOLIO FUTURES
- ----------------------------------------------------- -----------------------------------------------------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Stock Buy 16 Index Futures at 120
with Value = $960,000 Value of Futures = $960,000
Loss in Fund Value = $40,000 Gain on Futures = $40,000
</TABLE>
If, however, the market moved in the opposite direction, that is, market
value decreased and a Fund had entered into an anticipatory purchase hedge, or
market value increased and a Fund had hedged its stock portfolio, the results of
the Fund's transactions in stock index futures would be as set forth below.
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
PORTFOLIO FUTURES
- ----------------------------------------------------- -----------------------------------------------------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Price = $2,500 Loss on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
PORTFOLIO FUTURES
- ----------------------------------------------------- -----------------------------------------------------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Stock Buy 16 Index Futures at 130
with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Fund Value = $40,000 Loss of Futures = $40,000
</TABLE>
B-4
<PAGE>
III. FUTURES CONTRACTS ON FOREIGN CURRENCIES.
A futures contract on foreign currency creates a binding obligation on one
party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of a foreign currency, for an amount fixed in
U.S. dollars. Foreign currency futures may be used by a Fund to hedge against
exposure to fluctuations in exchange rates between the U.S. dollar and other
currencies arising from multinational transactions.
IV. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially, a
Fund will be required to deposit with the broker or in a segregated account with
the Fund's custodian an amount of cash or liquid securities, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to a Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a Fund has purchased a futures contract
and the price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and a Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract and
the price of the future contract has declined in response to a decrease in the
underlying instruments, the position would be less valuable and a Fund would be
required to make a variation margin payment to the broker. At any time prior to
expiration of the futures contract, Fleet or Columbia, as the case may be, may
elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate a Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to a Fund, and
a Fund realizes a loss or gain.
V. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by a Fund as
hedging devices. One risk arises because of the imperfect correlation between
movements in the price of the futures and movements in the price of the
instruments which are the subject of the hedge. The price of the futures may
move more than or less than the price of the instruments being hedged. If the
price of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, a Fund will experience
either a loss or gain on the futures which will not be completely offset by
movements in the price of the instruments which are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by Fleet or Columbia, as the case may be. Conversely, a Fund may buy or sell
fewer futures contracts if the volatility over a particular time period of the
prices of the instruments being hedged is less than the volatility over such
time period of the futures contract being used, or if otherwise deemed to be
appropriate by Fleet or Columbia. It is also possible that, where a Fund had
sold futures to hedge its portfolio against a decline in the market, the market
may advance and the value of instruments held in a Fund may decline. If this
occurred, a Fund would lose money on the futures and also experience a decline
in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if a Fund then concludes not to invest its cash at that time because of
concern as to possible further
B-5
<PAGE>
market decline or for other reasons, a Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of the instruments that
were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of liquid assets, equal to the market value of the futures contracts,
will be deposited in a segregated account with the Fund's custodian and/or in a
margin account with a broker to collateralize the position and thereby insure
that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by Fleet or Columbia may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of trade
which provides a secondary market for such futures. Although the Funds intend to
purchase or sell futures only on exchanges or boards of trade where there appear
to be active secondary markets, there is no assurance that a liquid secondary
market on any exchange or board of trade will exist for any particular contract
or at any particular time. In such event, it may not be possible to close a
futures investment position, and in the event of adverse price movements, a Fund
would continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of the
securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by a Fund is also subject to the ability of Fleet
or Columbia, as the case may be, to predict correctly movements in the direction
of the market. For example, if a Fund has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, a Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
a Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. A Fund may
have to sell securities at a time when it may be disadvantageous to do so.
B-6
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements for the Money Market Fund, Equity Fund,
Asset Allocation Fund and High Quality Bond Fund and notes thereto in GALAXY
VIP's Annual Report to Shareholders for the fiscal year ended December 31, 1997
(the "1997 Annual Report") are incorporated into this Statement of Additional
Information by reference. No other parts of the 1997 Annual Report are
incorporated by reference herein. The financial statements included in the
Annual Report have been audited by the Fund's independent accountants, Coopers &
Lybrand L.L.P., whose report thereon is incorporated herein by reference. Such
audited financial statements have been incorporated herein in reliance upon such
report given upon their authority as experts in accounting and auditing.
Additional copies of the 1997 Annual Report may be obtained free of charge by
telephoning the GALAXY VIP at 800-628-0414.
FS-1
<PAGE>
Part C
- ------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
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,
1997, 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,
1997, 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,
1997, 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,
1997, 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 audited financial statements and related notes thereto for
the Money Market, Equity, Asset Allocation and High Quality Bond
Funds as contained in Registrant's December 31, 1997 Annual
Report to Shareholders, a copy of which has been filed with the
Commission.
<PAGE>
(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.
(2) Registrant's Code of Regulations.
(3) None.
(4) None.
(5)(a) Investment Advisory Agreement dated September 30, 1992
between Registrant and Fleet Investment Advisors Inc. with
respect to the Money Market, Equity, Asset Allocation and
High Quality Bond Funds.
(b) Addendum No. 1 dated March 2, 1998 to Investment Advisory
Agreement between Registrant and Fleet Investment Advisors
Inc. with respect to the Growth and Income Fund and Small
Company Growth Fund.
(c) Advisory Agreement dated February 27, 1998 between
Registrant and Columbia Management Co. with respect to the
Columbia Real Estate Equity Fund II and Columbia High Yield
Fund II.
(6)(a) Distribution Agreement dated as of June 1, 1997 between
Registrant and First Data Distributors, Inc. is incorporated
herein by reference to Exhibit (6)(a) to Registrant's
Post-Effective Amendment No. 6 as filed with the Commission
on November 21, 1997.
(b) Amendment No. 1 dated February 27, 1998 to Distribution
Agreement between Registrant and First Data Distributors,
Inc. with respect Growth and Income Fund, Small Company
Growth Fund, Columbia Real Estate Equity Fund II and
Columbia High Yield Fund II.
(7) The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan and Related Agreement effective as of
January 1, 1997 is incorporated herein by reference to
Exhibit (7) to Registrant's Post-Effective Amendment No. 5
as filed with the Commission on February 28, 1997.
-2-
<PAGE>
(8)(a) Global Custody Agreement dated November 13, 1992 between
Registrant and The Chase Manhattan Bank, N.A.
(b) Form of Amendment No. 1 to Global Custody Agreement between
Registrant and The Chase Manhattan Bank, N.A. is
incorporated herein by reference to Exhibit (8)(b) to
Registrant's Post-Effective Amendment No. 6 as filed with
the Commission on November 21, 1997.
(9)(a) Administration Agreement dated as of June 1, 1997 between
Registrant and First Data Investor Services Group, Inc. is
incorporated herein by reference to Exhibit (9)(a) to
Registrant's Post-Effective Amendment No. 6 as filed with
the Commission on November 21, 1997.
(b) Amendment No. 1 dated February 27, 1998 to Administration
Agreement between Registrant and First Data Investor
Services Group, Inc. with respect to the Growth and
Income Fund, Small Company Growth Fund, Columbia Real
Estate Equity Fund II and Columbia High Yield Fund II.
(c) Proposed Sales Agreement between Registrant and American
Skandia Life Assurance Corporation.
(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 LLP.
(12) None.
(13)(a) Purchase Agreement dated January 8, 1993 between
Registrant and Fleet Investment Advisors Inc.
(b) Purchase Agreement dated March 2, 1998 between
Registrant and Fleet Investment Advisors Inc.
with respect to the Small Company Growth Fund and
the Growth and Income Fund.
(c) Purchase Agreement dated February 27, 1998 between
Registrant and Columbia Management Co. with respect
to the Columbia Real Estate Equity Fund II and the
Columbia High Yield Fund II.
(14) None.
(15) None.
-3-
<PAGE>
(16) Schedule for Computation of Performance Quotations for the
Money Market, Equity, Asset Allocation and High Quality Bond
Funds.
(18) None.
(27) Financial Data Schedules for the fiscal ended December 31, 1997
for the Money Market, Equity, Asset Allocation and High Quality
Bond Funds.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees, the members of which
also serve as members of the Board of Trustees of The Galaxy Fund and
Galaxy Fund II.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Registrant was organized primarily for the purpose of providing a vehicle
for the investment of assets received by various separate investment
accounts ("Separate Accounts") established by various participating life
insurance companies. The assets in such Separate Accounts are, under state
law, assets of the life insurance companies which have established such
Separate Accounts. Thus at any time such life insurance companies will own
such of Registrant's outstanding shares as are purchased with Separate
Account assets; however, where required to do so, such life insurance
companies will vote such shares only in accordance with instructions
received from owners of the contracts pursuant to which monies are invested
in such Separate Accounts.
<TABLE>
<CAPTION>
Number of
Record Holders
Title of Class As of April 1, 1998
-------------- -------------------
<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)
-4-
<PAGE>
Class E 2
(Small Company Growth Fund)
Class F 2
(Growth and Income Fund)
Class G 2
(Columbia Real Estate Equity Fund II)
Class H 2
(Columbia High Yield Fund II)
</TABLE>
ITEM 27. INDEMNIFICATION
Indemnification of Registrant's principal underwriter and custodian against
certain losses is provided for, respectively, in Section 1.15 of the
Distribution Agreement, incorporated herein by reference as Exhibit (6)(a),
and in Section 12 of the Global Custody Agreement, filed herein as
Exhibit (8)(a). 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, filed herein 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 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
-5-
<PAGE>
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, as amended, 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,
filed herein as Exhibit (1), also provides for the indemnification of
shareholders of the Registrant. Section 9.6 states as follows:
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.
-6-
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
(1) Fleet Investment Advisors Inc. ("Fleet") is an investment adviser
registered under the Investment Advisers Act of 1940 (the "Advisers
Act").
The list required by this Item 28 of officers and directors of Fleet,
together with information as to any business profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past two years is incorporated herein by
reference to Schedules A and D of Form ADV filed by Fleet pursuant to
the Advisers Act (SEC File No. 801-20312).
(2) Columbia Management Co. ("Columbia") is an investment adviser
registered under the Advisers Act.
The list required by this Item 28 of the officers and directors of
Columbia, together with the information as to any business profession,
vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years is incorporated
herein by reference to Schedules A and D of Form ADV filed by Columbia
pursuant to the Advisers Act (SEC File No. 801-5930).
ITEM 29. PRINCIPAL UNDERWRITER
(a) In addition to The Galaxy VIP Fund, First Data Distributors, Inc. (the
"Distributor") currently acts as distributor for The Galaxy Fund,
Galaxy Fund II, CT & T Funds, Wilshire Target Funds, Inc., The Potamic
Funds, Panorama Trust, Undiscovered Managers Funds, LKCM Funds and BT
Insurance Funds Trust. The Distributor is registered with the
Securities and Exchange Commission as a broker-dealer and is a member
of the National Association of Securities Dealers. The Distributor is
a wholly-owned subsidiary of First Data Investor Services Group, Inc.
which is located at 4400 Computer Drive, Westboro, Massachusetts
01581.
(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.
-7-
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(1) Fleet Investment Advisors Inc., 75 State Street, Boston, Massachusetts
02109 (records relating to its functions as investment adviser to
Registrant's Money Market, Equity, Growth and Income, Small Company
Growth, Asset Allocation and High Quality Bond Funds).
(2) Columbia Management Co., 1300 S.W. Sixth Avenue, P.O. Box 1350,
Portland, Oregon 97207-1350 (records relating to its functions as
investment adviser to Registrant's Columbia Real Estate Equity Fund II
and Columbia High Yield Fund II).
(3) First Data Distributors, Inc., 4400 Computer Drive, Westboro,
Massachusetts 01581 (records relating to its functions as distributor).
(4) First Data Investor Services Group, Inc., 53 State Street, Boston,
Massachusetts 02109 (records relating to its functions as
administrator).
(5) Drinker Biddle & Reath LLP, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107 (Registrant's Declaration of Trust, Code of
Regulations and Minute Books).
(6) The Chase Manhattan Bank, 1211 Avenue of the Americas, New York, New
York 10036 (records relating to its functions as custodian).
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
Registrant hereby undertakes to provide its Annual Report upon request
without charge to any recipient of a Prospectus for the Money Market Fund,
Equity Fund, Growth and Income Fund, Small Company Growth Fund, Columbia
Real Estate Equity Fund II, Asset Allocation Fund, High Quality Bond Fund
and Columbia High Yield Fund II.
Registrant hereby undertakes to file a post-effective amendment with
respect to the Growth and Income Fund, Small Company Growth Fund, Columbia
Real Estate Equity Fund II and Columbia High Yield Fund II (the "New
Funds"), using financial statements which need not be certified, within
four to six months of the effective date of the Registration Statement
pertaining to the New Funds.
-8-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant hereby certifies
that it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933, as amended,
and 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 30th day of April, 1998.
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. 7 to the Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/John T. O'Neill Trustee, President April 30, 1998
- -------------------------- and Treasurer
John T. O'Neill
*Dwight E. Vicks, Jr. Chairman of the Board April 30, 1998
- -------------------------- of Trustees
Dwight E. Vicks, Jr.
*Donald B. Miller Trustee April 30, 1998
- --------------------------
Donald B. Miller
*Louis DeThomasis Trustee April 30, 1998
- --------------------------
Louis DeThomasis
*Bradford S. Wellman Trustee April 30, 1998
- --------------------------
Bradford S. Wellman
*James M. Seed Trustee April 30, 1998
- --------------------------
James M. Seed
/s/John T. O'Neill
- --------------------------
*By: John T. O'Neill
Attorney-in-Fact
<PAGE>
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>
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>
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>
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>
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>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<C> <S>
(1) Agreement and Declaration of Trust dated May 27, 1992.
(2) Registrant's Code of Regulations.
(5)(a) Investment Advisory Agreement dated September 30, 1992
between Registrant and Fleet Investment Advisors Inc. with
respect to the Money Market, Equity, Asset Allocation and
High Quality Bond Funds.
(5)(b) Addendum No. 1 dated March 2, 1998 to Investment Advisory
Agreement between Registrant and Fleet Investment Advisors
Inc., with respect to the Growth and Income Fund and the
Small Company Growth Fund.
(5)(c) Advisory Agreement dated February 27, 1998 between
Registrant and Columbia Management Co. with respect to the
Columbia Real Estate Equity Fund II and the Columbia High
Yield Fund II.
(6)(b) Amendment No. 1 dated February 27, 1998 to Distribution
Agreement between Registrant and First Data Distributors,
Inc. with respect to the Growth and Income Fund, Small
Company Growth Fund, Columbia Real Estate Equity Fund II
and Columbia High Yield Fund II.
(8)(a) Global Custody Agreement dated November 13, 1992 between
Registrant and The Chase Manhattan Bank, N.A.
(9)(b) Amendment No. 1 dated February 27, 1998 to Administration
Agreement between Registrant and First Data Investor
Services Group, Inc. with respect to the Growth and Income
Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II and Columbia High Yield Fund II.
(9)(c) Proposed Sales Agreement between Registrant and American
Skandia Life Insurance Corporation.
(10) Opinion of counsel that shares are validly issued, fully
paid and non-assessable.
(11)(a) Consent of Coopers & Lybrand L.L.P.
(11)(b) Consent of Drinker Biddle & Reath LLP.
<PAGE>
(13)(a) Purchase Agreement dated January 8, 1993 between Registrant
and Fleet Investment Advisors Inc.
(13)(b) Purchase Agreement dated March 2, 1998 between Registrant
and Fleet Investment Advisors Inc. with respect to the
Small Company Growth Fund and the Growth and Income Fund.
(13)(c) Purchase Agreement dated February 27, 1998 between
Registrant and Columbia Management Co. with respect to the
Columbia Real Estate Equity Fund II and the Columbia High
Yield Fund II.
(16) Schedule for Computation of Performance Quotations for the
Money Market, Equity, Asset Allocation and High Quality Bond
Funds.
(27) Financial Data Schedules for the fiscal year ended December
31, 1997 for the Money Market, Equity, Asset Allocation and
High Quality Bond Funds.
</TABLE>
<PAGE>
Exhibit (1)
AGREEMENT AND DECLARATION OF TRUST
OF
THE GALAXY VIP FUND
This AGREEMENT AND DECLARATION OF TRUST, made at Boston, Massachusetts
this 27th day of May, 1992 by and between the Settlor named below and the
Trustee whose signature is set forth below (the "Initial Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, Bryan Chegwidden, an individual residing in Boston,
Massachusetts (the "Settlor"), proposes to deliver to the Initial Trustee the
sum of one dollar ($1.00) lawful money of the United States of America in trust
hereunder and to authorize the Initial Trustee and all other Persons acting as
Trustees hereunder to employ such funds, and any other funds coming into their
hands or the hands of their successor or successors as such Trustees, to carry
on the business of an investment company, and as such of buying, selling,
investing in or otherwise dealing in and with stocks, bonds, debentures,
warrants, options, futures contracts and other securities and interests therein,
or calls or puts with respect to any of the same, or such other and further
investment media and other property as the Trustees may deem advisable, which
are not prohibited by law or the terms of this Declaration of Trust; and
WHEREAS, the Initial Trustee is willing to accept such sum, together
with any and all additions thereto and the income or increments thereof, upon
the terms, conditions and trusts hereinafter set forth; and
WHEREAS, it is proposed that the assets held by the Trustees may be
divided into separate funds or portfolios, each with its own separate investment
assets, investment objective, policies and purposes, and that the beneficial
interest in each such fund or portfolio be divided into transferable shares of
beneficial interest, with one or more separate classes of shares for each fund
or portfolio, all in accordance with the provisions hereinafter set forth; and
WHEREAS, it is desired that the trust established hereby (the "Trust")
be managed and operated as a trust with transferable shares under the laws of
Massachusetts, of the type commonly known as and referred to as a Massachusetts
trust with
<PAGE>
transferable Shares, in accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Initial Trustee, for himself and his successors as
Trustees, hereby declares, and agrees with the Settlor, for himself and for all
Persons who shall hereafter become holders of shares of beneficial interest of
the Trust that the Trustees will hold the sum delivered to them upon the
execution hereof, and all other and further cash, securities and other property
of every type and description which they may in any way acquire in their
capacity as such Trustees, together with the income therefrom and the proceeds
thereof, IN TRUST NEVERTHELESS, to manage and dispose of the same for the
benefit of the holders from time to time of the shares of beneficial interest of
the several classes being issued and to be issued hereunder and in the manner
and subject to the provisions hereof, to wit:
I.
NAME
This trust shall be known as THE GALAXY VIP FUND (hereinafter called
the "Trust"), and the Trustees shall conduct the business of the Trust under
that name or any other name as they shall from time to time determine.
II.
DEFINITIONS
2.1 DEFINITION OF CERTAIN TERMS. As used in this Declaration of
Trust, the terms set forth below shall have the following meanings:
A. The "Act" refers to the Investment Company Act of 1940, as
now or hereafter amended, to the rules and regulations adopted from time to time
thereunder and to any order or orders thereunder which may from time to time be
applicable to the Trust.
B. The terms "affiliated person," "assignment" and "interested
person" shall have the respective meanings set forth in the Act. The term
"vote of a majority of outstanding Shares" shall mean the "vote of a majority of
the outstanding voting securities" as defined in the Section 2(a)(42) of the
Act.
C. The "Regulations" shall refer to the Code of Regulations of
the Trust as adopted and amended from time to time.
-2-
<PAGE>
D. The "Declaration of Trust" shall mean this Declaration of
Trust as amended or restated from time to time.
E. "Person" shall mean a natural person, a corporation, a
partnership, an association, a joint-stock company, a trust, a fund or any
organized group of persons whether incorporated or not.
F. "Shares" means the equal proportionate transferable units of
interest of each class into which the beneficial interest in the Trust may be
classified or reclassified from time to time by the Trustees acting under this
Declaration of Trust, or in the absence of such action, means the equal
proportionate transferable units of interest into which the entire beneficial
interest in the Trust shall be divided from time to time, and includes fractions
of Shares as well as whole Shares.
G. "Shareholder" means a record owner of Shares in the Trust.
H. The "Trustees" refers to the individual trustees of the
Trust named herein or elected in accordance with Article VI hereof in their
capacity as trustees hereunder and not as individuals and to their successor or
successors while serving in office as a trustee of the Trust, and includes a
single trustee.
I. "Trust Property" means any and all assets and property, real
or personal, tangible or intangible, which is owned or held by or for the
account of the Trust or the Trustees.
III.
PURPOSE OF TRUST; AGENT FOR SERVICE
The Trust is a Massachusetts trust with transferable Shares of the
type described in Chapter 182 Section 1 of the General Laws of the Commonwealth
of Massachusetts formed for the purpose of acting as a management investment
company under the Act; PROVIDED, HOWEVER, that the Trust may exercise all powers
which are ordinarily exercised by or permissible for Massachusetts trusts with
transferable Shares.
The Agent of the Trust for Service of Process within the Commonwealth
of Massachusetts shall be: CT Corporation System, Two-Oliver Street, Boston,
Massachusetts 02109.
-3-
<PAGE>
IV.
OWNERSHIP OF ASSETS OF THE TRUST
The assets of the Trust shall be held separate and apart from any
assets now or hereafter held in any capacity, other than as Trustees hereunder,
by the Trustees, including without limitation any successor Trustees. Legal
title to all the assets of the Trust shall be vested in the Trustees as joint
tenants except that the Trustees shall have power to cause legal title to any
assets of the Trust to be held by or in the name of one or more of the Trustees,
or in the name of the Trust, or in the name of any other person as nominee, on
such terms as the Trustees may reasonably determine. The right, title and
interest of the Trustees in the assets of the Trust shall vest automatically in
each person who may hereafter become a Trustee. Upon the resignation, removal or
death of a Trustee, such Trustee shall automatically cease to have any right,
title or interest in any of the assets of the Trust, and the right, title and
interest of such Trustee in the assets of the Trust shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
regardless of whether conveyancing documents (pursuant to Section 6.6 hereof or
otherwise) have been executed and delivered. Except to the extent otherwise
required by Article V hereof, no Shareholder shall be deemed to have severable
ownership in any individual asset of the Trust or any right of partition or
possession thereof, or shall be called upon to assume any loss of the Trust or
suffer an assessment of any kind by virtue of his ownership of Shares, but each
Shareholder shall have a proportionate undivided beneficial interest in tie
assets belonging to a particular class or classes of Shares to the extent
provided in Article V. The ownership of the Trust Property of every description
and the right to conduct any business hereinbefore described shall be vested
exclusively in the Trustees, and the Shareholders shall have no interest therein
other than the beneficial interest conferred by their Shares, and they shall
have no right to call for any partition or division of any property, profits,
rights or interests of the Trust nor can they be called upon to assume any
losses of the Trust or suffer an assessment of any kind by virtue of their
ownership of Shares. The Shares shall be personal property giving only the
rights specifically set forth in this Declaration of Trust. Shares shall not
entitle any holder thereof to preference, preemptive, appraisal, conversion or
exchange rights, except as the Trustees may determine pursuant to Article V
hereof.
-4-
<PAGE>
V.
SHAREHOLDERS; BENEFICIAL INTEREST IN THE TRUST;
PURCHASE AND REDEMPTION OF SHARES
5.1 SHARES IN THE TRUST.
A. The beneficial interest in the Trust shall at all times be
divided into an unlimited number of full and fractional transferable Shares with
a par value of $.001 per share. All Shares shall be of one class, PROVIDED that
subject to this Declaration of Trust and the requirements of applicable law, the
Trustees shall have the power to classify or reclassify any unissued Shares into
any number of additional classes of Shares by setting or changing in any one or
more respects, from time to time before the issuance thereof, their
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations, qualifications or terms or conditions of redemption,
and PROVIDED FURTHER that the investment objectives, policies and restrictions
governing the management and operations of the Trust including the management of
assets belonging to any class of Shares, may from time to time be changed or
supplemented by the Trustees, subject to the requirements of the Act. The power
of the Trustees to classify or reclassify Shares shall include, without
limitation, the power to classify or reclassify any class of Shares into one or
more series of such class. A copy of each action of the Trustees by which
Shares are classified or reclassified pursuant to this subsection 5.1(A),
executed by a majority of the Trustees (or by an officer of the Trust pursuant
to a vote of a majority of the Trustees), shall be kept at the office of the
Trust where it may be inspected by any Shareholder, and one copy of each such
instrument shall be filed with the Secretary of The Commonwealth of
Massachusetts, as well as with any other governmental office where such filing
may from time to time be required by the laws of Massachusetts. All references
to Shares in this Declaration of Trust which are not accompanied by a reference
to any particular class of Shares shall be deemed to apply to all outstanding
Shares of any and all classes. All references in this Declaration of Trust to
any class of Shares shall include and refer to the Shares of any series thereof.
Upon the issuance of the first Share of a second class of Shares
classified or reclassified by the Trustees pursuant to this Section 5.1, all
Shares theretofore issued and outstanding shall automatically represent Shares
of a separate class having the preferences, conversion and other rights, voting
powers, restrictions, limitations, qualifications and terms and conditions of
redemption provided for in this Declaration of Trust with respect to any class
of Shares. The Trustees may from time to time divide or combine the outstanding
Shares of the Trust, or of any class or classes with the same alphabetical
-5-
<PAGE>
designation, into a greater lesser number without thereby changing the
proportionate beneficial interest of the Shares in the Trust as so divided or
combined or in the assets belonging to such class or classes, as the case may
be.
At any time that there are no Shares outstanding of a particular class
previously established and designated, the Trustees may abolish that class and
the establishment and designation thereof.
B. Subject always to the power of the Trustees to classify and
reclassify any unissued Shares pursuant to subsection A of this Section 5.1,
Shares of the Trust shall (unless the Trustees otherwise determine with respect
to a class of Shares at the time of establishing and designating the same) have
the following designations, preferences, conversion and other rights, voting
powers, restrictions, limitations, qualifications and terms and conditions of
redemption:
(1) DESIGNATIONS. The Board of Trustees shall give each
class of Shares an alphabetical designation ("A," "B," "C," etc.), and may give
any class of Shares such supplementary designations as the Board may deem
appropriate. More than one class of Shares may have the same alphabetical
designation.
(2) ASSETS BELONGING TO CLASSES WITH SAME ALPHABETICAL
DESIGNATION. All consideration received by the Trust for the issue and sale of
Shares of any class shall be commingled, invested and reinvested together with
the consideration received by the Trust for the issue and sale of Shares of such
other class or classes, if any, that have the same alphabetical designation,
along with all income, earnings, profits and proceeds derived from the
investment thereof, including any proceeds derived from the sale, exchange or
liquidation of such investments, any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, and any general
assets of the Trust not belonging to a particular class which the Trustees may,
in their sole discretion, allocate to such classes having the same alphabetical
designation, and shall irrevocably belong to the classes with respect to which
such assets, payments or funds were received or allocated for all purposes,
subject only to the rights of creditors, and shall be so handled upon the books
of account of the Trust. For purposes of this Declaration of Trust, such assets
and the income, earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, and any assets derived
from any reinvestment of such proceeds in whatever form, are referred to as
"assets belonging to" such classes. Each Share of the classes having the same
alphabetical designation shall share equally with each other Share of such
classes in the assets belonging to such classes.
-6-
<PAGE>
Shareholders of any class of Shares shall have no right, title or interest in or
to the assets belonging to any class of Shares with a different alphabetical
designation.
(3) LIABILITIES BELONGING TO CLASSES WITH SAME ALPHABETICAL
DESIGNATION. The assets belonging to classes of Shares with the same
alphabetical designation shall be charged with the direct liabilities in respect
of such classes and shall also be charged with such classes' proportionate share
of the general liabilities of the Trust as determined by comparing the assets
belonging to such classes with the aggregate assets of the Trust, PROVIDED, that
the Board of Trustees may, in their discretion, direct that any one or more
general liabilities of the Trust be allocated to the respective classes on a
different basis. The liabilities so charged to such classes are herein referred
to as "liabilities belonging to" such classes, and each Share of such classes
shall be charged equally with each other Share of a class having the same
alphabetical designation with the liabilities belonging to such classes, except
that:
(a) A class of Shares with respect to which agreements
are entered into by or on behalf of the Trust pursuant to which institutions
agree to provide services with respect to beneficial owners of Shares of that
class but not with respect to beneficial owners of Shares of other classes with
the same alphabetical designation shall bear the expenses and liabilities
relating to such agreements, as well as any other expenses directly attributable
to such class of Shares which the Trustees determine should be borne solely by
such class; and
(b) A class of Shares shall not be required to bear
the expenses and liabilities relating to any agreement described in clause (a)
above pursuant to which an institution agrees to provide services with respect
to beneficial owners of Shares of other classes with the same alphabetical
designation but not to beneficial owners of Shares of that class, or any other
expenses directly attributable to one or more other classes of Shares which the
Trustees determine should be borne solely by such other class or classes.
(4) DIVIDENDS AND DISTRIBUTIONS. Shares of classes having
the same alphabetical designation shall be entitled to such dividends and
distributions, in Shares or in cash or both, as may be declared from time to
time by the Trustees, acting in their sole discretion, with respect to such
classes, PROVIDED that such dividends and distributions shall be paid only out
of the lawfully available "assets belonging to" such classes as such term is
defined in subsection B(2) of this section 5.1.
(5) LIQUIDATING DISTRIBUTIONS. In the event of the
termination of the Trust and the winding up of its
-7-
<PAGE>
affairs, the Shareholders of classes having the same alphabetical designation
shall be entitled to receive out of the assets of the Trust available for
distribution to Shareholders, but other than general assets not belonging to any
particular class of Shares, the assets belonging to such classes and the assets
so distributable to the Shareholders of such classes shall, subject to the
allocation of certain liabilities to a particular class as set forth in
subsection B(3) of this Section 5.1, be distributed among such shareholders in
proportion to the number of Shares of such classes held by them and recorded in
their name on the books of the Trust. In the event that there are any general
assets not belonging to any particular class of Shares and available for
distribution, the Shareholders of classes having the same alphabetical
designation shall be entitled to receive a portion of such general assets
determined by comparing the assets belonging to such classes with the aggregate
assets of the Trust; and the assets so distributable to the Shareholders of such
classes shall, subject to the allocation of certain liabilities to a particular
class as set forth in subsection B(3) of this Section 5.1, be distributed among
such Shareholders in proportion to the number of Shares of such classes held by
them and recorded in their name on the books of the Trust.
(6) VOTING. The holder of each Share shall be entitled to
one vote for each full Share, and a proportionate fractional vote for each
fractional Share, irrespective of the class, then recorded in his name on the
books of the Trust, to the extent provided in Article VIII hereof.
(7) PREEMPTIVE RIGHTS. Shareholders shall have no
preemptive or other rights to subscribe to any additional Shares or other
securities issued by the Trust.
(8) CONVERSION RIGHTS. The Trustees shall have the
authority to provide from time to time that the holders of Shares of any class
shall have the right to convert or exchange said Shares for or into Shares of
one or more other classes in accordance with such requirements and procedures as
may be established from time to time by the Trustees.
(9) REDEMPTION OF SHARES. To the extent of the assets of
the Trust legally available for such redemptions, a Shareholder of the Trust
shall have the right to require the Trust to redeem his full and fractional
Shares of any class out of assets belonging to the classes with the same
alphabetical designation as such class at a redemption price equal to the net
asset value per Share next determined after receipt of a request to redeem in
proper form as determined by the Trustees, subject to the right of the Trustees
to suspend the right of redemption of Shares or postpone the date of payment of
such redemption price in accordance with the provisions of applicable law. The
Trustees shall establish such rules and procedures as they deem
-8-
<PAGE>
appropriate for the redemption of Shares, provided that all redemptions shall be
in accordance with the Act. Without limiting the generality of the foregoing,
the Trust shall, to the extent permitted by applicable law, have the right at
any time to redeem the Shares owned by any holder thereof: (a) in connection
with the termination of any class of Shares as provided hereunder; (b) if the
value of such Shares in the account or accounts maintained by the Trust or its
transfer agent for any class or classes of Shares is less than the value
determined from time to time by the Trustees as the minimum required for an
account or accounts of such class or classes, PROVIDED that the Trust shall
provide a Shareholder with written notice at least fifteen (15) days prior to
effecting a redemption of Shares as a result of not satisfying such requirement;
(c) to reimburse the Trust for any loss it has sustained by reason of the
failure of such Shareholder to make full payment for Shares purchased by such
Shareholder; (d) to collect any charge relating to a transaction effected for
the benefit of such Shareholder which is applicable to Shares as provided in the
prospectus relating to such Shares; or (e) if the net income with respect to any
particular class of Shares should be negative or it should otherwise be
appropriate to carry out the Trust's responsibilities under the Act, in each
case subject to such further terms and conditions as the Trustees may from time
to time establish. The redemption price of Shares in the Trust shall, except as
otherwise provided in this subsection, be the net asset value thereof as
determined by the Trustees from time to time in accordance with the provisions
of applicable law, less such redemption fee or other charge, if any, as may be
fixed by the Trustees. When the net income of any class with respect to which
the Trustees have, in their discretion, established a policy of maintaining a
constant net asset value per Share is negative or whenever deemed appropriate by
the Trustees in order to carry out the Trust's responsibilities under the Act,
the Trust may, without payment of compensation but in consideration of the
interests of the Trust and the holders of Shares of such class in maintaining a
constant net asset value per Share of such class, redeem pro rata from each
holder of record on such day, such number of full and fractional Shares of such
class as may be necessary to reduce the aggregate number of outstanding Shares
in order to permit the net asset value thereof to remain constant. Payment of
the redemption price, if any, shall be made in cash by the Trust at such time
and in such manner as may be determined from time to time by the Trustees
unless, in the opinion of the Trustees, which shall be conclusive, conditions
exist which make payment wholly in cash unwise or undesirable; in such event the
Trust may make payment in the assets belonging or allocable to the classes of
Shares having the same alphabetical designation as the class of the Shares
redemption of which is being sought, the value of which shall be determined as
provided herein.
-9-
<PAGE>
(10) TERMINATION OF CLASSES. Without the vote of the Shares
of any class then outstanding (unless otherwise required by applicable law), the
Trustees may:
(a) Sell and convey the assets belonging to any class
or classes of Shares having the same alphabetical designation to another trust
or corporation that is a management investment company (as defined in the Act)
and is organized under the laws of any state of the United States for
consideration which may include the assumption of all outstanding obligations,
taxes and other liabilities, accrued or contingent, belonging to such class(es)
and which may include securities issued by such trust or corporation. Following
such sale and conveyance, and after making provision for the payment of any
liabilities belonging to such class(es) that are not assumed by the purchaser of
the assets belonging to such class(es), the Trust may, at the Trustees' option,
redeem all outstanding Shares of such class(es) at net asset value as determined
by the Trustees in accordance with the provisions of applicable law, less such
redemption fee or other charge, if any, as may be fixed by the Trustees.
Notwithstanding any other provision of this Declaration of Trust to the
contrary, the redemption price may be paid in cash or by distribution of the
securities or other consideration received by the Trust for the assets belonging
to such class(es) upon such conditions as the Trustees deem, in their sole
discretion, to be appropriate consistent with applicable law and this
Declaration of Trust;
(b) Sell and convert the assets belonging to any class
or classes of Shares having the same alphabetical designation into cash and,
after making provision for the payment of all obligations, taxes and other
liabilities, accrued or contingent, belonging to such class(es), the Trust may,
at the Trustees' option, (i) redeem all outstanding Shares of such class(es) at
net asset value as determined by the Trustees in accordance with the provisions
of applicable law, less such redemption fee or other charge, if any, as may be
fixed by the Trustees upon such conditions as the Trustees deem, in their sole
discretion, to be appropriate consistent with applicable law and this
Declaration of Trust; or (ii) combine the assets belonging to such class(es)
following such sale and conversion with the assets belonging to any one or more
other class(es) of Shares having a different alphabetical designation pursuant
to and in accordance with subsection (c) of this Section 5.1(B)(10);
(c) Combine the assets belonging to any class or
classes of Shares having the same alphabetical designation with the assets
belonging to any one or more other classes of Shares having a different
alphabetical designation if the Trustees reasonably determine that such
combination will not have a material adverse effect on the Shareholders of any
class
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participating in such combination. In connection with any such combination of
assets the Shares of any class then outstanding may, if so determined by the
Trustees, be converted into Shares of any other class or classes of Shares
participating in such combination, or may be redeemed, at the option of the
Trustees, at net asset value as determined by the Trustees in accordance with
the provisions of applicable law, less such redemption fee or other charge, or
conversion cost, if any, as may be fixed by the Trustees upon such conditions as
the Trustees deem, in their sole discretion, to be appropriate consistent with
applicable law and this Declaration of Trust. Notwithstanding any other
provision of this Declaration of Trust to the contrary, any redemption price, or
part thereof, paid pursuant to this subsection may be paid in Shares of any
other class or classes participating in such combination; or
(d) Otherwise terminate and wind up the affairs of any
class or classes of Shares having the same alphabetical designation in
accordance with this Declaration of Trust and applicable law. In connection
with such termination of a class or classes of Shares having the same
alphabetical designation and the winding up of the affairs of such class(es),
all of the powers of the Trustees under this Declaration of Trust shall continue
until the affairs of such class(es) shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust relating to such
class(es), to collect assets belonging to such class(es), to sell, convey,
assign, exchange, transfer or otherwise dispose of all or any part of the
remaining assets belonging to such class(es) to one or more persons at public or
private sale for consideration that may consist in whole or in part of cash,
securities or other property of any kind, to discharge or pay the liabilities
belonging to such class(es), and to do all other acts appropriate to liquidate
the business of such Class(es), provided that the holders of Shares of any class
shall not be entitled in any liquidation to receive any distribution upon the
assets belonging to any other class that has a different alphabetical
designation.
If no Shares of a class then remain outstanding, or after the excess
of the assets belonging to any class(es) of Shares over the liabilities
belonging to such class(es) has been distributed among the Shareholders of such
class(es) as provided in this Declaration of Trust, the Trustees may authorize
the termination of such class(es) of Shares.
5.2 PURCHASE OF SHARES. The Trustees may accept investments in the
Trust from such persons for such consideration, including cash or property, and
on such other terms as they may from time to time authorize and the Trustees may
in such manner acquire other assets (including the acquisition of assets subject
to, and in connection with, the
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assumption of liabilities) and businesses. The Trustees may in their discretion
reject any order for the purchase of Shares.
5.3 NET ASSET VALUE PER SHARE. The net asset value per Share of any
class of Shares shall be computed at such time or times as the Trustees may
specify pursuant to the Act. Assets shall be valued and net asset value per
Share shall be determined by such person or persons as the Trustees may appoint
under the supervision of the Trustees in such manner as the Trustees may
determine not inconsistent with the Act.
5.4 OWNERSHIP OF SHARES. The ownership of Shares shall be recorded
on the record books of the Trust. The Trustees may make such rules and
regulations as they consider appropriate for the issuance of Share certificates,
the transfer of Shares and similar matters. Certificates certifying the
ownership of Shares may be issued as the Trustees may determine from time to
time, PROVIDED that the Trustees shall have the power to call outstanding Share
certificates and to replace them with book entries. The record books of the
Trust shall be conclusive as to the identity of holders of Shares and as to the
number of Shares held by each Shareholder.
VI.
THE TRUSTEES
6.1 MANAGEMENT OF THE TRUST. The affairs of the Trust shall be
managed by the Trustees and they shall have all powers necessary or desirable to
carry out such responsibility, including without limitation the appointment of
and delegation of responsibility to such officers, employees, agents, and
contractors as they may select.
6.2 NUMBER AND TERM OF OFFICE. The number of Trustees shall be
determined from time to time by the Trustees themselves, but shall not be more
than ten. Subject to the provisions of this section relating to resignation or
removal, the Trustees shall have the power to set and alter the terms of office
of the Trustees, and they may at any time lengthen or shorten their own terms or
make their terms of unlimited duration, provided that the term of office of any
incumbent Trustee shall continue until terminated as provided in the concluding
sentence of this Section 6.2 or, if not so terminated until the election of such
Trustee's successor in office has become effective in accordance with this
section. A Trustee shall qualify by accepting in writing his election or
appointment and agreeing to be bound by the provisions of this Declaration of
Trust. Except as otherwise provided herein in the case of vacancies, Trustees
(other than the Initial Trustee provided in Section 6.3 hereof) shall be elected
by the Shareholders at such time or times as the Trustees
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shall determine that such election is required under Section 16(a) of the Act or
is otherwise advisable. Notwithstanding the foregoing, (a) any Trustee may
resign as a Trustee by written instrument signed by him and delivered to the
other Trustees at the principal business office of the Trust (without need for
prior or subsequent accounting), which shall take effect upon such delivery or
upon such later date as is specified therein; (b) any Trustee may be removed at
any time with or without cause by written instrument, signed by at least
two-thirds of the number of Trustees in office prior to such removal, specifying
the date when such removal shall become effective; (c) any Trustee who has
become incapacitated by illness or injury may be removed by written instrument
signed by a majority of the other Trustees; and (d) the term of a Trustee shall
terminate at his death, resignation, removal or adjudicated incompetency.
6.3 INITIAL TRUSTEE. The initial Trustee shall be George M. Boyd,
who, by his execution hereof, has agreed to be bound by the provisions of this
Declaration of Trust. The initial Trustee shall have the power to appoint
additional Trustees prior to any public meeting.
6.4 QUORUM. At all meetings of the Trustees, a majority of the
Trustees shall constitute a quorum for the transaction of business and the
action of a majority of the Trustees present at any meeting at which a quorum is
present shall be the action of the Trustees unless the concurrence of a greater
proportion is required for such action by law, the Regulations or this
Declaration of Trust. If a quorum shall not be present at any meeting of
Trustees, the Trustees present thereat may by a majority vote adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present. Meetings nay be held by means of a
conference telephone circuit or similar communications equipment by means of
which all persons participating may hear each other. The Trustees may also act
without a meeting, unless provided otherwise in this Declaration of Trust or
required by law, by written consent of a majority of the Trustees. As used
herein, a "majority of the Trustees" shall mean a majority of the Trustees in
office at the time in question or if there shall be only one (1) Trustee in
office then such term shall mean such Trustee.
The Trustees may appoint committees of Trustees and delegate powers to
them as provided in the Regulations. Any Committee of the Trustees, including
an executive committee, if any, may act with or without a meeting. A quorum for
all meetings of any such committee shall be a majority of the members thereof.
Unless provided otherwise in this Declaration of Trust, any action of any such
committee may be taken at a meeting at which a quorum is present by vote of a
majority of the members
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present or without a meeting by written consent of a majority of all the
members.
6.5 VACANCIES. In case a vacancy shall exist by reason of an
increase in number, or for any other reason, the remaining Trustee or Trustees
may fill such vacancy by appointing such other person as he or they in their
discretion shall select. An appointment of a Trustee may be made in
anticipation of a vacancy to occur at a later date by reason of retirement or
resignation of a Trustee or an increase in the number of Trustees; provided,
that such appointment will not become effective prior to such retirement or
resignation or such increase in the number of Trustees. Whenever a vacancy in
the number of Trustees shall occur, until such vacancy is filled as provided in
this Section 6.5, the Trustee or Trustees then in office, regardless of number,
shall have all the powers granted to the Trustees, and shall discharge all the
duties imposed on the Trustees, by this Declaration of Trust. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy. Such
appointment shall be evidenced by a written instrument signed by a majority of
the then Trustees but the appointment shall not take effect until the individual
so named shall have qualified by accepting in writing the appointment and
agreeing to be bound by the terms of this Declaration of Trust. A vacancy may
also be filled by the Shareholders in an election held at an annual or special
meeting. As soon as any Trustee so appointed or elected shall have qualified,
the Trust estate shall vest in the new Trustee or Trustees, together with the
continuing Trustees, without any further act or conveyance.
6.6 EFFECT OF DEATH, RESIGNATION, ETC. OF TRUSTEE. The death,
resignation, removal, or incapacity of the Trustees, or any one of them, shall
not operate to annul the Trust or to revoke any existing agency created pursuant
to the terms of this Declaration of Trust. Upon the resignation or removal of a
Trustee, or his otherwise ceasing to be a Trustee, he shall execute and deliver
such documents as the remaining Trustees shall require for the purpose of
conveying to the Trust or the remaining Trustees any Trust Property held in the
name of the resigning or removed Trustee. Upon the incapacity or death of any
Trustee, his legal representative shall execute and deliver on his behalf such
documents as the remaining Trustees shall require as provided in the preceding
sentence. The failure to request or deliver such documents shall not affect the
operation of the provisions of Article IV hereof.
6.7 POWERS. The Trustees in all instances shall act as principals
and are and shall be free from the control of the Shareholders. The Trustees
shall have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments that they may consider necessary
or
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desirable in connection with the management of the Trust. The Trustees shall
not be bound or limited by present or future laws or customs in regard to Trust
investments, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
accomplish the purpose of this Trust. Without limiting the foregoing, and
subject to any applicable limitation in this Declaration of Trust or the
Regulations, the Trustees shall have power and authority:
A. To conduct, operate and carry on, either directly or through
one or more wholly-owned subsidiaries, the business of an investment company or
any other lawful business activity which the Trustees, in their sole and
absolute discretion, consider to be (1) incidental to the business of the Trust
or any class of Shares as an investment company, (2) conducive to or expedient
for the benefit or protection of the Trust or the Shareholders of any class of
Shares, or (3) calculated in any other manner to promote the interests of the
Trust or the Shareholders of any class of Shares.
B. To adopt Regulations not inconsistent with this Declaration
of Trust providing for the conduct of the affairs of the Trust and to amend and
repeal them to the extent that they do not reserve that right solely to the
Shareholders.
C. To issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares of the
Trust; and to apply to any such repurchase, redemption, retirement, cancellation
or acquisition of Shares, any funds or other assets of the Trust, whether
constituting capital or surplus or otherwise, to the full extent now or
hereafter permitted by applicable law; and to divide or combine Shares without
thereby changing the proportionate beneficial interest in the Trust.
D. To issue, acquire, hold, resell, convey, write options on,
and otherwise deal in securities, debt instruments and other instruments and
rights of a financial character and to apply to any acquisition of securities
any property of the Trust whether from capital or surplus or otherwise.
E. To invest and reinvest cash, and to hold cash uninvested.
F. To borrow money, issue guarantees of indebtedness or
contractual obligations of others, to sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the Trust Property.
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G. To act as a distributor of Shares and as underwriter of, or
broker or dealer in, securities or other property.
H. To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such Person or Persons as the Trustees
shall deem proper, granting to such Person or Persons such power and discretion
with relation to securities or property as the Trustees shall deem proper.
I. To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities.
J. To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form, or in the
name of the Trustees or of the Trust or in the name of a custodian,
sub-custodian or other depositary or a nominee or nominees or otherwise.
K. To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer, any
security of which is or was held in the Trust; and consent to any contract,
lease, mortgage, purchase or sale of property by such corporation or issuer; and
to pay calls or subscriptions with respect to any securities held in the Trust.
L. To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority with
relation to any security (whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and to pay, such portion of the
expenses and compensation of such committee, depositary or trustee as the
Trustees shall deem proper.
M. To enter into joint ventures, general or limited
partnerships and any other combinations or associations.
N. To enter into contracts of any kind and description.
O. To collect all property due to the Trust, to pay all claims,
including taxes, against the assets belonging to the Trust, to prosecute,
defend, compromise, arbitrate, or otherwise adjust claims in favor of or against
the Trust or any matter in controversy including, but not limited to, claims for
taxes, to foreclose any security interest securing any
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obligations by virtue of which any property is owed to the Trust, and to enter
into releases, agreements and other instruments.
P. To retain and employ any Person or Persons to serve on
behalf of the Trust as investment adviser, administrator, transfer agent,
custodian, underwriter, distributor or in such other capacities as they consider
desirable and to delegate such power and authority as they consider desirable to
any such Person or Persons.
Q. To indemnify any person with whom the Trust has dealings.
R. To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of the
business, including without limitation, insurance policies insuring the Trust
Property and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers or managers, principal
underwriters, or independent contractors of the Trust individually against all
claims and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person as Shareholder, Trustee, officer,
employee, agent, investment adviser or manager, principal underwriter, or
independent contractor, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such Person against such liability.
S. To engage in and to prosecute, defend, compromise, abandon,
or adjust, by arbitration or otherwise, any actions, suits, proceedings,
disputes, claims, and demands relating to the Trust or the Trust Property, and,
out of the Trust Property, to pay or to satisfy any debts, claims or expenses
incurred in connection therewith, including those of litigation, and such power
shall include without limitation the power of the Trustees or any appropriate
committee thereof, in the exercise of their or its good faith business judgment,
consenting to dismiss any action, suit, proceeding, dispute, claims, or demand,
derivative or otherwise, brought by any person, including a Shareholder in such
Shareholder's own name or in the name of the Trust, whether or not the Trust or
any of the Trustees may be named individually therein or the subject matter
arises by reason of business for or on behalf of the Trust.
T. To establish pension, profit sharing, Share purchase, and
other retirement, incentive and benefit plans for any Trustees, officers,
employees and agents of the Trust.
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U. To determine and change the fiscal year of the Trust and the
method by which its accounts shall be kept.
V. To establish in their absolute discretion in accordance with
the provisions of applicable law the basis or method for determining the value
of the assets belonging to any class or classes of Shares, the value of the
liabilities belonging to any class or classes of Shares, the allocation of any
assets or liabilities to any class or classes of Shares, the net asset value of
any class of Shares, the times at which Shares of any class shall be deemed to
be outstanding or no longer outstanding and the net asset value of each Share of
any class for purposes of sales, redemptions, repurchases of Shares or
otherwise.
W. To determine in accordance with generally accepted
accounting principles and practices what constitutes net profits or net
earnings, and to determine what accounting periods shall be used by the Trust
for any purpose, whether annual or any other period, including daily; to set
apart out of the assets belonging to any class or classes of Shares such
reserves of funds for such purposes as it shall determine and to abolish the
same; to declare and pay any dividends and distributions to any class of Shares
in cash, securities or other property from any assets legally available
therefor, at such intervals (which may be as frequently as daily) or on such
other periodic basis, as it shall determine; to declare such dividends or
distributions by means of a formula or other method of determination, at
meetings held less frequently than the frequency of the effectiveness of such
declaration; to establish payment dates for dividends or any other distributions
on any basis, including dates occurring less frequently than the effectiveness
of declarations thereof; and to provide for the payment of declared dividends on
a date earlier or later than the specified payment date in the case of
Shareholders redeeming their entire ownership of Shares of any class.
X. To engage in any other lawful act or activity in which a
Massachusetts trust with transferable Shares or a corporation organized under
the Massachusetts Business Corporation Law may engage.
No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.
6.8 TRUSTEES AND REPRESENTATIVES AS SHAREHOLDERS. Any Trustee,
representative or other agent of the Trust may acquire, own and dispose of
Shares of the Trust to the same extent as if he were not a Trustee,
representative or agent; and the Trust may issue and sell or cause to be issued
and sold Shares of the Trust
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to, and may buy such Shares from, any person with which such Trustee,
representative or agent is affiliated subject only to the general limitations
herein contained as to the sale and purchase of such Shares; all subject to any
restrictions which may be contained in the Regulations.
6.9 EXPENSES; TRUSTEE REIMBURSEMENT. The Trustees shall have the
power to incur and to pay (or shall be reimbursed) from the Trust Property all
expenses and disbursements of the Trust, including, without limitation, interest
expense, compensation payable to Trustees and representatives of the Trust,
taxes, fees and commissions of every kind incurred in connection with the
affairs of the Trust, expenses of issue, repurchase and redemption of Shares,
expenses of registering and qualifying the Trust and its Shares under Federal
and State securities laws and regulations, charges of custodians, transfer
agents, investment advisers, administrators and registrars, expenses in
obtaining securities prices for valuation purposes, expenses of preparing and
printing and distributing prospectuses, auditing and legal expenses, expenses of
reports to Shareholders, expenses of meetings of Shareholders and proxy
solicitations therefor, insurance expense, association membership dues and such
non-recurring items as may arise, including costs and expenses of litigation to
which the Trust is a party, and for all losses and liabilities by them incurred
in administering the Trust, PROVIDED that expenses, disbursements, losses and
liabilities incurred in connection with classes of Shares having the same
alphabetical designation or in connection with the management of the assets
belonging to such classes shall be payable solely out of the assets belonging to
such classes, and PROVIDED FURTHER that the Trustees shall have lien on the
Trust Property prior to any rights or interests of the Shareholders thereto for
the payment of any expenses, disbursements, losses and liabilities of the Trust.
6.10 POWER TO CARRY OUT TRUST'S PURPOSES; PRESUMPTIONS. The Trustees
shall have power to carry out any and all acts consistent with the Trust's
purposes through branches and offices both within and without the Commonwealth
of Massachusetts, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories,
dependencies, possessions, agencies or instrumentalities of the United States of
America and of foreign governments, and to do all such other things and execute
all such instruments as they deem necessary, proper or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of this Declaration, the presumption shall be in favor of a grant of
power to the Trustees. The enumeration of any specific power herein shall not
be construed as limiting the aforesaid power. The Trustees shall
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not be required to obtain any court order to deal with the Trust Property.
6.11 DETERMINATIONS BY TRUSTEES. Any determination made in good faith
and, so far as accounting matters are involved in accordance with generally
accepted accounting principles, by or pursuant to the direction of the Trustees
as to the amount and value of assets, obligations or liabilities of the Trust or
any class of Shares, as to the amount of net income of the Trust or any class of
Shares from dividends and interest for any period or amounts at any time legally
available for the payment of dividends, as to the amount of any reserves or
charges set up and the propriety thereof, as to the time of or purpose for
creating reserves or as to the use, alteration or cancellation of any reserves
or charges (whether or not any obligation or liability for which such reserves
or charges shall have been created shall have been paid or discharged or shall
be then or thereafter required to be paid or discharged), as to the value of any
security owned by the Trust or any class or Shares, as to the allocation of any
assets or liabilities to a class or classes of Shares, as to the times at which
Shares of any class shall be deemed to be outstanding or no longer outstanding,
or as to any other matters relating to the issuance, sale, redemption or other
acquisition or disposition of securities or Shares, and any reasonable
determination made in good faith by the Trustees as to whether any transaction
constitutes a purchase of securities on "margin," a sale of securities "short,"
or any underwriting of the sale of, or a participation in any underwriting or
selling group in connection with the public distribution of, any securities,
shall be final and conclusive, and shall be binding upon the Trust and all
Shareholders, past, present and future, and Shares are issued and sold on the
condition and understanding, evidenced by the purchase of Shares or acceptance
of Share certificates, that any and all such determinations shall be binding as
aforesaid.
6.12 SERVICE IN OTHER CAPACITIES. Any Trustee, representative,
employee or agent of the Trust, including any investment adviser, transfer
agent, administrator, distributor, custodian or underwriter for the Trust, may
serve in any other capacity on his or its own behalf or on behalf of others, and
may engage in other business activities in addition to his or its services on
behalf of the Trust, PROVIDED that such other activities do not materially
interfere with the performance of his or its duties for or on behalf of the
Trust.
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VII.
AGREEMENTS WITH INVESTMENT ADVISER,
PRINCIPAL UNDERWRITER, ADMINISTRATOR,
TRANSFER AGENT, CUSTODIAN AND OTHERS
7.1 INVESTMENT ADVISER. The Trustees may, on such terms and
conditions as they may in their discretion determine, enter into a written
investment advisory agreement or agreements with any Person or Persons providing
for Portfolio management, investment advisory, statistical and research
facilities and other services pertaining to the assets belonging to one or more
classes of Shares. Notwithstanding any other provision hereof, the Trustees may
authorize such an investment adviser (subject to such general or specific
instructions as the Trustees may adopt) to effect purchases, sales or exchanges
of portfolio securities of such class(es) on behalf of the Trustees and to
determine the net asset value and net income of such class(es) or may authorize
any representative or Trustee to effect such purchases, sales or exchanges
pursuant to the recommendations of such investment adviser (all without further
action by the Trustees). Any such purchases, sales and exchanges so affected
shall be deemed to have been authorized by all of the Trustees.
7.2 ADMINISTRATOR. The Trustees may, on such terms and conditions as
they may in their discretion determine, enter into one or more agreements with
any Person or Persons providing for administrative services to one or more
classes of Shares, including assistance in supervising the affairs of such
class(es) and performance of administrative, clerical and other services
considered desirable by the Trustees.
7.3 PRINCIPAL UNDERWRITER. The Trustees may, on such terms and
conditions as they may in their discretion determine, enter into one or more
distribution agreements with any Person or Persons providing for sale of Shares
of one or more classes at a price at least equal to the net asset value per
Share of such class(es) and providing for sale of the Shares of such class(es)
pursuant to arrangements by which the Trust may either agree to sell the Shares
of such class(es) to the either party to the agreement or appoint such other
party its sales agent for such Shares. Such agreements may also provide for the
repurchase of Shares of such class(es) by such other party as principal or as
agent of the Trust, and may authorize the other party to enter into agreements
with others for the purpose of the distribution or repurchase of Shares of such
class(es).
7.4 TRANSFER AGENT. The Trustees may, on such terms and conditions
as they may in their discretion determine, enter into one or more agreements
with any Person or Persons providing for transfer agency and other services to
Shareholders of any class.
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7.5 CUSTODIAN. The Trustees may, on such terms and conditions as
they may in their discretion determine, enter into one or more agreements, with
any Person or Persons providing for the custody and safekeeping of the property
of the Trust or any class of Shares.
7.6 SERVICE AND DISTRIBUTION PLANS. The Trustees may, on such terms
and conditions as they may in their discretion determine, adopt one or more
plans pursuant to which Persons may be compensated directly or indirectly by the
Trust for Shareholder servicing, administration or distribution with respect to
one or more classes of Shares, including without limitation plans subject to
Rule 12b-1 under the Act, and the Trustees may enter into agreements pursuant to
such plans.
7.7 PARTIES TO AGREEMENTS. The same Person may be employed in
multiple capacities under Sections 7.1 through 7.6 of this Article VII and may
receive compensation in as many capacities as such Person serves. The Trustees
may enter into any agreement of the character described in this Article VII, or
any other agreement necessary or appropriate to the conduct of the business of
the Trust or any class of Shares, with any Person, including any Person in which
any Trustee, representative, employee or Shareholder of the Trust may be
interested, and no such agreement shall be invalidated or rendered voidable by
reason of the existence of any such relationship, nor shall any Person holding
such relationship be liable by reason of such relationship for any loss or
expense to the Trust under or by reason of said agreement or accountable for any
profit realized directly or indirectly therefrom.
VIII.
SHAREHOLDERS' VOTING POWERS AND MEETINGS
8.1 VOTING POWERS. The Shareholders shall have power to vote (a) for
the election of Trustees as provided in Section 6.2 hereof, (b) to the same
extent as the shareholders of a Massachusetts business corporation when
considering whether a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, (c) with respect to any of the matters and to the extent
provided in Article X hereof, (d) with respect to such additional matters
relating to the Trust as may be required by law, by this Declaration of Trust,
by the Regulations of the Trust, by any requirement applicable to or agreement
of the Trust, or as the Trustees may consider desirable. Every Shareholder of
record shall have the right to one vote for every whole Share (other than Shares
held in the treasury of the Trust) standing in his name on the books of the
Trust, and to a proportional fractional vote for any fractional Share, as to any
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matter on which the Shareholder is entitled to vote. There shall be no
cumulative voting. Shares may be voted in person or by proxy. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required or permitted to be taken by Shareholders by law, this
Declaration of Trust or the Regulations.
8.2 MEETINGS. Meetings of Shareholders may be called by the Trustees
as provided in the Regulations and shall be called by the Trustees upon the
written request of Shareholders owning at least ten percent (10%) of the
outstanding Shares entitled to vote.
8.3 QUORUM AND REQUIRED VOTE. The presence, in person or by proxy,
of Shareholders entitled to cast at least a majority of the votes which all
Shareholders are entitled to cast on the particular matter shall constitute a
quorum for the purpose of considering such matter. Action may be taken on all
matters for which a quorum exists, irrespective of the absence of a quorum on
other matters. If a meeting cannot be organized with respect to a particular
matter because a quorum for that matter has not attended, those present and
entitled to vote on such matter may adjourn the meeting to such reasonable time
and place as they may determine.
On any matter submitted to a vote of Shareholders, Shares with
different alphabetical class designations that are then issued and outstanding
and entitled to vote shall be voted in the aggregate and not by class except:
(1) as otherwise required by applicable law or permitted by the Board of
Trustees of the Trust, or (2) when the matter, as conclusively determined by the
Trustees, affects only the interests of the Shareholders of a class or classes
with a particular alphabetical designation (in which case only Shareholders of
the affected class or classes shall be entitled to vote thereon).
Each Share of classes having the same alphabetical designation shall
vote together in the aggregate and not by class on all matters submitted to a
vote of the Shareholders of such classes, except that:
(1) on any matter that pertains to the agreements or
expenses and liabilities described in subsection B(3)(a) of Section 5.1 hereof
(or to any plan or other document adopted by the Trust relating to said
agreements, expenses or liabilities) and is submitted to a vote of Shareholders
of the Trust, only the particular class of Shares specified therein shall be
entitled to vote, except that: (i) if said matter affects Shares in the Trust
other than such class of Shares, such other affected Shares in the Trust shall
also be entitled to vote, and in such case the particular class of Shares so
specified shall be voted in the aggregate together with such
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<PAGE>
other affected Shares and not by class except where otherwise required by law or
permitted by the Board of Trustees of the Trust; and (ii) if said matter does
not affect the particular class of Shares specified therein, said class of
Shares shall not be entitled to vote (except where required by law or permitted
by the Board of Trustees) even though the matter is submitted to a vote of the
holders of Shares in the Trust other than Shares of such class; and
(2) on any matter that pertains to the agreements or
expenses and liabilities described in subsection B(3)(b) of Section 5.1 hereof
(or any plan or other document adopted by the Trust relating to said agreements,
expenses or liabilities) and is submitted to a vote of Shareholders of the
Trust, the particular class of Shares specified therein shall not be entitled to
vote, except where otherwise required by law or permitted by the Board of
Trustees of the Trust, and except that if said matter affects such class of
Shares, such class of Shares shall be entitled to vote, and in such case shall
be voted in the aggregate together with all other Shares in the Trust voting on
the matter and not by class except where otherwise required by law or permitted
by the Board of Trustees.
Subject to any applicable requirements of law or of this Declaration
of Trust or the Regulations: (a) the acts, at any duly organized meeting, of
the Shareholders present, in person or by proxy, entitled to cast at least a
majority of the votes which all Shareholders present are entitled to cast on the
particular matter shall be the acts of the Shareholders with respect to that
matter; and (b) in the election of Trustees, a plurality of the Shares voting
shall elect a Trustee.
8.4 SHAREHOLDER ACTION BY WRITTEN CONSENT. Any action which may be
taken by Shareholders may be taken without a meeting if not less than a majority
of the Shareholders entitled to vote on the matter consent to the action in
writing and the written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
8.5 CODE OF REGULATIONS. The Regulations may include further
provisions not inconsistent with this Declaration of Trust for meetings of
Shareholders, votes, record dates, notices of meetings and related matters.
IX.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION
9.1 LIABILITIES OF CLASSES. Liabilities belonging to classes of
Shares with the same alphabetical designation,
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including, without limitation, expenses, fees, charges, taxes, and liabilities
incurred or arising in connection with such classes, or in connection with the
management thereof, shall be paid only from the assets belonging to such
classes.
9.2 LIMITATION OF TRUSTEE LIABILITY. Every act or thing done or
omitted, and every power exercised or obligation incurred by the Trustees or any
of them in the administration of this Trust or in connection with any affairs,
property or concerns of the Trust, whether ostensibly in their own names or in
their Trust capacity, shall be done, omitted, exercised or incurred by them as
Trustees and not as individuals. Every person contracting or dealing with the
Trustees or having any debt, claim or judgment against them or any of them shall
look only to the funds and property of the Trust for payment or satisfaction.
No Trustee or Trustees of the Trust shall ever 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 the Trust
Property or the conduct of any of the affairs of the Trust. Every note, bond,
contract, order or other undertaking issued by the Trust or the Trustees
relating to the Trust, and stationery used by the Trust shall include the notice
set forth in Section 9.5 of this Article IX (but the omission thereof shall not
be construed as a waiver of the foregoing provision, and shall not render the
Trustees personally liable).
It is the intention of this Section 9.2 that no Trustee shall be
subject to any personal liability whatsoever to any person for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except that nothing
in this Declaration of Trust shall protect any Trustee from any liability to the
Trust or its Shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of his
duties, or by reason of reckless disregard of his obligations and duties as
Trustee; and that all persons shall look solely to the Trust Property belonging
to a class of Shares for satisfaction of claims of any nature arising in
connection with the affairs of such class of the Trust.
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 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
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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 have the power to indemnify representatives and
employees of the Trust to the same extent that Trustees are entitled to
indemnification pursuant to this Section 9.3.
9.4 RELIANCE ON EXPERTS, ETC. Each Trustee and representative of the
Trust shall, in the performance of his duties, be fully and completely justified
and protected with regard to any act or any failure to act resulting from
reliance in good faith upon the books of account or other records of the Trust,
upon an opinion of counsel satisfactory to the Trust, or upon reports made to
the Trust by any of its representatives or employees or by the investment
adviser, the principal underwriter, selected dealers, accountants, appraisers or
other experts or consultants selected with reasonable care by the Trustees or
representatives of the Trust, regardless of whether such counsel or expert may
also be a Trustee.
9.5 LIMITATION OF SHAREHOLDER LIABILITY. Shareholders shall not be
subject to any personal liability in connection with the assets of the Trust for
the acts or obligations of the Trust. The Trustees shall have no power to bind
any Shareholder personally or to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay by way of subscription to any Shares or
otherwise. Every obligation, contract, instrument, certificate for Shares or
any other security of any class of the Trust or undertaking, and every other act
whatsoever executed in connection with the Trust or any class of Shares shall be
conclusively presumed to have been
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<PAGE>
executed or done by the executors thereof only in their capacities as Trustees
under the Declaration of Trust or in their capacity as officers, employees or
agents of the Trust and not individually. Every note, bond, contract, order or
other undertaking issued by or on behalf of the Trust or the Trustees relating
to the Trust or any class of Shares, and the stationery used by the Trust, shall
include a recitation limiting the obligation represented thereby to the Trust
and its assets (but the omission of such a recitation shall not operate to bind
any Shareholder), as follows:
"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 Trust. The obligations of 'The
Galaxy VIP Fund' entered into in the name or on behalf thereof by
any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon
any of the Trustees, Shareholders or representatives of the Trust
personally, but bind only the Trust Property, and all persons
dealing with any class of shares of the Trust must look solely to
the Trust Property belonging to such class for the enforcement of
any claims against the Trust."
The rights accruing to a Shareholder under this Section 9.5 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided for herein, PROVIDED that a Shareholder of any class of
Shares shall be indemnified only from assets belonging to the classes of Shares
with the same alphabetical designation.
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
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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.
X.
MISCELLANEOUS
10.1 TRUST NOT A PARTNERSHIP. It is hereby expressly declared that a
Massachusetts trust with transferable Shares and not a partnership, joint
venture, corporation, joint stock company or any form of legal relationship
other than a trust is created hereby. Nothing herein shall be construed to make
the Shareholders, either by themselves or with the Trustees, partners or members
of a joint stock association. No Trustee hereunder shall have any power to bind
personally either a representative of the Trust or any Shareholder. All persons
extending credit to, contracting with or having any claim against the Trust or
the Trustees shall look only to the assets of the Trust for payment under such
credit, contract or claim; ant neither the Shareholders nor the Trustees,
whether past, present or future, shall be personality liable therefor.
10.2 NO BOND OR SURETY. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is required.
10.3 DURATION OF TRUST. This Trust shall continue without limitation
of time, PROVIDED that the Trust or any class of Shares may be terminated at any
time in accordance with the provisions of this Declaration of Trust and
applicable law.
10.4 MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may merge
into or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized by vote or written consent of the
Trustees and approved by the affirmative vote of the holders of not less than a
majority of the Shares outstanding and entitled to vote, voting in the aggregate
and not by class except to the extent that applicable law may require voting by
class, or by an instrument or instruments in writing without a meeting consented
to by the holders of not less than a majority of such Shares, voting in the
aggregate and not by class except to the extent that applicable law may require
voting by class.
10.5 INCORPORATION. With the approval of the holders of a majority of
the outstanding Shares, voting in the aggregate
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and not by class except to the extent that applicable law may require voting by
class, the Trustees may cause to be organized, or assist in organizing, a
corporation or corporations under the law of any jurisdiction, to carry on any
affairs in which the Trust shall directly or indirectly have any interest, and
to transfer the Trust Property to any such Person in exchange for any Shares or
securities thereof or otherwise, and to lend money, to subscribe for the Shares
or securities of, and enter into any contracts with any such Person in which the
Trust holds or is about to acquire securities or any other interest. The
Trustees may also cause a merger or consolidation between the Trust or any
successor thereto and any such Person if and to the extent permitted by law.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships associations or the organizations and
selling, conveying or transferring a portion of the Trust Property to such
Person(s).
10.6 FILING OF COPIES, REFERENCES, HEADINGS. The original instrument
of this Declaration of Trust and of each amendment hereto shall be filed with
the State Secretary of the Commonwealth of Massachusetts as provided by law and
copies thereof shall be kept at the office of the Trust where they may be
inspected by any Shareholder. Each amendment so filed shall be accompanied by a
Certificate signed and acknowledged by a Trustee or by the Secretary or any
Assistant Secretary of the Trust stating that such action was duly taken in the
manner provided herein, and unless such amendment or such certificate sets forth
some later time for the effectiveness of such amendment, such amendment shall be
effective upon its filing. A restated Declaration Trust, integrating into a
single instrument all of the provisions of the Declaration of Trust that are
then in effect and operative, may be executed from time to time by a majority of
the Trustees and shall, upon filing with the State Secretary of the Commonwealth
of Massachusetts, be conclusive evidence of all amendments contained therein and
may thereafter be referred to in lieu of the initial Declaration of Trust and
the various amendments thereto. Anyone dealing with the Trust may rely on a
certificate by a representative of the Trust as to whether or not any such
amendment hereto may have been made and as to any matters in connection with the
Trust hereunder, with the same effect as if it were the original, and may rely
on a copy certified by a representative of the Trust to be a copy of this
instrument or of any amendment thereto. Headings are placed herein for
convenience of reference only and, in the case of any conflict, the text of this
instrument, rather than the headings, shall control. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original. All signatures to this instrument need not appear on the same page.
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10.7 APPLICABLE LAW. The Trust set forth in this instrument is a
trust made in the Commonwealth of Massachusetts and is to be governed by and
construed and administered according the laws of said Commonwealth.
10.8 PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
A. No provision of this Declaration of Trust shall be effective
to:
(1) Require a waiver of compliance with any provision of
the Securities Act of 1933, as amended, or the Act, or of any valid rule,
regulation or order of the Securities and Exchange Commission thereunder; or
(2) Protect or purport to protect any Trustee or officer of
the Trust against any liability to the Trust or its Shareholders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
B. The provisions of this Declaration of Trust are severable,
and if the Trustees shall determine with the advice of counsel that any of such
provisions is in conflict with the Act, the regulated investment company
provisions of the Internal Revenue Code, Chapter 182 of the General Laws of the
Commonwealth of Massachusetts or with any other applicable law or regulation,
then in such event the conflicting provision shall be deemed never to have
constituted a part of this Declaration of Trust, PROVIDED that such
determination shall not affect any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.
C. If any provision of this Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration of Trust in any jurisdiction.
10.9 AMENDMENT OF DECLARATION OF TRUST.
A. This Declaration of Trust may be amended upon a resolution
to that effect being adopted by the Trustees and approved by the affirmative
vote of the holders of not less than a majority of the outstanding Shares,
voting in the aggregate and not by class except to the extent that applicable
law may require voting by class.
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B. Notwithstanding any other provision hereof, until such time
as a Registration Statement under the Securities Act of 1933, as amended,
covering the first public offering of securities of the Trust shall have become
effective, this Declaration of Trust may be terminated or amended in any respect
by the affirmative vote of a majority of the Trustees.
C. The Trustees may amend this Declaration of Trust without a
vote of Shareholders to change the name of the Trust or to cure any error or
ambiguity or if they deem it necessary to conform this Declaration of Trust to
the requirements of applicable state or federal laws or regulations, including
without limitation the requirements of the regulated investment company
provisions of the Internal Revenue Code, but the Trustees shall not be liable
for failing so to do.
D. Notwithstanding any other provision hereof, this Declaration
of Trust may not be amended in any manner whatsoever that would impair the
exemption from personal liability of the Trustees and Shareholders of the Trust
or that would permit an assessment upon any Shareholder.
IN WITNESS WHEREOF, the undersigned have executed this Agreement and
Declaration of Trust in the capacities indicated, as of this 27th day of May,
1992.
/s/Bryan Chegwidden, Settlor
-------------------------------
Bryan Chegwidden, Settlor
/s/George M. Boyd
-------------------------------
George M. Boyd,
Initial Trustee
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M A S S A C H U S E T T S
Suffolk, ss.:
On this 27th day of May, 1992, personally appeared before me Bryan
Chegwidden, known to me and known to me to be the individual described in and
who executed the foregoing Agreement and Declaration of Trust, and acknowledged
the said Agreement and Declaration of Trust to be his free act and deed.
/s/Beth A. Good
----------------------------------
Notary Public
[NOTARIAL SEAL] My Commission Expires May 8, 1998
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<PAGE>
M A S S A C H U S E T T S
Boston, ss.:
On this 27th day of May, 1992, personally appeared before me George M.
Boyd, known to me and known to me to be the individual described in and who
executed the foregoing Agreement and Declaration of Trust, and acknowledged the
said Agreement and Declaration of Trust to be his free act and deed.
/s/Barbara L. Worthen
----------------------------------
Notary Public
[NOTARIAL SEAL] My Commission Expires 5/7/93
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Exhibit (2)
CODE OF REGULATIONS
OF
THE GALAXY VIP FUND
ARTICLE I
TRUSTEES
1.1 NUMBER AND TERM OF OFFICE. The number of Trustees shall be such
number, not more than ten (10), as may be fixed from time to time by the
Trustee(s). Each Trustee shall hold office until the next meeting of the
Shareholders following his election or appointment as a Trustee at which
trustees are elected and until his successor shall have been elected and
qualified.
1.2 PLACE OF MEETINGS; TELEPHONE MEETINGS. Meetings of the Trustees,
regular or special, shall be held at the principal office of the Trust or at
such other place as the Trustees may from time to time determine. The Trustees
or any committee thereof may participate in a meeting of the Trustees or of such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting may hear each other
at the same time and participation by such means shall constitute presence in
person at the meeting except for the purpose of voting on any investment
advisory agreement or distribution plan of the Trust.
1.3 REGULAR MEETINGS. Regular meetings of the Trustees may be held
without notice at such time and at the
<PAGE>
principal office of the Trust or at such other place as the Trustees may from
time to time determine.
1.4 SPECIAL MEETINGS. Special meetings of the Trustees may be called
by the President on one day's notice to each Trustee; special meetings of the
Trustees shall be called by the President or Secretary in like manner and on
like notice on the written request of two Trustees.
1.5 COMMITTEES. The Trustees may by resolution passed by a majority
of the Trustees appoint from among its members an executive committee and other
committees composed of two or more Trustees, and may delegate to such
committees, in the intervals between meetings of the Trustees, any or all of the
powers of the Trustees in the management of the business and affairs of the
Trust, except the power to issue Shares in the Trust or to recommend to
Shareholders any action requiring Shareholder approval.
1.6 CHAIRMAN OF THE BOARD. The Trustees may from time to time
designate one of their number to serve as Chairman of the Board. If a Chairman
has been designated:
(a) He may call meetings of the Trustees, and shall preside at
meetings of the Trustees. In his absence, a majority of the Trustees who are
present shall select a person to preside.
(b) He or his designee shall preside at meetings of Shareholders.
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(c) He shall not be an officer of the Trust for any purpose, and
shall have no executive, operating, or administrative authority with respect to
the Trust. He shall be deemed to be a Trustee of the Trust for all purposes.
(d) He shall be entitled to receive such compensation, if any, as may
from time to time be fixed by the Trustees, and he shall be reimbursed by the
Trust for all reasonable expenses incurred by him in carrying out his duties as
aforesaid.
(e) He may resign as Chairman at any time by giving written notice to
the Trustees, to the President, or to the Secretary of the Trust. The
acceptance of such notice shall not be necessary to make it effective.
(f) He shall serve at the pleasure of the Trustees.
1.7 COMPENSATION. Any Trustee, whether or not a salaried officer,
employee, or agent of the Trust, may be compensated for his services as a
Trustee or as a member of a committee, or as Chairman of the Board of Trustees
or Chairman of a committee, by fixed periodic payments or by fees for attendance
at meetings or by both, and in addition may be reimbursed for transportation and
other expenses, all in such manner and amounts as the Trustees may from time to
time determine.
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ARTICLE II
SHAREHOLDERS
2.1 MEETINGS. Meetings of the Shareholders of the Trust may be
called by the Trustees and shall be called by the Trustees whenever required by
law or upon the written request of the holders of at least ten percent (10%) of
the outstanding Shares entitled to vote.
2.2 NOTICE. Written notice, stating the place, day and hour of each
meeting of the Shareholders and the general nature of the business to be
transacted shall be given by, or at the direction of, the person calling the
meeting to each Shareholder of record entitled to vote at the meeting at least
ten days prior to the day named for the meeting, unless in a particular case a
longer period of notice is required by law.
2.3 SHAREHOLDERS' LIST. The officer or agent having charge of the
transfer books for Shares of the Trust shall make, at least five days before
each meeting of the Shareholders, a complete list of the Shareholders entitled
to vote at the meeting, arranged in alphabetical order with the address of and
the number of Shares held by each such Shareholder. The list shall be kept on
file at the office of the Trust and shall be subject to inspection by any
Shareholder at any time during usual business hours and shall also be produced
and kept open at the time and place of each meeting of Shareholders and shall be
subject to inspection by any Shareholder during each meeting of Shareholders.
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2.4 RECORD DATE. The Trustees may fix a time (during which they may
close the Share transfer books of the Trust) not more than ninety (90) days
prior to the date of any meeting of the Shareholders, or the date fixed for the
payment of any dividend, or the date of the allotment of rights or the date when
any change or conversion or exchange of Shares shall go into effect, as a record
date for the determination of the Shareholders entitled to notice of, or to vote
at, any such meeting, or entitled to receive payment of any such dividend, or to
receive such allotment of rights, or to exercise such rights, as the case may
be. In such case, only such Shareholders as shall be Shareholders of record at
the close of business on the date so fixed shall be entitled to notice of, or to
vote at, such meeting or to receive payment of such dividend, or to receive such
allotment of rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any Shares on the books of the Trust after any
record date fixed, as aforesaid.
ARTICLE III
NOTICES
3.1 FORM. Notices to the Trustees shall be oral or by telephone or
telegram or in writing delivered personally or mailed to the Trustees at their
addresses appearing on the books of the Trust. Notices to the Shareholders
shall be in writing and delivered personally or mailed to the Shareholders at
their addresses appearing on the books of the Trust. Oral notice shall
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be deemed to be given when given directly to the person required to be notified
and notice by mail shall be deemed to be given when deposited in the United
States mail or with a telegraph office for transmission. Notice to the Trustees
need not state the purpose of a regular or special meeting of the Trustees or
committee.
3.2 WAIVER. Whenever any notice of the time, place or purpose of any
meeting of the Shareholders, the Trustees or a committee is required to be given
under the provisions of Massachusetts law or under the provisions of the
Declaration of Trust or these Regulations, a waiver thereof in writing, signed
by the person or persons entitled to such notice and filed with the records of
the meeting, whether before or after the holding thereof, or actual attendance
at the meeting of the Shareholders in person or by proxy, or at the meeting of
the Trustees or the committee in person, shall be deemed equivalent to the
giving of such notice to such persons.
ARTICLE IV
OFFICERS
4.1 NUMBER. The officers of the Trust shall be chosen by the
Trustees and shall include a President, who shall be a Trustee, a Secretary and
a Treasurer. The Board of Trustees may from time to time elect or appoint one
or more Vice Presidents, Assistant Secretaries and Assistant Treasurers.
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4.2 OTHER OFFICERS. The Trustees from time to time may appoint such
other officers and agents as they shall deem advisable, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
the Trustees may from time to time prescribe. The Trustees may delegate to one
or more officers or agents the power to appoint any such subordinate officers or
agents and to prescribe the respective rights, terms of office, authorities and
duties.
4.3 ELECTION AND TENURE. The officers of the Trust shall be chosen
by the Trustees. Two or more offices may be held by the same person but no
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law, the Declaration of Trust or
these Regulations to be executed, acknowledged or verified by two or more
officers. Any officer or agent may be removed by the Trustees. An officer of
the Trust may resign by filing a written resignation with the President or with
the Trustees or with the Secretary. Any vacancy occurring in any office of the
Trust by death, resignation, removal or otherwise may be filed by the Trustees.
4.4 COMPENSATION. The salaries or other compensation of all officers
and agents of the Trust shall be fixed by the Trustees, except that the Trustees
may delegate to any committee the power to fix the salary or other compensation
of any officer of the Trust.
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<PAGE>
4.5 PRESIDENT. The President shall be the chief executive officer of
the Trust; he shall preside at all meetings of the Trustees and of the
Shareholders unless a Chairman has been designated; he shall be, EX OFFICIO, a
member of all standing committees; and he shall see that all orders and
resolutions of the Trustees are carried into effect. He, or such person as he
may designate, shall sign, execute and acknowledge, in the name of the Trust,
deeds, mortgages, bonds, contracts and other instruments authorized by the
Trustees, except in the case where the signing and execution thereof shall be
delegated by the Trustees to some other officer or agent of the Trust.
4.6 VICE PRESIDENTS. The Vice Presidents, in the order of their
seniority, shall, in the absence or disability of the President, perform the
duties and exercise the powers of the President, and shall perform such other
duties as the Trustees may from time to time prescribe.
4.7 SECRETARY. The Secretary shall attend all meetings of the
Trustees and of the Shareholders and shall record all the proceedings thereof
and shall perform like duties for any committee when required. He shall give,
or cause to be given, notice of meetings of the Trustees and of the
Shareholders, and shall perform such other duties as may be prescribed by the
Trustees or the President, under whose supervision he shall be. He shall keep
in safe custody the seal of the Trust and, when authorized by the Trustees,
affix and attest the same to any instrument requiring it, provided that, in lieu
of affixing the
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seal of the Trust to any document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to affix the word
"(SEAL)" adjacent to the signature of the authorized officer of the Trust. The
Trustees may give general authority to any other officer to affix the seal of
the Trust and to attest the affixing by his signature.
4.8 ASSISTANT SECRETARIES. The Assistant Secretaries, in order of
their seniority, shall, in the absence or disability of the Secretary, perform
the duties and exercise the powers of the Secretary and shall perform such other
duties as the Trustees may from time to time prescribe.
4.9 TREASURER. The Treasurer shall be the chief financial officer of
the Trust. He shall be responsible for the maintenance of its accounting
records and shall render to the Trustees when the Trustees so require an account
of all the Trust's financial transactions and a report of the financial
condition of the Trust.
4.10 ASSISTANT TREASURERS. The Assistant Treasurers, in the order of
their seniority, shall, in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer and shall perform such other
duties as the Trustees may from time to time prescribe.
-9-
<PAGE>
ARTICLE V
INVESTMENT RESTRICTIONS
The Trustees may from time to time adopt such restrictions upon the
investment of the assets of the Trust, or amendments thereto, as they may
consider necessary or desirable, PROVIDED that any such restriction or amendment
shall be approved by a majority of the outstanding Shares of the Trust entitled
to vote thereon if required by the Investment Company Act of 1940, as amended.
ARTICLE VI
GENERAL PROVISIONS
6.1 INSPECTION OF BOOKS. The Trustees may from time to time
determine whether and to what extent, and at what times and places, and under
what conditions and regulations the accounts and books of the Trust or any of
them shall be open to inspection by the Shareholders; and no Shareholder shall
have any right to inspect any account or book or document of the Trust except as
conferred by law or authorized by the Trustees or by resolution of the
Shareholders.
6.2 REPORTS. The Trust shall transmit to the Shareholders and/or
file with federal and state regulatory agencies such reports of its operations
as the Trustees shall consider necessary or desirable or as may be required by
law.
-10-
<PAGE>
6.3 BONDING OF OFFICERS AND EMPLOYEES. All officers and employees of
the Trust shall be bonded to such extent, and in such manner, as may be required
by law.
6.4 TRANSFER OF SHARES. Share certificates shall not be issued.
Transfer of Shares shall be made on the books of the Trust at the direction of
the person named on the Trust's books, or by his attorney lawfully constituted
in writing, upon a proper request for redemption or transfer, to the Trust's
transfer agent, with such evidence of the authenticity of such transfer,
authorization and other matters as the Trust or its agents may reasonably
require, and subject to such other reasonable conditions and requirements as may
be required by the Trust or its agents; or if the Trustees shall by resolution
so provide, transfer of Shares may be made in any other manner provided by law.
ARTICLE VII
AMENDMENTS
This Code of Regulations may be altered or repealed by the Trustees at
any regular or special meeting of the Trustees.
-11-
<PAGE>
Exhibit (5)(a)
THE GALAXY VIP FUND
ADVISORY AGREEMENT
Money Market Fund, Equity Fund,
Asset Allocation Fund and High Quality Bond Fund
AGREEMENT made as of September 30, 1992 between THE GALAXY VIP FUND, a
Massachusetts business trust, located in Worcester, Massachusetts ("Galaxy") and
FLEET INVESTMENT ADVISORS INC., located in Rochester, New York (the "Adviser").
WHEREAS, Galaxy is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, Galaxy desires to retain the Adviser as investment adviser to
the Money Market Fund, Equity Fund, Asset Allocation Fund and High Quality Bond
Fund (individually, a "Fund," and collectively, the "Funds");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. DELIVERY OF DOCUMENTS. The Adviser acknowledges that it has
received copies of each of the following as certified by Galaxy:
(a) Galaxy's Agreement and Declaration of Trust, as filed with
the State Secretary of the Commonwealth of Massachusetts on May 27, 1992
and all amendments thereto (such Agreement and Declaration of Trust, as
presently in effect and as it shall from time to time be amended, is herein
called the "Declaration of Trust");
(b) Galaxy's Code of Regulations and any amendments thereto
(such Code of Regulations, as presently in effect and as it shall from time
to time be amended, is herein called the "Code of Regulations");
(c) Resolutions of Galaxy's Board of Trustees authorizing the
appointment of the Adviser and approving this Agreement;
(d) Galaxy's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission ("SEC") on
July 7, 1992 and all amendments thereto;
<PAGE>
(e) Galaxy's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (Registr. No.
33-49290/811-6726) and under the 1940 Act as filed with the SEC on July 7,
1992 and all amendments thereto; and
(f) Galaxy's most recent prospectus with respect to the Funds
(such prospectus, as presently in effect and all amendments and supplements
thereto herein called the "Prospectus").
Galaxy will furnish the Adviser from time to time with execution
copies of all amendments of, or supplements to, the foregoing.
2. SERVICES. Galaxy hereby appoints the Adviser to act as
investment adviser to the Funds for the period and on the terms set forth in
this Agreement. Intending to be legally bound, the Adviser accepts such
appointment and agrees to furnish the services required herein to the Funds for
the compensation hereinafter provided.
Subject to the supervision of Galaxy's Board of Trustees, the Adviser
will provide with respect to the Funds a continuous investment program for each
Fund, including investment research and management with respect to all
securities and investments and cash equivalents in such Fund. The Adviser will
determine from time to time what securities and other investments will be
purchased, retained or sold by each Fund and will arrange for the purchase and
sale of securities and other investments of each Fund. The Adviser will provide
the services under this Agreement in accordance with each Fund's investment
objective, policies and restrictions as stated in the Prospectus and resolutions
of Galaxy's Board of Trustees applicable to such Fund.
3. COVENANTS BY ADVISER. The Adviser agrees with respect to the
services provided to each Fund that it:
(a) will conform with all Rules and Regulations of the SEC
applicable to it as investment adviser and will in addition conduct its
activities under this agreement in accordance with those regulations of the
Board of Governors of the Federal Reserve System pertaining to the
investment advisory activities of bank holding companies which are
applicable to the Adviser;
(b) will use the same skill and care in providing such services
as it uses in providing services to other investment companies;
-2-
<PAGE>
(c) will place orders pursuant to its investment determinations
for the Funds either directly with the issuer or with any broker or dealer.
In placing orders with brokers and dealers, the Adviser will attempt to
obtain the best net price and the most favorable execution of its orders.
Consistent with this obligation, when the execution and price offered by
two or more brokers or dealers are comparable, the Adviser may, in its
discretion, purchase and sell portfolio securities from and to brokers and
dealers who provide Galaxy with research advice and other services. Except
as permitted by the SEC, the portfolio securities will not be purchased
from or sold to the Adviser, the Funds' distributor (the "Distributor"), or
any affiliated person of Galaxy, the Adviser or the Distributor, PROVIDED,
HOWEVER, that subject to the provisions of this paragraph and to the extent
permitted by law, the Adviser may purchase or sell portfolio securities
through the Distributor or an affiliate of the Distributor or the Adviser
acting as broker;
(d) will maintain all books and records with respect to the
securities transactions for the Funds, keep Galaxy's books of account with
respect to the Funds and furnish Galaxy's Board of Trustees such periodic
and special reports as the Board may request with respect to the Funds;
(e) will treat confidentially and as proprietary information of
Galaxy all records and other information relative to the Funds and prior,
present or potential shareholders, and will not use such records and
information for any purpose other than performance of its responsibilities
and duties hereunder (except after prior notification to and approval in
writing by Galaxy, which approval shall not be unreasonably withheld and
may not be withheld and will be deemed granted where the Adviser may be
exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities,
or when so requested by Galaxy).
4. SERVICES NOT EXCLUSIVE. The services furnished by the Adviser
hereunder are deemed not to be exclusive, and nothing in this Agreement shall
(i) prevent the Adviser or any affiliated person (as defined in the 1940 Act) of
the Adviser from acting as investment adviser or manager for any other person or
persons, including other management investment companies with investment
objectives and policies the same as or similar to those of any Fund or (ii)
limit or restrict the Adviser or any such affiliated person from buying, selling
or trading any securities or other investments (including any securities or
other investments which any Fund is eligible to buy) for its or their own
accounts or for the accounts of others for whom it or they may be acting;
-3-
<PAGE>
PROVIDED, HOWEVER, that the Adviser agrees that it will not undertake any
activities which, in its judgment, will adversely affect the performance of its
obligations to the Funds under this Agreement.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Adviser hereby agrees that all records which it
maintains for the Funds are the property of Galaxy and further agrees to
surrender promptly to Galaxy any of such records upon Galaxy's request. The
Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.
6. EXPENSES. During the term of this Agreement, the Adviser will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commissions, if
any) purchased for the Funds.
7. COMPENSATION. For the services provided and the expenses assumed
with respect to the Money Market Fund pursuant to this Agreement, Galaxy will
pay the Adviser from the assets belonging to the Fund and the Adviser will
accept as full compensation therefor fees, computed daily and paid monthly, at
an annual rate of .40% of the net assets of the Fund.
For the services provided and the expenses assumed with respect to the
Equity Fund and Asset Allocation Fund pursuant to this Agreement, Galaxy will
pay the Adviser from the assets belonging to the Fund involved and the Adviser
will accept as full compensation therefor fees, computed daily and paid monthly,
at an annual rate of .75% of the net assets of each Fund.
For the services provided and the expenses assumed with respect to the
High Quality Bond Fund pursuant to this Agreement, Galaxy will pay the Adviser
from the assets belonging to the Fund and the Adviser will accept as full
compensation therefor fees, computed daily and paid monthly, at an annual rate
of .55% of the net assets of the Fund.
If in any fiscal year the aggregate expenses of any Fund (as defined
under the securities regulations of any state having jurisdiction over such
Fund) exceed the expense limitations of any such state, the Adviser will
reimburse Galaxy for such excess expenses to the extent described in any written
undertaking provided by the Adviser to such state.
8. LIMITATION OF LIABILITY. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by Galaxy, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for
-4-
<PAGE>
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or from
reckless disregard of its obligations and duties under this Agreement.
9. DURATION AND TERMINATION. This Agreement shall become effective
with respect to each Fund on the day such Fund first commences the public
offering of its shares and, unless sooner terminated, shall continue in effect
until August 10, 1994. Thereafter, if not terminated, this Agreement shall
continue in effect with respect to a particular Fund for successive twelve month
periods ending on August 10, PROVIDED such continuance is specifically approved
at least annually (a) by the vote of a majority of those members of Galaxy's
Board of Trustees who are not parties to this Agreement, or interested persons
of any such party, cast in person at a meeting called for the purpose of voting
on such approval, and (b) by Galaxy's Board of Trustees or by the vote of a
majority of the outstanding voting securities of such Fund. Notwithstanding the
foregoing, this Agreement may be terminated as to any Fund at any time, without
the payment of any penalty, by Galaxy's Board of Trustees or by vote of a
majority of the outstanding voting securities of such Fund, or by the Adviser,
on 60 days' written notice (which notice may be waived by the party entitled to
receive the same). This Agreement will immediately terminate in the event of
its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meaning as such terms in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective with respect to a particular Fund until approved by the vote of a
majority of the outstanding voting securities of that Fund.
11. MISCELLANEOUS. The Adviser expressly agrees that notwithstanding
the termination of or failure to continue this Agreement with respect to a
particular Fund, the Adviser shall continue to be legally bound to provide the
services required herein for the other Funds for the period and on the terms set
forth in this Agreement.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
-5-
<PAGE>
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by New
York law.
12. NAMES. The names "The Galaxy VIP Fund" and "Trustees of The
Galaxy VIP Fund" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under an
Agreement and Declaration of Trust dated May 27, 1992 which is hereby referred
to and a copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and the principal office of Galaxy. The
obligations of "The Galaxy VIP Fund" entered into in the name or on behalf
thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders, or representatives of Galaxy personally, but bind only
the property of Galaxy, and all persons dealing with any class of shares of
Galaxy must look solely to the property of Galaxy belonging to such class for
the enforcement of any claims against Galaxy.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THE GALAXY VIP FUND
By: /s/ John T. O'Neill
--------------------------------
President
FLEET INVESTMENT ADVISORS INC.
By: /s/ Harold A. MacKinney, Jr.
--------------------------------
President
-6-
<PAGE>
Exhibit (5)(b)
THE GALAXY VIP FUND
ADDENDUM NO. 1 TO ADVISORY AGREEMENT
This Addendum No. 1, dated as of the 2nd day of March, 1998, is
entered into between THE GALAXY VIP FUND, a Massachusetts business trust,
located in Westboro, Massachusetts ("Galaxy"), and FLEET INVESTMENT ADVISORS
INC., a New York corporation, located in Boston, Massachusetts (the "Adviser").
WHEREAS, Galaxy and the Adviser have entered into an Advisory
Agreement dated as of September 30, 1992 (the "Advisory Agreement"), pursuant to
which Galaxy appointed the Adviser to act as investment adviser to Galaxy for
its Money Market Fund, Equity Fund, Asset Allocation Fund and High Quality Bond
Fund (each a "Fund");
WHEREAS, Galaxy has notified the Adviser that it has established a
Growth and Income Fund and Small Company Growth Fund;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT. Galaxy hereby appoints the Adviser to act as
investment adviser to Galaxy for the Growth and Income Fund and Small Company
Growth Fund for the period and on the terms set forth in the Advisory Agreement.
The Adviser hereby accepts such appointment and agrees to render the services
set forth in the Advisory Agreement for the compensation herein provided.
2. COMPENSATION. For the services provided and the expenses assumed
pursuant to the Advisory Agreement with respect to the Growth and Income Fund
and Small Company Growth Fund, Galaxy will pay the Adviser and the Adviser will
accept as full compensation therefor fees, computed daily and paid monthly,
based on the net assets of the Growth and Income Fund and Small Company Growth
Fund considered separately on a per-Fund basis at the annual rates of .75% of
the net assets of each of the Growth and Income Fund and Small Company Growth
Fund.
3. CAPITALIZED TERMS. From and after the date hereof, the term
"Fund" as used in the Advisory Agreement shall be deemed to include the Growth
and Income Fund and Small Company Growth Fund. Capitalized terms used herein
and not otherwise defined shall have the meanings ascribed to them in the
Advisory Agreement.
4. MISCELLANEOUS. Except to the extent supplemented hereby, the
Advisory Agreement shall remain unchanged and in full
<PAGE>
force and effect and is hereby ratified and confirmed in all respects as
supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Addendum as of
the date and year first above written.
THE GALAXY VIP FUND
By:/s/John T. O'Neill
--------------------------
Title: President
FLEET INVESTMENT ADVISORS INC.
By:/s/ Thomas M. O'Neill
--------------------------
Title: President
-----------------------
-2-
<PAGE>
Exhibit (5)(c)
THE GALAXY VIP FUND
ADVISORY AGREEMENT
COLUMBIA REAL ESTATE EQUITY FUND II AND
COLUMBIA HIGH YIELD FUND II
AGREEMENT made as of February 27, 1998 between THE GALAXY VIP FUND, a
Massachusetts business trust, located in Westboro, Massachusetts ("Galaxy") and
COLUMBIA MANAGEMENT CO., an Oregon corporation, located in Portland, Oregon (the
"Adviser").
WHEREAS, Galaxy is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, Galaxy desires to retain the Adviser as investment adviser to
the Columbia Real Estate Equity Fund II and Columbia High Yield Fund II
(individually, a "Fund" and collectively, the "Funds");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. DELIVERY OF DOCUMENTS. The Adviser acknowledges that it has
received copies of each of the following as certified by Galaxy:
(a) Galaxy's Agreement and Declaration of Trust, as filed with
the State Secretary of the Commonwealth of Massachusetts on May 27, 1992
and all amendments thereto (such Agreement and Declaration of Trust, as
presently in effect and as it shall from time to time be amended, is herein
called the "Declaration of Trust");
(b) Galaxy's Code of Regulations and any amendments thereto
(such Code of Regulations, as presently in effect and as it shall from time
to time be amended, is herein called the "Code of Regulations");
(c) Resolutions of Galaxy's Board of Trustees authorizing the
appointment of the Adviser and approving this Agreement;
(d) Galaxy's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission ("SEC") on
July 7, 1992 and all amendments thereto;
<PAGE>
(e) Post-Effective Amendment No. 6 to Galaxy's Registration
Statement on Form N-1A under the Securities Act of 1933, as amended (the
"1933 Act") and under the 1940 Act (Registration No. 33-49290/811-6726) as
filed with the SEC on November 21, 1997; and
(f) Galaxy's most recent prospectus and statement of additional
information with respect to the Funds (such prospectus and statement of
additional information as presently in effect and all amendments and
supplements thereto herein called the "Prospectus").
Galaxy will furnish the Adviser from time to time with execution
copies of all amendments of, or supplements to, the foregoing.
2. SERVICES. Galaxy hereby appoints the Adviser to act as investment
adviser to the Funds for the period and on the terms set forth in this
Agreement. Intending to be legally bound, the Adviser accepts such appointment
and agrees to furnish the services required herein to the Funds for the
compensation hereinafter provided.
Subject to the supervision of Galaxy's Board of Trustees, the Adviser
will provide with respect to the Funds a continuous investment program for each
Fund, including investment research and management with respect to all
securities and investments and cash equivalents in such Fund. The Adviser will
determine from time to time what securities and other investments will be
purchased, retained or sold by each Fund and will arrange for the purchase and
sale of securities and other investments of each Fund. The Adviser will provide
the services under this Agreement in accordance with each Fund's investment
objective, policies and restrictions as stated in the Prospectus and resolutions
of Galaxy's Board of Trustees applicable to such Fund.
3. COVENANTS BY ADVISER. The Adviser agrees with respect to the
services provided to each Fund that it:
(a) will conform with all rules and regulations of the SEC
applicable to it as investment adviser and will in addition conduct its
activities under this Agreement in accordance with those regulations of the
Board of Governors of the Federal Reserve System pertaining to the
investment advisory activities of bank holding companies which are
applicable to the Adviser;
(b) will use the same skill and care in providing such services
as it uses in providing services to other investment companies;
-2-
<PAGE>
(c) will place orders pursuant to its investment determinations
for the Funds either directly with the issuer or with any broker or dealer.
In placing orders with brokers and dealers, the Adviser will attempt to
obtain the best net price and the most favorable execution of its orders.
Consistent with this obligation, when the execution and price offered by
two or more brokers or dealers are comparable, the Adviser may, in its
discretion, purchase and sell portfolio securities from and to brokers and
dealers who provide the Adviser with research advice and other services.
Except as permitted by the SEC, the portfolio securities will not be
purchased from or sold to the Adviser, the Funds' distributor (the
"Distributor"), or any affiliated person of Galaxy, the Adviser or the
Distributor, PROVIDED, HOWEVER, that subject to the provisions of this
paragraph and to the extent permitted by law, the Adviser may purchase or
sell portfolio securities through the Distributor or an affiliate of the
Distributor or the Adviser acting as broker;
(d) will maintain all books and records with respect to the
securities transactions for the Funds, keep Galaxy's books of account with
respect to the Funds and furnish Galaxy's Board of Trustees such periodic
and special reports as the Board may request with respect to the Funds;
(e) will treat confidentially and as proprietary information of
Galaxy all records and other information relative to the Funds and prior,
present or potential shareholders, and will not use such records and
information for any purpose other than performance of its responsibilities
and duties hereunder (except after prior notification to and approval in
writing by Galaxy, which approval shall not be unreasonably withheld and
may not be withheld and will be deemed granted where the Adviser may be
exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities,
or when so requested by Galaxy).
4. SERVICES NOT EXCLUSIVE. The services furnished by the Adviser
hereunder are deemed not to be exclusive, and nothing in this Agreement shall
(i) prevent the Adviser or any affiliated person (as defined in the 1940 Act) of
the Adviser from acting as investment adviser or manager for any other person or
persons, including other management investment companies with investment
objectives and policies the same as or similar to those of either Fund or (ii)
limit or restrict the Adviser or any such affiliated person from buying, selling
or trading any securities or other investments (including any securities or
other investments which either Fund is eligible to buy) for its or their own
accounts or for the accounts of others for whom it or they may be acting;
-3-
<PAGE>
PROVIDED, HOWEVER, that the Adviser agrees that it will not undertake any
activities which, in its judgment, will adversely affect the performance of its
obligations to the Funds under this Agreement.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Adviser hereby agrees that all records which it
maintains for the Funds are the property of Galaxy and further agrees to
surrender promptly to Galaxy any of such records upon Galaxy's request. The
Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.
6. EXPENSES. During the term of this Agreement, the Adviser will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commissions, if
any) purchased for the Funds.
7. COMPENSATION. For the services provided and the expenses assumed
with respect to the Columbia Real Estate Equity Fund II pursuant to this
Agreement, Galaxy will pay the Adviser from the assets belonging to the Fund and
the Adviser will accept as full compensation therefor fees, computed daily and
paid monthly, at an annual rate of .75% of the net assets of the Fund.
For the services provided and the expenses assumed with respect to the
Columbia High Yield Fund II pursuant to this Agreement, Galaxy will pay the
Adviser from the assets belonging to the Fund and the Adviser will accept as
full compensation therefor fees, computed daily and paid monthly, at an annual
rate of .60% of the net assets of the Fund.
8. LIMITATION OF LIABILITY. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by Galaxy, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of its
duties or from reckless disregard of its obligations and duties under this
Agreement.
9. DURATION AND TERMINATION. This Agreement shall become effective
with respect to each Fund on the day such Fund first commences the public
offering of its shares and, unless sooner terminated, shall continue in effect
until August 10, 1999. Thereafter, if not terminated, this Agreement shall
continue in effect with respect to a particular Fund for successive twelve-month
periods ending on August 10, PROVIDED such continuance is specifically approved
at least annually (a) by the vote of a majority of those members of Galaxy's
Board of
-4-
<PAGE>
Trustees who are not parties to this Agreement, or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by Galaxy's Board of Trustees or by the vote of a majority of
the outstanding voting securities of such Fund. Notwithstanding the foregoing,
this Agreement may be terminated as to either Fund at any time, without the
payment of any penalty, by Galaxy's Board of Trustees or by vote of a majority
of the outstanding voting securities of such Fund, or by the Adviser, on 60
days' written notice (which notice may be waived by the party entitled to
receive the same). This Agreement will immediately terminate in the event of
its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meaning as such terms in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective with respect to a particular Fund until approved by the vote of a
majority of the outstanding voting securities of that Fund.
11. MISCELLANEOUS. The Adviser expressly agrees that notwithstanding
the termination of or failure to continue this Agreement with respect to a
particular Fund, the Adviser shall continue to be legally bound to provide the
services required herein for the other Fund for the period and on the terms set
forth in this Agreement.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by
Massachusetts law.
12. NAMES. The names "The Galaxy VIP Fund" and "Trustees of The
Galaxy VIP Fund" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under an
Agreement and Declaration of Trust dated May 27, 1992 which is hereby referred
to and a copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and the principal office of Galaxy. The
obligations of "The Galaxy VIP Fund" entered into in the name or on behalf
thereof by any of the
-5-
<PAGE>
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders, or
representatives of Galaxy personally, but bind only the property of Galaxy, and
all persons dealing with any class of shares of Galaxy must look solely to the
property of Galaxy belonging to such class for the enforcement of any claims
against Galaxy.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THE GALAXY VIP FUND
By:/s/John T. O'Neill
------------------------------
President
COLUMBIA MANAGEMENT CO.
By:/s/Thomas L. Thomsen, Jr.
------------------------------
President
-6-
<PAGE>
Exhibit (6)(b)
THE GALAXY VIP FUND
DISTRIBUTION AGREEMENT
Amendment No. 1
February 27, 1998
First Data Distributors, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Dear Sirs:
This letter is to confirm that the undersigned, The Galaxy VIP Fund (the
"Trust"), a Massachusetts business trust, has agreed that Schedule A to the
Distribution Agreement ("Agreement") between the Trust and First Data
Distributors, Inc. ("FD Distributors") dated as of June 1, 1997, is herewith
amended to provide that FD Distributors shall be the distributor for the Trust's
Growth and Income Fund, Small Company Growth Fund, Columbia Real Estate Equity
Fund II and Columbia High Yield Fund II on the terms and conditions contained in
the Agreement.
If the foregoing is in accordance with your understanding, will you so
indicate by signing and returning to us the enclosed copy thereof.
Very truly yours,
THE GALAXY VIP FUND
By: /s/ John T. O'Neill
---------------------------
Name: John T. O'Neill
Title: President
Accepted:
FIRST DATA DISTRIBUTORS, INC.
By: /s/ Scott M. Hacker
---------------------------
Name: Scott Hacker
Title: VP & Treasurer
<PAGE>
Exhibit (8)(a)
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective November 13, 1992, and is between THE CHASE
MANHATTAN BANK, N.A. (the "Bank") and The Galaxy VIP Fund, a Massachusetts
business trust (the "Customer").
WHEREAS, the parties desire to arrange for the custody of the assets of
certain portfolios of the Customer by the Bank and by foreign banks, selected by
the Bank on behalf of the Customer with the Customer's approval, acting as the
Customers's foreign custodians.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the Bank and the Customer hereby agree as follows:
1. CUSTOMER ACCOUNTS.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) One or more custody accounts (singly, a "Custody Account" and
collectively, the "Custody Accounts") for any and all stocks, shares, bonds,
debentures, notes, mortgages or other obligations for the payment of money,
bullion, coin and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the same or evidencing
or representing any other rights or interests therein and other similar property
whether certificated or uncertificated as may be received by the Bank or its
Subcustodian (as defined in Section 3) for the account of the Customer's
portfolios ("Securities"); and
(b) One or more deposit accounts (singly, a "Deposit Account" and
collectively, the "Deposit Accounts") for any and all cash in any currency
received by the Bank or its Subcustodian for the account of the Customer's
portfolios which cash shall not be subject to withdrawal by draft or check.
The Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional Accounts
under the terms of this Agreement.
(c) The Bank shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its records for and on behalf of the Customer,
into which account or accounts may be transferred cash and/or securities,
including securities in the Book-Entry System (defined in Section 3A below) (i)
for the
<PAGE>
purposes of compliance by the Customer with the procedures required by a
securities or options exchange, and (ii) for other proper corporate purposes,
but only, in the case of clause (ii), upon receipt of Instructions in writing.
(d) The Bank may enter into separate custodial agreements with various
futures commission merchants ("FCMs") that the Customer uses (each an "FCM
Procedural Agreement"), pursuant to which the Customer's margin deposits in any
transactions involving futures contracts and options on futures contracts will
be held by the Bank in accounts (each an "FCM Account") subject to the
disposition by the FCM involved in such contracts in accordance with the
customer contract between FCM and the Fund, SEC rules governing such segregated
accounts, CFTC rules and the rules of the applicable commodities exchange. Such
FCM Procedural Agreements shall only be entered into upon receipt of
Instructions from the Customer which state that (i) a customer agreement between
the FCM and the Customer has been entered into; and (ii) the Customer is in
compliance with all the rules and regulations of the CFTC. Transfers of initial
margin shall be made into an FCM Account only upon Instructions in writing;
transfers of premium and variation margin may be made into an FCM Account
pursuant to oral Instructions. Transfers of funds from an FCM Account to the
FCM for which the Bank holds such an account may only occur upon certification
by the FCM to the Bank that pursuant to the FCM Procedural Agreement and the
contract between the Bank and the FCM, all conditions precedent to its right to
give the Bank such instructions have been satisfied.
2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS.
Unless Instructions specifically require another location acceptable to the
Bank:
(a) Securities will be held in the country or other jurisdiction in which
the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash will be credited to an account in a country or other jurisdiction
in which such cash may be legally deposited or is the legal currency for the
payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and the Bank can comply with such
Instructions, the Bank is authorized to maintain cash balance on deposit for the
Customer with itself or one of its affiliates at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
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bearing accounts as the Customer may direct, if acceptable to the Bank.
3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.
The Bank may act under this Agreement through the subcustodians listed in
Schedule A of this Agreement with which the Bank has entered into subcustodial
agreements ("Subcustodians"). The Customer authorizes the Bank to hold Assets
in the Accounts in accounts which the Bank has established with one or more of
its branches or Subcustodians. The Bank and Subcustodians are authorized to
hold any of the Securities in their account with any securities depository in
which they participate.
The Bank reserves the right to add new, replace or remove Subcustodians.
The Customer will be given reasonable notice by the Bank of any amendment to
Schedule A. Upon request by the Customer, the Bank will identify the name,
address and principal place of business of any Subcustodian of the Customer's
Assets and the name and address of the governmental agency or other regulatory
authority that supervises or regulates such Subcustodian.
3A. USE OF BOOK-ENTRY SYSTEM
The Customer shall deliver to the Bank a certified resolution of the Board
of Trustees of the Customer approving, authorizing and instructing the Bank on a
continuous and on-going basis until instructed to the contrary by Instructions
actually received by the Bank (i) to deposit in the Book-Entry System (defined
below) all securities of the Customer eligible for deposit therein and (ii) to
utilize the Book-Entry System to the extent possible in connection with
settlements of purchases and sales of securities by the Customer, and deliveries
and returns of securities collateral in connection with borrowings. Without
limiting the generality of such use, it is agreed that the following provisions
shall apply thereto:
(a) Securities and any cash of the Customer deposited in the Book-Entry
System will at all times be segregated from any assets and cash controlled by
the Bank in other than a fiduciary or custodian capacity but may be commingled
with other assets held in such capacities. The Bank and its Subcustodians will
pay out money only upon receipt of securities and will deliver securities only
upon the receipt of money unless otherwise instructed.
(b) All books and records maintained by the Bank which relate to the
Customer's participation in the Book-Entry System will at all times during the
Bank's regular business hours be open to the inspection of the Customer's duly
authorized employees or agents and the Customer will be furnished with
information in respect of the services rendered to it as it may reasonably
require.
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(c) The Bank will provide the customer with copies of any report obtained
by the Bank on the System of internal accounting control of the Book-Entry
System as soon as practicable after receipt of such a report by the Bank. The
Bank will also provide the Customer with such reports on its own system of
internal control as the Customer may reasonably request from time to time.
(d) As used in this Agreement, the term "Book-Entry System" means the
Federal Reserve/Treasury book-entry system for United States and federal agency
securities, its successor or successors and its nominee or nominees and any
book-entry system maintained by a clearing agency registered with the SEC
pursuant to Section 17A of the Securities and Exchange Act of 1934, use of which
has been approved by resolutions adopted by the Customer's Board of Trustees.
4. USE OF SUBCUSTODIAN.
With respect to Assets credited to the Accounts in the custody of a
Subcustodian:
(a) The Bank will identify such Assets on its books as belonging to the
Customer.
(b) A Subcustodian will hold such Assets together with assets belonging to
other customers of the Bank in accounts identified on such Subcustodian's books
as special custody accounts for the exclusive benefit of customers of the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject only
to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only to
the instructions of such Subcustodian acting in accordance with instructions of
the Bank.
(d) Any agreement the Bank enters into with a Subcustodian for holding its
customer's assets shall provide that such assets will not be subject to any
right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian or its creditors including a receiver or trustee in bankruptcy
except for safe custody or administration, and that the beneficial ownership of
such assets will be freely transferable without the payment of money or value
other than for safe custody or administration.
5. DEPOSIT ACCOUNT TRANSACTIONS.
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required by
the Bank.
(b) In the event that any payment to be made under this Section 5 exceeds
the funds available in the Deposit Account, the
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Bank, in its discretion, may advance the Customer such excess amount which shall
be deemed a loan payable on demand, bearing interest at the rate customarily
charged by the Bank on similar loans.
(c) If the Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, the Customer will
promptly return any such amount upon oral or written notification: (i) that
such amount has not been received in the ordinary course of business or (ii)
that such amount was incorrectly credited. If the Customer does not promptly
return any amount upon such notification, the Bank shall be entitled, upon oral
or written notification to the Customer, to reverse such credit by debiting the
Deposit Account for the amount previously credited. The Bank or its
Subcustodian shall have no duty or obligation to institute legal proceedings,
file a claim or a proof of claim in any insolvency proceeding or take any other
action with respect to the collection of such amount, but may act for the
Customer upon Instructions after consultation with the Customer.
6. CUSTODY ACCOUNT TRANSACTIONS.
(a) Securities will be transferred, exchanged or delivered by the Bank or
its Subcustodian upon receipt by the Bank of Instructions which include all
information required by the Bank. Settlement and payment for Securities
received for, and delivery of Securities out of, the Custody Account may be made
in accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to the Bank.
(b) The Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions will be
credited or debited to the Accounts on the date cash or Securities are actually
received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts
in its discretion if the related transaction fails to settle
within a reasonable period, determined by the Bank in its
discretion, after the Contractual settlement date for the
related transaction.
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(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the
credits and debits of the particular transaction at any
time.
7. ACTIONS OF THE BANK.
The Bank shall follow Instructions received regarding Assets held in the
Accounts. However, until it receives Instructions to the contrary, the Bank
will and will instruct each Subcustodian to:
(a) Deposit all cash received by the Bank in a Deposit Account and all
cash received by a Subcustodian in a deposit account maintained in the name of
the Bank with the Subcustodian for credit to a Deposit Account.
(b) Accept, open and act appropriately with respect to all mail directed
to the Customer in care of the Bank or a Subcustodian.
(c) Disclose the Customer's name, address and securities position to the
issuers of securities when requested to do so by them and approved by the
Customer.
(d) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that the Bank or Subcustodian
is actually aware of such opportunities and hold monies received upon such
presentations for credit to a Deposit Account.
(e) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(f) Exchange interim receipts or temporary Securities for definitive
Securities.
(g) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian.
(h) At least monthly and from time to time, issue statements to the
Customer identifying the Assets in the Accounts. Promptly after the close of
business each day, the Bank will send the Customer an advice or notification of
any transfers of Assets to or from the Accounts during the said day. Such
statements, advices or notifications shall indicate the identity of the entity
having custody of the Assets. Unless the Customer sends the Bank a written
exception or objection to the contents of any Bank statement within sixty (60)
days of receipt, the Customer shall be
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deemed to have approved such statement. In such event, or where the Customer
has otherwise approved any such statement, the Bank shall, to the extent
permitted by law, be released, relieved and discharged with respect to all
matters set forth in such statement or reasonably implied therefrom as though it
had been settled by the decree of a court of competent jurisdiction in an action
where the Customer and all persons having or claiming an interest in the
Customer or the Customer's Accounts were parties.
(i) At such times reasonably requested by the Customer (it is agreed that
annual requests are reasonable), provide information with respect to the
Subcustodians including, but not limited to, information regarding corporate
structure and capital adequacy.
(j) Promptly provide the Customer with notice of any significant amendment
of any subcustodian agreement pursuant to which the assets of the Customer are
held.
(k) Promptly notify the Customer if, to the Bank's knowledge, any
Subcustodian ceases to be an "Eligible Foreign Custodian" within the meaning of
paragraph (c)(2) of Rule 17f-5 under the Investment Company Act of 1940 (or any
successor provision).
All collections of funds or other property paid or distributed in respect
of Securities in the Custody Account shall be made at the risk of the Customer.
The Bank shall have no liability for any loss occasioned by delay in the actual
receipt of notice by the Bank or by its Subcustodians of any payment, redemption
or other transaction regarding Securities in the Custody Account in respect of
which the Bank has agreed to take any action under this Agreement.
8. CORPORATE ACTIONS; PROXIES.
Whenever the Bank receives information concerning the Securities which
requires discretionary action by the beneficial owner of the Securities (other
than a proxy), such as subscription rights, bonus issues, stock repurchase plans
and rights offerings, or legal notices or other material intended to be
transmitted to securities holders ("Corporate Actions"), the Bank will:
(a) Give the Customer notice of such Corporate Actions to the extent that
the Bank's central corporate actions department has actual knowledge of a
Corporate Action in time to notify its customers.
(b) Take such steps as may reasonably be necessary to secure or otherwise
prevent the loss of rights relating to any Securities; PROVIDED that it shall be
understood that the timely monitoring of investment data provided by a
recognized international investment data service by the Bank will be deemed to
fulfill the Bank's
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<PAGE>
obligations under this Section 8(b); and further PROVIDED that the Bank acts
promptly in respect thereof.
When a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend, stock split or similar Corporate Action is received which
bears an expiration date, the Bank will endeavor to obtain Instructions from the
Customer or its Authorized Person, but if Instructions are not received in time
for the Bank to take timely action, or actual notice of such Corporate Action
was received too late to seek Instructions, the Bank is authorized to sell such
rights entitlement or fractional interest and to credit the Deposit Account with
the proceeds or take any other action it deems, in good faith, to be appropriate
in which case it shall be held harmless for any such action.
The Bank will deliver proxies to the Customer or its designated agent
pursuant to special arrangements which may have been agreed to in writing. Such
proxies shall be executed in the appropriate nominee name relating to Securities
in the Custody Account registered in the name of such nominee but without
indicating the manner in which such proxies are to be voted; and where bearer
Securities are involved, proxies will be delivered in accordance with
Instructions.
9. NOMINEES.
Securities which are ordinarily held in registered form may be registered
in a nominee name of the Bank, Subcustodian or securities depository, as the
case may be. The Bank may without notice to the Customer cause any such
Securities to cease to be registered in the name of any such nominee and to be
registered in the name of the Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by the issuer,
the Bank may allot the called portion to the respective beneficial holders of
such class of security in any manner the Bank deems to be fair and equitable.
The Customer agrees to hold the Bank, Subcustodians, and their respective
nominees harmless from any liability arising directly, or indirectly from their
status as a mere record holder of Securities in the Custody Account.
10. AUTHORIZED PERSONS.
As used in this Agreement, the term "Authorized Person" means employees or
agents including investment managers as have been designated in resolutions of
the Board of Trustees of the Customer, certified to the Bank from time to time
by the Customer's Secretary or Assistant Secretary, to act on behalf of the
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives Instructions from the Customer that
any such employee or agent is no longer an Authorized Person.
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11. INSTRUCTIONS.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information system
acceptable to the Bank which the Bank believes in good faith to have been given
by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Bank may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the Customer will hold the
Bank harmless for the failure of an Authorized Person to send such confirmation
in writing, the failure of such confirmation to conform to the telephone
instructions received or the Bank's failure to produce such confirmation at any
subsequent time. The Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect to the Custody
Account. The Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which the Bank shall make
available to the Customer or its Authorized Persons.
12. STANDARD OF CARE; LIABILITIES.
(a) The Bank shall be responsible for the performance of only such duties
as are set forth in this Agreement or expressly contained in Instructions which
are consistent with the provisions of this Agreement as follows:
(i) The Bank will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of
Assets. The Bank shall be liable to the Customer for any
loss which shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with respect to the
safekeeping of such Assets to the same extent that the Bank
would be liable to the Customer if the Bank were holding
such Assets in New York. In the event of any loss to the
Customer by reason of the failure of the Bank or its
Subcustodian to utilize reasonable care, the Bank shall be
liable to the Customer only to the extent of the Customer's
direct damages plus interest at the Fed Funds rate of
interest from the date of the loss, to be determined based
on the market value of the property which is the subject of
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the loss at the date of discovery of such loss and without
reference to any special conditions or circumstances.
(ii) The Bank will not be responsible for any act, omission,
default or for the solvency of any broker or agent which it
or a Subcustodian appoints unless such appointment was made
negligently or in bad faith.
(iii) The Bank shall be indemnified by, and without liability to
the Customer for any action taken or omitted by the Bank
whether pursuant to Instructions or otherwise within the
scope of this Agreement if such act or omission was in good
faith, without negligence. In performing its obligations
under this Agreement, the Bank may rely on the genuineness
of any document which it believes in good faith to have been
validly executed.
(iv) The Customer agrees to pay for and hold the Bank harmless
from any liability or loss resulting from the imposition or
assessment of any taxes or other governmental charges, and
any related expenses with respect to income from or Assets
in the Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the
advice of counsel (who may be counsel for the Customer) on
all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
(vi) The Bank need not maintain any insurance for the benefit of
the Customer.
(vii) Without limiting the foregoing, the Bank shall not be liable
for any loss which results from: 1) the general risk of
investing, or 2) investing or holding Assets in a particular
country including, but not limited to, losses resulting from
nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry;
currency restrictions, devaluations or fluctuations; and
market conditions which prevent the orderly execution of
securities transactions or affect the value of Assets.
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(viii) Neither party shall be liable to the other for any loss due
to forces beyond their control including, but not limited to
strikes or work stoppages, acts of war or terrorism,
insurrection, revolution, nuclear fusion, fission or
radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged
that the Bank shall have no duty or responsibility to:
(i) question Instructions or make any suggestions to the
Customer or an Authorized Person regarding, such
Instructions;
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any
default in the payment of principal or income of any
security other than as provided in Section 5(c) of this
Agreement;
(iv) evaluate or report to the Customer or an Authorized Person
regarding the financial condition of any broker, agent or
other party to which Securities are delivered or payments
are made pursuant to this Agreement; and
(v) review or reconcile trade confirmations received from
brokers. The Customer or its Authorized Persons (as defined
in Section 10) issuing Instructions shall bear any
responsibility to review such confirmations against
Instructions issued to and statements issued by the Bank.
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates may have a
material interest in a transaction, or circumstances are such that the Bank may
have a potential conflict of duty or interest including the fact that the Bank
or any of its affiliates may provide brokerage services to other customers, act
as financial advisor to the issuer of Securities, act as a lender to the issuer
of Securities, act in the same transaction as agent for more than one customer
have a material interest in the issue of Securities, or earn profits from any of
the activities listed herein.
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13. FEES AND EXPENSES.
The Customer and the Bank hereby agree that (i) 440 Financial Group of
Worcester, Inc. ("440 Financial"), the Customer's administrator, shall be
responsible for the payment of all fees and out-of-pocket or incidental expenses
charged by the Bank for its services under this Agreement and (ii) the Customer
shall have no obligation with respect to the payment of such fees and expenses.
14. MISCELLANEOUS.
(a) FOREIGN EXCHANGE TRANSACTIONS. To facilitate the administration of
the Customer's trading and investment activity, the Bank is authorized, at the
request of the Customer, which may include standing instructions, to enter into
spot or forward foreign exchange contracts with the Customer or an Authorized
Person for the Customer and may also provide foreign exchange through its
subsidiaries, affiliates or Subcustodians. Instructions, including standing
instructions, may be issued with respect to such contracts but the Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where the Bank, its subsidiaries, affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of the Bank,
its subsidiary, affiliate or Subcustodian and, to the extent not inconsistent,
this Agreement shall apply to such transaction.
(b) CERTIFICATION OF RESIDENCY, ETC. The Customer certifies that it is a
resident of the United States and agrees to notify the Bank of any changes in
residency. The Bank may rely upon this certification or the certification of
such other facts as may be required to administer the Bank's obligations under
this Agreement. The Customer will indemnify the Bank against all losses,
liability, claims or demands arising directly or indirectly from any such
certifications.
(c) ACCESS TO RECORDS. The Bank shall allow the Customer's independent
public accountant reasonable access to the records of the Bank relating to the
Assets as is required in connection with their examination of books and records
pertaining to the Customer's affairs. Subject to restrictions under applicable
law, the Bank shall also obtain an undertaking to permit the Customer's
independent public accountants reasonable access to the records of any
Subcustodian which has physical possession of any Assets as may be required in
connection with the examination of the Customer's books and records.
(d) GOVERNING LAW; SUCCESSORS AND ASSIGNS. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Bank.
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(e) ENTIRE AGREEMENT; APPLICABLE RIDERS. Customer represents that the
Assets deposited in the Accounts are (Check one):
Employee Benefit Plan or other assets subject to the Employee
--- Retirement Income Security Act of 1974, as amended ("ERISA");
X Mutual Fund assets subject to certain Securities and Exchange
--- Commission ("SEC") rules and regulations;
Neither of the above.
---
This Agreement consists exclusively of this document together with Schedule
A, the joinder of 440 Financial and the following Rider(s) [Check applicable
rider(s)]:
ERISA
---
X MUTUAL FUND
---
X SPECIAL TERMS AND CONDITIONS
---
There are no other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the parties.
Any amendment to this Agreement must be in writing, executed by both parties.
(f) SEVERABILITY. In the event that one or more provisions of this
Agreement are held invalid, illegal or unenforceable in any respect on the basis
of any particular circumstances or in any jurisdiction, the validity, legality
and enforceability of such provision or provisions under other circumstances or
in other jurisdictions and of the remaining provisions will not in any way be
affected or impaired.
(g) WAIVER. Except as otherwise provided in this Agreement, no failure or
delay on the part of either party in exercising any power or right under this
Agreement operates as a waiver, nor does any single or partial exercise of any
power or right preclude any other or further exercise, or the exercise of any
other power or right. No waiver by a party of any provision of this Agreement,
or waiver of any breach or default, is effective unless in writing and signed by
the party against whom the waiver is to be enforced.
(h) NOTICES. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses or
such other addresses as may subsequently be given to the other party in writing:
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Bank: The Chase Manhattan Bank, N A.
Chase Metrotech Center
Brooklyn, NY 11245
Attention: Global Custody Division
Customer: The Galaxy VIP Fund
440 Lincoln Street
Worcester, MA 01605-1959
Attn: Legal Counsel
(i) TERMINATION. This Agreement may be terminated by the Customer or the
Bank by giving sixty (60) days written notice to the other, provided that such
notice to the Bank shall specify the names of the persons to whom the Bank shall
deliver the Assets in the Accounts. If notice of termination is given by the
Bank, the Customer shall, within sixty (60) days following receipt of the
notice, deliver to the Bank Instructions specifying the names of the persons to
whom the Bank shall deliver the Assets. In either case the Bank will deliver
the Assets to the persons so specified.
If within sixty (60) days following receipt of a notice of termination by
the Bank, the Bank does not receive Instructions from the Customer specifying
the names of the persons to whom the Bank shall deliver the Assets, the Bank, at
its election, may deliver the Assets to a bank or trust company doing business
in the State of New York to be held and disposed of pursuant to the provisions
of this Agreement, or to Authorized Persons, or may continue to hold the Assets
until Instructions are provided to the Bank. The obligations of the parties
hereto regarding indemnities shall survive the termination of this Agreement.
(j) RELEASES. The name "The Galaxy VIP Fund" and "Trustees of the Galaxy
VIP Fund" refer respectively to the Trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under 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 Trust. The obligations of "The
Galaxy VIP Fund" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders or
representatives of the Trust personally, but bind only the Trust Property, and
all
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<PAGE>
persons dealing with any class of shares of the Trust must look solely to the
Trust Property belonging to such class for the enforcement of any claims against
the Trust.
THE GALAXY VIP FUND
By:/s/ John T. O'Neill
-------------------------------------
Title: President
THE CHASE MANHATTAN BANK, N.A.
By:/s/ Nicholas Leone
-------------------------------------
Title: Vice President
-15-
<PAGE>
STATE OF Rhode Island )
: ss.
COUNTY OF )
On this 13th day of November, 1992, before me personally came John T.
O'Neill to me known, who being by me duly sworn, did depose and say that he
resides in East Greenwich, RI at 20 Sammartino Circle that he is President of
THE GALAXY VIP FUND, the entity described in and which executed the foregoing
instrument; that he knows the seal of said entity, that the seal affixed to said
instrument is such seal, that it was so affixed by order of said entity, and
that he signed his name thereto by like order.
/s/ John T. O'Neill
------------------------------------------
John T. O'Neill
Sworn to before me this 13
day of November, 1992.
/s/ Fatima Montario
- ------------------------------
Notary
-16-
<PAGE>
STATE OF New York )
: ss.
COUNTY OF Kings )
On this 30th day of October, 1992, before me personally came Nicholas
Leone, to me known, who being by me duly sworn, did depose and say that he
resides in Bellerose, NY 11001 at 18 Michigan Road; that he is a Vice
President of THE CHASE MANHATTAN BANK, (National Association), the corporation
described in and which executed the foregoing instrument; that he knows the seal
of said corporation, that the seal affixed to said instrument is such corporate
seal, that it was so affixed by order of the Board of Directors of said
corporation, and that he signed his name thereto by like order.
/s/ Julia R. Scalia
------------------------------------------
Sworn to before me this 30th
day of October, 1992.
/s/ Julia R. Scalia
- ------------------------------
Notary
-17-
<PAGE>
Mutual Fund Rider to Global Custody Agreement
Between The Chase Manhattan Bank, N.A. and
The Galaxy VIP Fund, effective
November 13, 1992
Customer represents that the Assets being placed in the Bank's custody are
subject to the Investment Company Act of 1940 (the Act), as the same may be
amended from time to time.
Except to the extent that the Bank has specifically agreed to comply with a
condition of a rule, regulation, interpretation promulgated by or under the
authority of the SEC or the Exemptive Order applicable to accounts of this
nature issued to the Bank (Investment Company Act of 1940, Release No. 12053,
November 20, 1981), as amended, or unless the Bank has otherwise specifically
agreed, the Customer shall be solely responsible to assure that the maintenance
of Assets under this Agreement complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the authority of the
Securities and Exchange Commission.
The following modifications are made to the Agreement:
Section 3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign
custodian or an eligible foreign securities depository, which are further
defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S bank as defined in
Rule 17f-5(c)(3) under the Investment Company Act of 1940;
(b) "eligible foreign custodian" shall mean (i) a banking institution or
trust company incorporated or organized under the laws of a country other
than the United States that is regulated as such by that country's
government or an agency thereof and that has shareholders' equity in excess
of $200 million in U.S. currency (or a foreign currency equivalent
thereof), (ii) a majority owned direct or indirect subsidiary of a
qualified U.S. bank or bank holding company that is incorporated or
organized under the laws of a country other than the United States and that
has shareholders' equity in excess of $100 million in U.S. currency (or a
foreign currency equivalent thereof), (iii) a banking institution or trust
company incorporated or organized under the laws of a country other than
the United States or a majority owned direct or indirect subsidiary of a
qualified U.S. bank or bank holding
<PAGE>
company that is incorporated or organized under the laws of a country other
than the United States which has such other qualifications as shall be
specified in Instructions and approved by the Bank; or (iv) any other
entity that shall have been so qualified by exemptive order, rule or other
appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws of
a country other than the United States, which operates (i) the central
system for handling securities or equivalent book-entries in that country,
(ii) a transnational system for the central handling of securities or
equivalent book-entries, or (iii) any entity that shall have been so
qualified by exemptive order, rule or other appropriate action of the SEC.
The Customer represents that its Board of Trustees has approved each of the
Subcustodians listed in Schedule A to this Agreement and the terms of the
standard form of subcustody agreement between the Bank and its Subcustodians and
further represents that its Board has determined that the use of each
Subcustodian and the terms of the standard form of subcustody agreement are
consistent with the best interests of the Customer and its shareholders. The
Bank will supply the Customer with any amendment to Schedule A for approval.
The Customer has supplied or will supply the Bank with certified copies of its
Board of Trustees' resolution(s) with respect to the foregoing prior to placing
Assets with any Subcustodian so approved.
Section 11. INSTRUCTIONS.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made pursuant to
Section 5 and 6 of this Agreement may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction is
to be made and Customer shall be solely responsible to assure that
Instructions are in accord with any limitations or restrictions applicable
to the Customer by law or as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise become
payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan of
-2-
<PAGE>
merger, consolidation, reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses on behalf of the Customer;
(g) In connection with any borrowings by the Customer requiring a pledge
of Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to the Customer;
(i) For the purpose of redeeming shares of beneficial interest of the
Customer and the delivery to, or the crediting to the account of, the Bank,
its Subcustodian or the Customer's transfer agent, such shares to be
purchased or redeemed;
(j) For the purpose of redeeming in kind shares of the Customer against
delivery to the Bank, its Subcustodian or the Customer's transfer agent of
such shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement among
the Customer, the Bank and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to compliance
with the rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Customer;
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only
upon payment to the Bank of monies for the premium due and a receipt for
the Securities which are to be held in escrow. Upon exercise of the
option, or at expiration, the Bank will receive from brokers the Securities
previously deposited. The Bank will act strictly in accordance with
Instructions in the delivery of Securities to be held in escrow and will
have no responsibility or liability for any such Securities which are not
returned promptly when due other than to make proper request for such
return;
-3-
<PAGE>
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions;
(n) For other proper purposes as may be specified in Instructions issued
by an officer of the Customer which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount of the
payment or specific Securities to be delivered, the name of the person or
persons to whom delivery or payment is to be made, and a certification that
the purpose is a proper purpose under the instruments governing the
Customer; and
(o) Upon the termination of this Agreement as set forth in Section 14(i).
Section 12. STANDARD OF CARE; LIABILITIES.
Add the following subsection (c) to Section 12:
(c) The Bank hereby warrants to the Customer that in its opinion, after
due inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. bank, each eligible foreign
custodian and each eligible foreign securities depository holding the
Customer's Securities pursuant to this Agreement afford protection for such
Securities at least equal to that afforded by the Bank's established
procedures with respect to similar securities held by the Bank and its
securities depositories in New York.
Section 14. ACCESS TO RECORDS.
ADD THE FOLLOWING LANGUAGE TO THE END OF SECTION 14(c):
Upon reasonable request from the Customer, the Bank shall furnish the
Customer such reports (or portions thereof) of the Bank's system of
internal accounting controls applicable to the Bank's duties under this
Agreement. The Bank shall endeavor to obtain and furnish the Customer with
such similar reports as it may reasonably request with respect to each
Subcustodian and securities depository holding the Customer's assets.
-4-
<PAGE>
GLOBAL CUSTODY AGREEMENT
WITH: THE GALAXY VIP FUND
DATE: November 13, 1992
DOMESTIC
SPECIAL TERMS AND CONDITIONS RIDER
DOMESTIC CORPORATE ACTIONS AND PROXIES
With respect to domestic U.S. and Canadian Securities (the latter if held in
DTC), the following provisions will apply rather than the provisions of Section
8 of the Agreement:
The Bank will send to the Customer or the Authorized Person for a
Custody Account, such proxies (signed in blank, if issued in the name
of the Bank's nominee or the nominee of a central depository) and
communications with respect to Securities in the Custody Account as
call for voting or relate to legal proceedings within a reasonable
time after sufficient copies are received by the Bank for forwarding
to its customers. In addition, the Bank will follow coupon payments,
redemptions, exchanges or similar matters with respect to Securities
in the Custody Account and advise the Customer or the Authorized
Person for such Account of rights issued, tender offers or any other
discretionary rights with respect to such Securities, in each case, of
which the Bank has received notice from the issuer of the Securities,
or as to which notice is published in publications routinely utilized
by the Bank for this purpose.
<PAGE>
JOINDER
440 Financial Group of Worcester, Inc. hereby joins in the foregoing Global
Custody Agreement between The Galaxy VIP Fund and The Chase Manhattan Bank, N.A.
effective as of November 13, 1992 for the sole purpose of and in connection
with its obligations contained in Section 13 thereof.
440 FINANCIAL GROUP OF WORCESTER, INC.
By /s/ Richard C. Butt
-----------------------------------
Title Vice President
---------------------------------
<PAGE>
Exhibit (9)(b)
THE GALAXY VIP FUND
ADMINISTRATION AGREEMENT
Amendment No. 1
February 27, 1998
First Data Investor Services
Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Dear Sirs:
This letter is to confirm that the undersigned, The Galaxy VIP Fund (the
"Trust"), a Massachusetts business trust, has agreed that Schedule A to the
Administration Agreement ("Agreement") between the Trust and First Data Investor
Services Group, Inc. ("FDISG") dated as of June 1, 1997, is herewith amended to
provide that FDISG shall be the administrator for the Trust's Growth and Income
Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund II and
Columbia High Yield Fund II on the terms and conditions contained in the
Agreement.
If the foregoing is in accordance with your understanding, will you so
indicate by signing and returning to us the enclosed copy thereof.
Very truly yours,
THE GALAXY VIP FUND
By: /s/ John T. O'Neill
---------------------------
Name: John T. O'Neill
Title: President
Accepted:
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: /s/ Barbara L. Worthen
---------------------------
Name:
Title:
<PAGE>
Exhibit (9)(c)
SALES AGREEMENT
THIS AGREEMENT is made by and between The Galaxy VIP Fund ("TRUST"), a
Massachusetts business trust, and American Skandia Life Assurance Corporation
("SKANDIA"), a life insurance company organized under the laws of the State of
Connecticut.
WHEREAS, TRUST is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 ("'40 Act") as an open-end
diversified management investment company, and its shares are registered under
the Securities Act of 1933 ("'33 Act"); and
WHEREAS, TRUST is organized as a series fund, currently with four
portfolios (individually, a "Portfolio" and collectively, the "Portfolios"); and
WHEREAS, TRUST was organized primarily as a funding vehicle for
variable contracts offered by life insurance companies through separate accounts
of such life insurance companies; and
WHEREAS, SKANDIA has established separate accounts registered as unit
investment trusts under the '40 Act to offer variable contracts and may
establish others, and is desirous of having TRUST serve as one of the funding
vehicles for at least one such variable contract, and possibly others in the
future.
NOW, THEREFORE, and in consideration of the mutual covenants herein
contained, it is hereby agreed by and between TRUST and SKANDIA as follows:
1. TRUST will make available to the designated separate accounts of
SKANDIA shares of TRUST Portfolios for investment of purchase payments and, as
applicable, cash values, account values or other contract values, as per the
terms of the applicable contracts, of variable contracts allocated to the
designated separate accounts. TRUST will diversify the assets in each Portfolio
in the manner required for the variable contracts to be treated as such under
Section 817(h) of the Internal Revenue Code of 1986, as amended, and the rules
and regulations thereunder.
2. TRUST will make the shares available indefinitely to such
separate accounts for purchase at the applicable net asset value per share on
those days on which TRUST calculates its net asset value pursuant to the rules
of the Securities and Exchange Commission. Notwithstanding the foregoing, the
Board of Trustees of TRUST may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any
<PAGE>
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Trustees of TRUST
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interest of the shareholders of
such Portfolio.
3. Purchase and redemption orders shall be placed for such shares
pursuant to TRUST procedures which are then in effect and which may be modified
from time to time. TRUST will provide SKANDIA with documentation of all
procedures now in effect and will undertake to inform SKANDIA of any
modifications to such procedures.
4. TRUST will provide SKANDIA camera ready copy of the current TRUST
prospectus and any supplements thereto for printing by SKANDIA. TRUST will
provide SKANDIA a copy of the statement of additional information for
duplication. TRUST will provide SKANDIA copies of its proxy material suitable
for printing. TRUST will provide SKANDIA annual and semi-annual reports and any
supplements thereto, in camera-ready form. SKANDIA will print or duplicate such
documents for prospective investors at its own expense.
5. (a) SKANDIA shall not give any information or make any
representations or statements on behalf of TRUST or concerning TRUST in
connection with the sale of the variable contracts other than the information or
representations contained in the registration statement or prospectus for TRUST
shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for TRUST, or
in sales literature or other promotional material approved by TRUST.
(b) SKANDIA will make available to TRUST at least one complete
copy of all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
variable contracts or the separate accounts, contemporaneously with the filing
of such documents with the Securities and Exchange Commission.
6. (a) SKANDIA shall be solely responsible for its actions in
connection with its use of TRUST and its shares and shall indemnify and hold
harmless TRUST, its officers and trustees from any liability for SKANDIA's
negligent or wrongful acts or failures to act with respect to SKANDIA's use of
TRUST or its shares.
-2-
<PAGE>
(b) TRUST shall be solely responsible for its actions in
connection with its operations and shall indemnify and hold harmless SKANDIA,
its officers and directors from any liability for TRUST's negligent or wrongful
acts or failures to act with respect thereto.
7. SKANDIA agrees to inform the Board of Trustees of TRUST of the
existence of or any potential for any material irreconcilable conflict of
interest between the interests of owners of contracts using the separate
accounts of SKANDIA which invest in the TRUST and/or the interests of owners of
contracts using any other separate account of any other insurance company which
invests in the TRUST.
A majority of the Board of Trustees of the TRUST ("Board") shall be
composed of persons who are not "interested persons" of TRUST as defined by the
'40 Act. The Board shall monitor TRUST for the existence of any material
irreconcilable conflicts between the interests of the contract owners of all
separate accounts investing in the TRUST.
Any material irreconcilable conflict may arise for a variety of
reasons, including:
(a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
or any similar action by insurance, tax, or securities regulatory
authorities;.
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Portfolio are
being managed;
(e) a difference in voting instructions given by variable
annuity contract owners and variable life insurance contract owners or by
contract owners of different life insurance companies utilizing TRUST; or
(f) a decision by SKANDIA to disregard the voting instructions
of contract owners.
SKANDIA will be responsible for assisting the Board in carrying out
its responsibilities by providing the Board with all information reasonably
necessary for the Board to consider any issue raised including information as to
a decision by SKANDIA to disregard voting instructions of contract owners.
-3-
<PAGE>
It is agreed that if it is determined by a majority of the members of
the Board or a majority of its disinterested Trustees that a material
irreconcilable conflict exists affecting SKANDIA, SKANDIA shall, at its own
expense, take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps may include, but are not limited
to:
(i) withdrawing the assets allocable to some or all of the
separate accounts of SKANDIA from TRUST or any Portfolio and
reinvesting such assets in a different investment medium, including
another Portfolio of the TRUST, if any, or submitting to a vote of all
affected contract owners the question of whether segregation of assets
should be implemented and, as appropriate, segregating the assets of
any particular group (i.e. annuity contract owners or life insurance
contract owners) that votes in favor of such segregation, or offering
to the affected contract owners the option of making such a change;
(ii) establishing a new registered management investment
company or managed separate account.
If a material irreconcilable conflict arises because of SKANDIA's
decisions to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, SKANDIA may be
required, at the TRUST's election, to withdraw its separate account's investment
in TRUST and terminate this Agreement. No charge or penalty will be imposed
against a separate account as a result of such a withdrawal. SKANDIA agrees
that any remedial action taken by it in resolving any material conflicts of
interest will be carried out with a view only to the interest of contract
owners.
For purposes hereof, a majority of the disinterested members of the
Board shall determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event will TRUST be required to
establish a new funding medium for any variable contracts. SKANDIA shall not be
required by the terms hereof to establish a new funding medium for any variable
contracts if an offer to do so has been declined by vote of a majority of
affected contract owners. In the event that the Board determines that any
proposed action does not adequately remedy any material irreconcilable conflict,
then SKANDIA will withdraw the separate account's investment in TRUST and
terminate this Agreement.
TRUST will undertake to promptly make known to SKANDIA the Board's
determination of the existence of a material irreconcilable conflict and its
implications.
-4-
<PAGE>
8. SKANDIA shall provide pass-through voting privileges to all
variable contract owners so long as the Securities and Exchange Commission
continues to interpret the '40 Act to require such pass-through voting
privileges for variable contract owners. SKANDIA shall be responsible for
assuring that each of its separate accounts participating in TRUST calculates
voting privileges in a manner consistent with other life companies utilizing
TRUST. It is a condition of the Agreement that SKANDIA will vote shares, for
which it has not received voting instructions as well as shares attributable to
it, in the same proportion as it votes shares for which it has received
instructions.
9. The Agreement shall terminate automatically in the event of its
assignment, unless made with the written consent of each party.
10. This Agreement may be terminated at any time on sixty (60) days'
written notice to the other party hereto, without the payment of any penalty.
11. (a) This Agreement shall be construed and the provisions hereof
interpreted in accordance with the laws of the Commonwealth of Massachusetts.
(b) This Agreement shall be subject to the provisions of the '33
Act, the Securities Exchange Act of 1934, the '40 Act and the rules and
regulations thereunder, including any exemptive relief therefrom and the orders
of the Securities and Exchange Commission setting forth such relief.
12. It is understood by the parties that this Agreement is not to be
deemed an exclusive arrangement.
13. The names "The Galaxy VIP Fund" and "Trustees of The Galaxy VIP
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated May 27, 1992 which is hereby referred to and a copy
of which is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and the principal office of TRUST. The obligations of "The Galaxy
VIP Fund" entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders, or
-5-
<PAGE>
representatives of TRUST personally, but bind only the property of TRUST, and
all persons dealing with any class of shares of TRUST must look solely to the
property of TRUST belonging to such class for the enforcement of any claims
against TRUST.
Executed this ______ day of August, 1993.
THE GALAXY VIP FUND
Attest: /s/ W. Bruce McConnel, III By: /s/ John T. O'Neill
--------------------------- ---------------------------
Secretary President
AMERICAN SKANDIA LIFE
ASSURANCE CORPORATION
Attest: By:
--------------------------- ---------------------------
-6-
<PAGE>
Exhibit (10)
Law Offices
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Telephone: (215) 988-2700
Fax: (215) 988-2757
April 30, 1998
The Galaxy VIP Fund
4400 Computer Drive
Westboro, MA 01581
Re: The Galaxy VIP Fund - Shares of Beneficial Interest
---------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for The Galaxy VIP Fund, a Massachusetts
business trust (the "Trust"), in connection with the registration of its shares
of beneficial interest, par value $.001 per share, under the Securities Act of
1933, as amended.
The Trust is authorized to issue an unlimited number of shares of
beneficial interest. The Board of Trustees of the Trust has the power to
classify and reclassify any unissued shares of beneficial interest into one or
more classes of shares and to classify or reclassify any class of shares into
one or more series of shares. Pursuant to such authority, the Board of Trustees
has previously classified an unlimited number of the Trust's shares of
beneficial interest into eight classes of shares (the "Classes"). The Classes
are referred to herein as the "Shares". You have asked for our opinion on
certain matters relating to the Shares. The Board of Trustees has previously
authorized the issuance of the Shares to the public.
We have reviewed the Trust's Agreement and Declaration of Trust, its
Code of Regulations, resolutions adopted by its
<PAGE>
The Galaxy VIP Fund
April 30, 1998
Page 2
Board of Trustees and shareholders, and such other legal and factual matters as
we have considered necessary.
This opinion is based exclusively on the laws of the Commonwealth of
Massachusetts and the federal law of the United States of America. We have
relied on an opinion of Ropes & Gray, special Massachusetts counsel to the
Trust, insofar as our opinion below relates to matters arising under the laws of
the Commonwealth of Massachusetts.
We have also assumed the following for this opinion:
1. The Shares have been, and will continue to be, issued in
accordance with the Trust's Agreement and Declaration of Trust, its Code of
Regulations and resolutions of the Trust's Board of Trustees and shareholders
relating to the creation, authorization and issuance of the Shares.
2. The Shares have been, or will be, issued against consideration
therefor as described in the Trust's prospectuses relating thereto, and that
such consideration was, or will have been, in each case at least equal to the
applicable net asset value and the applicable par value.
On the basis of the foregoing, it is our opinion that the Shares have
been and will be validly issued, fully paid, and non-assessable by the Trust.
Under Massachusetts law, shareholders of a Massachusetts business
trust could, under certain circumstances, be held personally liable for the
obligations of the trust. However, the Agreement and Declaration of Trust
disclaims shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each note, bond, contract,
order or other undertaking issued by or on behalf of the Trust or the Trustees
relating to the Trust or any class of shares of beneficial interest of the
Trust. The Agreement and Declaration of Trust provides for indemnification out
of the assets of the particular class of shares for all loss and expense of any
shareholder of that class held personally liable solely by reason of his being
or having been a shareholder. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which that class of shares itself would be unable to meet its obligations.
<PAGE>
The Galaxy VIP Fund
April 30, 1998
Page 3
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to Post-Effective Amendment No. 7 to the
Trust's Registration Statement on Form N-1A.
Very truly yours,
/s/Drinker Biddle & Reath LLP
-----------------------------
DRINKER BIDDLE & REATH LLP
<PAGE>
Exhibit (11)(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
The Galaxy VIP Fund:
We hereby consent to the following with respect to Post-Effective Amendment
No. 7 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 6, 1998
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, 1997 into the Statement of
Additional Information.
2. The reference to our firm under the heading "Financial Highlights" in
the Prospectus.
3. The reference to our firm under the headings "Auditors" and "Financial
Statements" in the Statement of Additional Information.
/s/Coopers & Lybrand LLP
COOPERS & LYBRAND LLP
Boston, Massachusetts
April 30, 1998
<PAGE>
Exhibit (11)(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our firm
under the captions "Trustees and Officers" and "Counsel" in the Statement of
Additional Information included in Post-Effective Amendment No. 7 to the
Registration Statement (No. 33-49290) on Form N-1A under the Securities Act of
1933, as amended, of The Galaxy VIP Fund (Money Market Fund, Equity Fund, Growth
and Income Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund II,
Asset Allocation Fund, High Quality Bond Fund and Columbia High Yield Fund II).
This consent does not constitute a consent under Section 7 of the Securities Act
of 1933, as amended, and in consenting to the use of our name and the references
to our Firm under such captions, we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and regulations
of the Securities and Exchange Commission thereunder.
/s/Drinker Biddle & Reath LLP
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
April 30, 1998
<PAGE>
Exhibit (13)(a)
PURCHASE AGREEMENT
The Galaxy VIP Fund (the "Trust"), a Massachusetts business trust, and
Fleet Investment Advisors Inc., a New York corporation ("Fleet"), hereby agree
with each other as follows:
1. The Trust hereby offers Fleet and Fleet hereby purchases (a) 10
Class A shares at a purchase price of $1.00 per share, and (b) 1 Class B share,
1 Class C share and 1 Class D share, at a purchase price of $10.00 per share,
aggregating to 13 shares of beneficial interest in the Trust (such shares of
beneficial interest in the Trust being hereinafter collectively known as
"Shares"). Fleet hereby acknowledges purchase of the Shares and the Trust
hereby acknowledges receipt from Fleet of funds in the amount of $40 in full
payment for the Shares.
2. Fleet represents and warrants to the Trust that the Shares are
being acquired for investment purposes and not with a view to the distribution
thereof and that Fleet will not redeem any of the Shares for a period of six
months following the Trust's commencement of operations.
3. The name "The Galaxy VIP Fund" and "Trustees of The Galaxy VIP
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated May 27, 1992 which is hereby referred to and a copy
of which is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Trust. The obligations of "The
Galaxy VIP Fund" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders or
representatives of the Trust personally, but bind only the Trust property, and
all persons dealing with any class of shares of the Trust must look solely to
the Trust property belonging to such class for the enforcement of any claims
against the Trust.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the 8th day of January, 1993.
THE GALAXY VIP FUND
By:/s/John T. O'Neill
------------------------------
FLEET INVESTMENT ADVISORS INC.
By:/s/illegible
------------------------------
-2-
<PAGE>
Exhibit (13)(b)
PURCHASE AGREEMENT
The Galaxy VIP Fund, a Massachusetts business trust (the "Trust"), and
Fleet Investment Advisors Inc., a New York corporation ("Fleet"), hereby agree
with each other as follows:
1. The Trust hereby offers Fleet and Fleet hereby purchases one (1)
Class E share of beneficial interest representing an interest in the Trust's
Small Company Growth Fund and one (1) Class F share of beneficial interest
representing an interest in the Trust's Growth and Income Fund, at a purchase
price of $10.00 per share, aggregating to two (2) shares of beneficial interest
in the Trust (such shares of beneficial interest in the Trust being hereinafter
collectively known as "Shares"). Fleet hereby acknowledges purchase of the
Shares and the Trust hereby acknowledges receipt from Fleet of funds in the
amount of $20.00 in full payment for the Shares.
2. Fleet represents and warrants to the Trust that the Shares are
being acquired for investment purposes and not with a view to the distribution
thereof.
3. The names "The Galaxy VIP Fund" and "Trustees of The Galaxy VIP
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated May 27, 1992 which is hereby referred to and a copy
of which is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Trust. The obligations of "The
Galaxy VIP Fund" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders or
representatives of the Trust personally, but bind only the Trust property, and
all persons dealing with any class of shares of the Trust must look solely to
the Trust property belonging to such class for the enforcement of any claims
against the Trust.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 2nd day of March, 1998.
THE GALAXY VIP FUND
By:/s/John T. O'Neill
---------------------------
President
FLEET INVESTMENT ADVISORS INC.
By:/s/Thomas O'Neill
---------------------------
<PAGE>
Exhibit (13)(c)
PURCHASE AGREEMENT
The Galaxy VIP Fund, a Massachusetts business trust (the "Trust"), and
Columbia Management Co., an Oregon corporation ("Columbia"), hereby agree with
each other as follows:
1. The Trust hereby offers Columbia and Columbia hereby purchases
twenty-five thousand (25,000) Class G shares of beneficial interest representing
interests in the Trust's Columbia Real Estate Equity Fund II and twenty-five
thousand (25,000) Class H shares of beneficial interest representing interests
in the Trust's Columbia High Yield Fund II, at a purchase price of $10.00 per
share, aggregating to fifty thousand (50,000) shares of beneficial interest in
the Trust (such shares of beneficial interest in the Trust being hereinafter
collectively known as "Shares"). Columbia hereby acknowledges purchase of the
Shares and the Trust hereby acknowledges receipt from Columbia of funds in the
amount of $500,000.00 in full payment for the Shares.
2. Columbia represents and warrants to the Trust that the Shares are
being acquired for investment purposes and not with a view to the distribution
thereof.
3. The names "The Galaxy VIP Fund" and "Trustees of The Galaxy VIP
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated May 27, 1992 which is hereby referred to and a copy
of which is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Trust. The obligations of "The
Galaxy VIP Fund" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders or
representatives of the Trust personally, but bind only the Trust property, and
all persons dealing with any class of shares of the Trust must look solely to
the Trust property belonging to such class for the enforcement of any claims
against the Trust.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 27th day of February, 1998.
THE GALAXY VIP FUND
By: /s/John T. O'Neill
--------------------------------
President
COLUMBIA MANAGEMENT CO.
By: /s/Thomas L. Thomsen
--------------------------------
<PAGE>
Exhibit (16)
THE GALAXY VIP FUND
AVERAGE ANNUAL TOTAL RETURN COMPUTATION
NO LOAD
FUND: EQUITY FUND
n
FORMULA: P(1 + T) = ERV
WHERE: P = A hypothetical initial payment of $1,000
T = Average annual total return
N = Number of years
ERV = Ending redeemable value of hypothetical $1,000
payment made at the beginning of the 1, 5, or 10
year (or other) periods at the end of the 1, 5, or
10 year (or other) periods (or fractional portion
thereof).
<TABLE>
<CAPTION>
AVERAGE
ENDING ANNUAL
DATES REDEEMABLE RATE OF
PERIOD COVERED VALUE RETURN *FORMULA
------ ------- ----- ------ --------
<S> <C> <C> <C> <C>
From Fund 01/15/93
Inception to $995.71 (0.86%) @Rate($995.71; $1,000; 0.6**)
06/30/93
</TABLE>
- -------------------------
** PERIOD = 0.6 YEARS
* LOTUS 123 @RATE FUNCTION:
@RATE (fv,pv,term) The periodic interest rate necessary for
present value "pv", to grow to future value
"fv", over the number of compounding periods
in "term".
1/n
fv - 1
---------
pv
<PAGE>
THE GALAXY VIP FUND
AVERAGE ANNUAL TOTAL RETURN COMPUTATION
NO LOAD
FUND: ASSET ALLOCATION FUND
n
FORMULA: P(1 + T) = ERV
WHERE: P = A hypothetical initial payment of $1,000
T = Average annual total return
N = Number of years
ERV = Ending redeemable value of hypothetical $1,000
payment made at the beginning of the 1, 5, or 10
year (or other) periods at the end of the 1, 5, or
10 year (or other) periods (or fractional portion
thereof).
<TABLE>
<CAPTION>
AVERAGE
ENDING ANNUAL
DATES REDEEMABLE RATE OF
PERIOD COVERED VALUE RETURN *FORMULA
------ ------- ----- ------ --------
<S> <C> <C> <C> <C>
From Fund 02/06/93
Inception to $1,015.19 3.68% @Rate($1,015.19; $1,000; 0.5**)
06/30/93
</TABLE>
- -------------------------
** PERIOD = 0.5 YEARS
* LOTUS 123 @RATE FUNCTION:
@RATE (fv,pv,term) The periodic interest rate necessary for
present value "pv", to grow to future value
"fv", over the number of compounding periods
in "term".
1/n
fv - 1
---------
pv
<PAGE>
THE GALAXY VIP FUND
AVERAGE ANNUAL TOTAL RETURN COMPUTATION
NO LOAD
FUND: HIGH QUALITY BOND FUND
n
FORMULA: P(1 + T) = ERV
WHERE: P = A hypothetical initial payment of $1,000
T = Average annual total return
N = Number of years
ERV = Ending redeemable value of hypothetical $1,000
payment made at the beginning of the 1, 5, or 10
year (or other) periods at the end of the 1, 5, or
10 year (or other) periods (or fractional portion
thereof).
<TABLE>
<CAPTION>
AVERAGE
ENDING ANNUAL
DATES REDEEMABLE RATE OF
PERIOD COVERED VALUE RETURN *FORMULA
------ ------- ----- ------ --------
<S> <C> <C> <C> <C>
From Fund 01/21/93
Inception to $1,029.73 6.03% @Rate($1,029.73; $1,000; 0.5**)
06/30/93
</TABLE>
- -------------------------
** PERIOD = 0.5 YEARS
* LOTUS 123 @RATE FUNCTION:
@RATE (fv,pv,term) The periodic interest rate necessary for
present value "pv", to grow to future value
"fv", over the number of compounding periods
in "term".
1/n
fv - 1
---------
pv
<PAGE>
THE GALAXY VIP FUND
CALCULATION OF YIELDS ON MONEY MARKET FUND
AS OF JUNE 30, 1993
- ------------------------------------------
<TABLE>
<CAPTION>
Date
----
<S> <C>
24-June-93 $0.0000852
25-June-93 0.0000856
26-June-93 0.0000854
27-June-93 0.0000854
28-June-93 0.0000854
29-June-93 0.0000854
30-June-93 0.0000859
Total Dividends for
7 Day Period . . . . . . . . . . . $0.0005983
Dividend by: Number
of Days in period. . . . . . . . . 7
Multiplied by: Number
of Days in Year. . . . . . . . . . 365
Divided by: Offering
Price per Share. . . . . . . . . . $1.00
----------
7 Day Yield . . . . . . . . . . . . . . 3.12%
----------
----------
**********************************************************
7 Day Yield . . . . . . . . . . . . . . 3.12%
Divided by: Number of 7
Day Periods in Year. . . . . . . . 52.142857
Plus 1. . . . . . . . . . . . . . . . . 1
----------
1.0005984
Raised to the Power of
the Number of 7 Day
Periods in a Year. . . . . . . . . 52.142857
-----------
1.0316846
-----------
Effective 7 Day Yield . . . . . . . . . 3.17%
-----------
-----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> VIP MONEY MARKET
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 15,347,223
<INVESTMENTS-AT-VALUE> 15,347,223
<RECEIVABLES> 9,736
<ASSETS-OTHER> 904
<OTHER-ITEMS-ASSETS> 293
<TOTAL-ASSETS> 15,358,156
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,251
<TOTAL-LIABILITIES> 25,251
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,329,724
<SHARES-COMMON-STOCK> 15,329,724
<SHARES-COMMON-PRIOR> 16,295,115
<ACCUMULATED-NII-CURRENT> 284
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 103
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 15,329,905
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 858,018
<OTHER-INCOME> 0
<EXPENSES-NET> 104,019
<NET-INVESTMENT-INCOME> 753,999
<REALIZED-GAINS-CURRENT> 5
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 754,004
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 753,999
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,556,021
<NUMBER-OF-SHARES-REDEEMED> 9,275,409
<SHARES-REINVESTED> 753,997
<NET-CHANGE-IN-ASSETS> (965,386)
<ACCUMULATED-NII-PRIOR> 284
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 108
<GROSS-ADVISORY-FEES> 61,827
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 173,804
<AVERAGE-NET-ASSETS> 15,456,668
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> VIP EQUITY
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 43,685,105
<INVESTMENTS-AT-VALUE> 69,826,225
<RECEIVABLES> 155,971
<ASSETS-OTHER> 269
<OTHER-ITEMS-ASSETS> 133
<TOTAL-ASSETS> 69,982,598
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 119,637
<TOTAL-LIABILITIES> 119,637
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,916,048
<SHARES-COMMON-STOCK> 3,550,451
<SHARES-COMMON-PRIOR> 2,968,723
<ACCUMULATED-NII-CURRENT> 16,360
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 210,567
<ACCUM-APPREC-OR-DEPREC> 26,141,120
<NET-ASSETS> 69,862,961
<DIVIDEND-INCOME> 665,075
<INTEREST-INCOME> 673,073
<OTHER-INCOME> 0
<EXPENSES-NET> 633,870
<NET-INVESTMENT-INCOME> 704,278
<REALIZED-GAINS-CURRENT> 95,675
<APPREC-INCREASE-CURRENT> 12,942,969
<NET-CHANGE-FROM-OPS> 13,742,922
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 687,918
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,908,741
<NUMBER-OF-SHARES-REDEEMED> 4,030,553
<SHARES-REINVESTED> 987,918
<NET-CHANGE-IN-ASSETS> 23,621,110
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 306,242
<GROSS-ADVISORY-FEES> 440,287
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 633,870
<AVERAGE-NET-ASSETS> 58,704,981
<PER-SHARE-NAV-BEGIN> 15.58
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> 4.10
<PER-SHARE-DIVIDEND> (.21)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.68
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> VIP ASSET ALLOCATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 37,154,003
<INVESTMENTS-AT-VALUE> 42,704,585
<RECEIVABLES> 2,997,736
<ASSETS-OTHER> 481
<OTHER-ITEMS-ASSETS> 329
<TOTAL-ASSETS> 45,703,131
<PAYABLE-FOR-SECURITIES> 3,105,872
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 62,053
<TOTAL-LIABILITIES> 3,167,925
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,695,104
<SHARES-COMMON-STOCK> 2,925,304
<SHARES-COMMON-PRIOR> 1,804,021
<ACCUMULATED-NII-CURRENT> 14,468
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 275,052
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,550,582
<NET-ASSETS> 42,535,206
<DIVIDEND-INCOME> 213,516
<INTEREST-INCOME> 1,073,967
<OTHER-INCOME> 0
<EXPENSES-NET> 375,473
<NET-INVESTMENT-INCOME> 912,010
<REALIZED-GAINS-CURRENT> 2,548,910
<APPREC-INCREASE-CURRENT> 1,884,101
<NET-CHANGE-FROM-OPS> 5,345,021
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 897,607
<DISTRIBUTIONS-OF-GAINS> 2,452,737
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,999,740
<NUMBER-OF-SHARES-REDEEMED> 2,923,674
<SHARES-REINVESTED> 3,350,344
<NET-CHANGE-IN-ASSETS> 18,421,087
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 178,944
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 235,784
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 391,800
<AVERAGE-NET-ASSETS> 31,437,846
<PER-SHARE-NAV-BEGIN> 13.37
<PER-SHARE-NII> .40
<PER-SHARE-GAIN-APPREC> 2.11
<PER-SHARE-DIVIDEND> (.40)
<PER-SHARE-DISTRIBUTIONS> (.94)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.54
<EXPENSE-RATIO> 1.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> VIP HIGH QUALITY BOND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 13,836,160
<INVESTMENTS-AT-VALUE> 14,205,885
<RECEIVABLES> 416,624
<ASSETS-OTHER> 259
<OTHER-ITEMS-ASSETS> 186
<TOTAL-ASSETS> 14,622,954
<PAYABLE-FOR-SECURITIES> 146,024
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19,804
<TOTAL-LIABILITIES> 165,828
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,339,860
<SHARES-COMMON-STOCK> 1,401,691
<SHARES-COMMON-PRIOR> 1,182,359
<ACCUMULATED-NII-CURRENT> 4,934
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 257,393
<ACCUM-APPREC-OR-DEPREC> 369,725
<NET-ASSETS> 14,457,126
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 791,419
<OTHER-INCOME> 0
<EXPENSES-NET> 92,941
<NET-INVESTMENT-INCOME> 698,478
<REALIZED-GAINS-CURRENT> 115,244
<APPREC-INCREASE-CURRENT> 271,208
<NET-CHANGE-FROM-OPS> 1,084,930
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 698,466
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,442,357
<NUMBER-OF-SHARES-REDEEMED> 1,884,226
<SHARES-REINVESTED> 698,466
<NET-CHANGE-IN-ASSETS> 2,643,061
<ACCUMULATED-NII-PRIOR> 1,065
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 368,779
<GROSS-ADVISORY-FEES> 65,975
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 173,086
<AVERAGE-NET-ASSETS> 11,995,429
<PER-SHARE-NAV-BEGIN> 9.99
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> .32
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.31
<EXPENSE-RATIO> .77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
