<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
Securities Act File No. 33-49290
Investment Company Act File No. 811-6726
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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. 11 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No.13 /X/
The Galaxy VIP Fund
(Exact Name of Registrant as Specified in Charter)
4400 Computer Drive
Westborough, 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
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103
(Name and Address of Agent for Service)
Copies to:
Jylanne Dunne, Vice President
PFPC, Inc.
4400 Computer Drive
P.O. Box 5108
Westborough, Massachusetts 01581
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on April 30, 2000 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>
[Front cover page]
The Galaxy VIP Fund
The Galaxy Funds
Prospectus
April 30, 2000
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
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
Risk/return summary....................................................1
Introduction...........................................................1
Money Market Fund......................................................2
Equity Fund............................................................4
Growth and Income Fund.................................................6
Small Company Growth Fund..............................................8
Columbia Real Estate Equity Fund II...................................10
Asset Allocation Fund.................................................12
High Quality Bond Fund................................................15
Columbia High Yield Fund II...........................................18
Additional information about risk.....................................21
Fund management.......................................................22
How to invest in the Funds............................................23
Pricing of shares.....................................................23
Buying and selling shares.............................................23
Dividends, distributions and taxes....................................25
Financial highlights..................................................26
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
THIS PROSPECTUS describes the investment portfolios (the "Funds") of The Galaxy
VIP Fund ("Galaxy VIP"). Shares of the Funds may be offered only to various life
insurance companies to fund benefits under their variable annuity contracts and
variable life insurance policies.
Beginning on the next page, you'll find the following important information
about each Fund:
- - The Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying to
achieve that objective
- - The main risks associated with an investment in the Fund
- - The Fund's past performance measured on both a year-by-year and long-term
basis.
THE FUNDS' INVESTMENT ADVISERS
Fleet Investment Advisors Inc. ("Fleet") is 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. Fleet was established in 1984
and has its main office at 75 State Street, Boston, Massachusetts 02109. Fleet
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 Management Co. ("Columbia") serves as investment adviser to the
Columbia Real Estate Equity Fund II and Columbia High Yield Fund II. Columbia
was established in 1969 and has its main office at 1300 S.W. Sixth Avenue, P.O.
Box 1350, Portland, Oregon 97207. Columbia also manages the investment
portfolios of Columbia Funds.
Fleet and Columbia are indirect wholly-owned subsidiaries of FleetBoston
Financial Corporation, a registered bank holding company. As of December 31,
1999, Fleet managed over $68 billion in assets and Columbia managed over $21.7
billion in assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE MONEY MARKET FUND SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1.00 PER SHARE, IT'S POSSIBLE TO LOSE MONEY BY INVESTING IN THE
FUND. YOU COULD ALSO LOSE MONEY BY INVESTING IN ANY OF THE OTHER FUNDS.
-1-
<PAGE>
Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests in a diversified portfolio of money market instruments,
including commercial paper, notes and bonds issued by U.S. corporations,
obligations issued by the U.S. Government and its agencies and
instrumentalities, and obligations issued by U.S. and foreign banks, such as
certificates of deposit. The Fund also invests in repurchase agreements backed
by U.S. Government obligations.
The Fund will only buy a security if it has the highest short-term rating from
at least two nationally recognized statistical rating organizations, or one such
rating if only one organization has rated the security. If the security is not
rated, it must be determined by the Adviser to be of comparable credit quality.
[Sidenote:]
MONEY MARKET INSTRUMENTS
Money market instruments are short-term debt obligations issued by banks,
corporations, the U.S. Government and state and local governments. Money market
instruments purchased by the Money Market Fund must meet strict requirements as
to investment quality, maturity and diversification. The Fund does not invest in
securities with remaining maturities of more than 397 days (subject to certain
exceptions) and the average maturity of all securities held by the Fund must be
90 days or less. Prior to purchasing a money market instrument for the Fund,
Fleet must determine that the instrument carries very little risk.
[Sidenote:]
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a Fund buys securities from a
seller (usually a bank or broker-dealer) who agrees to buy them back from the
Fund on a certain date and at a certain price.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only invests
in high quality obligations, if an issuer fails to pay interest or repay
principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the other
party may not fulfill its obligations under the agreement. This could cause
the value of your investment to decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - Fleet evaluates the risks and rewards presented by
all securities purchased by the Fund and how they advance the Fund's
investment objective. It's possible, however, that these evaluations will
prove to be inaccurate.
-2-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The returns set forth below include the effect of deducting the Fund's expenses,
but do not include the charges and expenses attributable to a particular
variable annuity contract or variable life insurance policy. You should
carefully review the prospectus for the variable annuity contract or variable
life insurance policy you have chosen for information on relevant charges and
expenses. If these charges and expenses were included, the Fund's returns would
be lower.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Fund has varied from year to
year.
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3.89% 5.38% 4.91% 4.99% 5.16% 4.86%
- ---------------------------------------------------------------
</TABLE>
[Sidenote:]
Best quarter: 1.34% for the quarter ending December 31,1999
Worst quarter: 0.72% for the quarter ending March 31, 1994
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1 year 5 years Since inception
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund 4.86% 5.02% 4.62% (2/2/93)
- --------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
-3-
<PAGE>
Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term growth by investing in companies that the Fund's
investment adviser believes have above-average earnings potential.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a broadly
diversified portfolio of equity securities issued by U.S. companies, primarily
common stocks and securities that can be converted into common stocks.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
The Fund invests mainly in companies which Fleet believes will have faster
earnings growth than the economy in general. Fleet looks for
large-capitalization companies (generally over $2 billion) in growing
industries, focusing on technological advances, good product development, strong
management and other factors which support future growth. Fleet seeks out
companies that have a history of strong earnings growth and are projected to
continue a similar pattern of growth over the next three to five years.
The Fund will sell a security when there is an adverse change in the projected
earnings growth of the company issuing the security. A security will also be
sold when, as a result of changes in the economy or the performance of the
security or other circumstances, Fleet believes that holding the security is no
longer consistent with the Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund carries the following main risks:
CONVERTIBLE SECURITIES - Securities that can be converted into common stock,
such as certain debt securities and preferred stock, are subject to the usual
risks associated with fixed income investments, such as interest rate risk and
credit risk. In addition, because they react to changes in the value of the
equity securities into which they will convert, convertible securities are also
subject to stock market risk.
SELECTION OF INVESTMENTS - Fleet evaluates the risks and rewards presented by
all securities purchased by the Fund and how they advance the Fund's investment
objective. It's possible, however, that these evaluations will prove to be
inaccurate.
-4-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The returns set forth below include the effect of deducting the Fund's expenses,
but do not include the charges and expenses attributable to a particular
variable annuity contract or variable life insurance policy. You should
carefully review the prospectus for the variable annuity contract or variable
life insurance policy you have chosen for information on relevant charges and
expenses. If these charges and expenses were included, the Fund's returns would
be lower.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Fund has varied from year to
year.
[bar chart goes here ]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3.47% 26.76% 21.49% 27.74% 23.52% 27.18%
- ---------------------------------------------------------------
</TABLE>
[Sidenote:]
Best quarter: 25.67% for the quarter ending December 31, 1998
Worst quarter: -11.61% for the quarter ending September 30, 1998
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1 year 5 years Since inception
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Fund 27.18% 25.31% 18.84% ( 1/11/93)
- -----------------------------------------------------------------------------------------
S&P 500 21.03% 28.54% 21.52% (since 12/31/92)
- -----------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Robert G. Armknecht, CFA, an Executive Vice
President of Fleet since 1988. He's primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Armknecht has been the Fund's
portfolio manager since July 1998. He has been with Fleet and its predecessors
since 1988.
[Sidenote:]
The Standard & Poor's 500 Composite Stock Price Index (commonly referred to as
the S&P 500) is an unmanaged index that tracks the performance of 500 widely
held common stocks listed on the New York Stock Exchange, the American Stock
Exchange and NASDAQ. The S&P 500 is heavily weighted with the stocks of large
companies.
-5-
<PAGE>
Growth and Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide a relatively high total return through long-term
capital appreciation and current income.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the common stocks
of U.S. companies with large market capitalizations (generally over $2 billion)
that have prospects for above-average growth and dividends. Fleet focuses on
stocks which are believed to be attractively priced relative to expectations for
the future performance of the issuing company. Fleet also seeks a current yield
greater than that of the S&P 500, although not all Fund investments will pay
dividends.
The Fund will sell a portfolio security when, as a result of changes in the
economy, Fleet believes that holding the security is no longer consistent with
the Fund's investment objective. A security may also be sold as a result of a
deterioration in the performance of the security or in the financial condition
of the issuer of the security.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Gregory M. Miller, a Vice President of Fleet
since 1996. He's been primarily responsible for the day-to-day management of the
Fund's investment portfolio since July 1998. Before that, Mr. Miller assisted in
managing Fleet's other growth and income equity products for seven years. He
joined Fleet in 1985.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund carries the following main risk:
- - SELECTION OF INVESTMENTS - Fleet evaluates the risks and rewards presented by
all securities purchased by the Fund and how they advance the Fund's
investment objective. It's possible, however, that these evaluations will
prove to be inaccurate.
-6-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The returns set forth below include the effect of deducting the Fund's expenses,
but do not include the charges and expenses attributable to a particular
variable annuity contract or variable life insurance policy. You should
carefully review the prospectus for the variable annuity contract or variable
life insurance policy you have chosen for information on relevant charges and
expenses. If these charges and expenses were included, the Fund's returns would
be lower.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows the performance of the Fund during the last calendar year.
[bar chart goes here ]
- ------------
1999
- ------------
7.10%
- ------------
[Sidenote:]
Best quarter: 9.34% for the quarter ending June 30,1999
Worst quarter: -10.52% for the quarter ending September 30, 1999
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely-held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1 year Since inception
- -------------------------------------------------------------------------------
<S> <C> <C>
Growth and Income Fund 7.10% 6.07% (3/4/98)
- -------------------------------------------------------------------------------
S&P 500 21.03% 21.73% (since 2/28/98)
- -------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
Small Company Growth Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the equity
securities, primarily common stocks, of small companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. companies, but may invest up to 20% of its total assets in
foreign equity securities.
In selecting investments for the Fund, Fleet looks for promising industries. It
then looks within those industries for what are judged to be reasonably priced
companies that have above-average growth potential. Fleet consults a wide range
of sources, including management, competitors, other industry sources and
regional brokerage analysts.
The Fund will sell a portfolio security when, as a result of changes in the
economy, Fleet believes that holding the security is no longer consistent with
the Fund's investment objective. A security may also be sold as a result of a
deterioration in the performance of the security or in the financial condition
of the issuer of the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Stephen D. Barbaro, CFA, a Senior Vice President
of Fleet since 1996. He's primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Barbaro has been the Fund's portfolio
manager since it commenced operations in April 1998. He has been in the
investment management business with Fleet and its predecessors since 1976.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund carries the following main risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - Fleet evaluates the risks and rewards presented by
all securities purchased by the Fund and how they advance the Fund's
investment objective. It's possible, however, that these evaluations will
prove to be inaccurate.
-8-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The returns set forth below include the effect of deducting the Fund's expenses,
but do not include the charges and expenses attributable to a particular
variable annuity contract or variable life insurance policy. You should
carefully review the prospectus for the variable annuity contract or variable
life insurance policy you have chosen for information on relevant charges and
expenses. If these charges and expenses were included, the Fund's returns would
be lower.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows the performance of the Fund during the last calendar year.
[bar chart goes here ]
- -------------
1999
- -------------
67.49%
- -------------
[Sidenote:]
Best quarter: 47.34% for the quarter ending December 31, 1999
Worst quarter: -8.41% for the quarter ending March 31, 1999
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of the
2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization.
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1 year Since inception
- -----------------------------------------------------------------------------
<S> <C> <C>
Small Company Growth Fund 67.49% 26.61% (4/17/98)
- -----------------------------------------------------------------------------
Russell 2000 Index 21.26% 4.01% (since 4/30/98)
- -----------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
Columbia Real Estate Equity Fund II
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks, with equal emphasis, capital appreciation and above-average
current income by investing primarily in the equity securities of companies in
the real estate industry.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the equity
securities, primarily common stocks, of companies principally engaged in the
real estate industry, primarily real estate investment trusts ("REITs"). The
Fund invests primarily in the securities of U.S. companies.
In selecting portfolio securities for the Fund, Columbia focuses on total
return, with an emphasis on growth companies that offer both a strong balance
sheet and a dividend yield exceeding that of the S&P 500. The Fund's holdings
are diversified across several geographic regions and types of real estate.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, Columbia
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
REITS
REITs pool investors' funds for investment primarily in real estate or related
loans. REITs are usually classified as either equity REITs, mortgage REITs or
hybrid REITs. Equity REITs invest directly in real estate and derive most of
their income from rental and lease payments, although they can also realize
capital gains by selling real estate that has appreciated in value. Mortgage
REITs make loans to commercial real estate developers and derive most of their
income from interest payments on the loans. Hybrid REITs combine the
characteristics of both equity REITs, and mortgage REITs.
[Sidenote:]
TOTAL RETURN
Total return consists of net income (dividend and/or interest income from
portfolio securities, after deducting Fund expenses) and capital gains and
losses, both realized and unrealized, from portfolio securities.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund carries the following main risks:
- - REAL ESTATE SECURITIES GENERALLY - Although the Fund 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, possible lack of availability of
mortgage funds, overbuilding, extended vacancies of properties, increases in
property taxes and operating expenses, changes in zoning laws, changes in
neighborhood values, and changes in interest rates. These risks may be more
significant to the extent that the Fund's investments are concentrated in a
particular geographic region.
- - REITS - REITs are also subject to the risks associated with direct ownership
of real estate. Generally, an increase in interest rates will decrease the
value of high yielding securities and increase the cost of obtaining
financing, which could decrease the value of a REIT's investments. 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. REITs are dependent upon management skills, may not be
diversified and are subject to heavy cash flow dependency and defaults of
borrowers. In addition, because REITs pay dividends to their shareholders
based upon available funds from operations, it is quite common for a portion
of these dividends to be designated as a return of capital. Since the Fund
includes dividends from REITs in its distributions to shareholders, a portion
of the Fund's dividends may also be designated as a return of capital.
-10-
<PAGE>
- - SELECTION OF INVESTMENTS - Columbia evaluates the risks and rewards presented
by all securities purchased by the Fund and how they advance the Fund's
investment objective. It's possible, however, that these evaluations will
prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The returns set forth below include the effect of deducting the Fund's expenses,
but do not include the charges and expenses attributable to a particular
variable annuity contract or variable life insurance policy. You should
carefully review the prospectus for the variable annuity contract or variable
life insurance policy you have chosen for information on relevant charges and
expenses. If these charges and expenses were included, the Fund's returns would
be lower.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows the performance of the Fund during the last calendar year.
[bar chart goes here ]
- -------------
1999
- -------------
-4.13%
- -------------
[Sidenote:]
Best quarter: 7.89% for the quarter ending June 30, 1999
Worst quarter: -8.46% for the quarter ending September 30, 1999
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1 year Since inception
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Columbia Real Estate Equity Fund II -4.13% -7.51% (3/3/98)
- -----------------------------------------------------------------------------------------
NAREIT Index -4.62% -11.15% (since 2/28/98)
- -----------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is David W. Jellison, CFA, a Senior Vice President
of Columbia. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Jellison has been the Fund's portfolio manager
since it began operations in March 1998. Prior to joining Columbia in 1992, Mr.
Jellison was a Senior Research Associate for RCM Capital Management.
[Sidenote:]
The National Association of Real Estate Investment Trusts (NAREIT) Index is an
unmanaged index of all tax-qualified REITs listed on the New York Stock
Exchange, the American Stock Exchange and NASDAQ, which have 75% or more of
their gross invested book assets invested directly or indirectly in the equity
ownership of real estate.
-11-
<PAGE>
Asset Allocation Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks 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.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund aims to provide income that is higher than the average income provided
by stocks included in the popular stock market averages. Fleet interprets this
to mean the Dow Jones Industrial Average of 30 major companies and the S&P 500.
Due to the Fund's expenses, however, net income paid to investors may be less
than that. The Fund also seeks long-term growth in the value of its assets.
Fleet attempts to achieve these goals and reduce risk by allocating the Fund's
assets among short-term debt securities, common stocks, preferred stocks and
bonds.
The Fund seeks a mix of stocks and bonds that will produce both income and
long-term capital growth. This mix will change from time to time as a result of
economic and market conditions. However, the Fund keeps at least 25% of its
total assets in fixed income investments, including debt securities and
preferred stocks, at all times.
Debt securities purchased by the Fund will be of investment grade quality, which
means that they will have one of the top four ratings assigned by Standard &
Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") or
will be unrated securities which Fleet has determined to be of comparable
quality. Occasionally, the rating of a security held by the Fund may be
downgraded below investment grade. If that happens, the Fund doesn't have to
sell the security unless Fleet determines that under the circumstances the
security is no longer an appropriate investment for the Fund. However, the Fund
will sell promptly any securities that are not rated investment grade by S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
In selecting portfolio securities for the Fund, Fleet's investment policy
committee develops an economic outlook and sets guidelines for the industries
and sectors in which the Fund should invest. In selecting equity securities, the
Adviser favors stocks with long-term growth potential that are expected to
outperform their peers over time. The Adviser also forecasts the direction and
degree of change in long-term interest rates to help in the selection of fixed
income securities.
The Fund will sell a security when, as a result of changes in the economy, Fleet
determines it appropriate to revise the allocation of the Fund's assets between
stocks and bonds. A security may also be sold as a result of a deterioration in
the performance of the security or in the financial condition of the issuer of
the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
-12-
<PAGE>
In addition, the Fund carries the following main risks:
- - INTEREST RATE RISK - The value of fixed income investments such as bonds are
affected by movements in interest rates. Bond prices tend to fall when
interest rates rise and to rise when interest rates fall. Generally, the
longer the time until maturity, the more sensitive the price of a bond is to
interest rate changes.
- - CREDIT RISK - The value of fixed income investments also depends on the
ability of an issuer to make principal and interest payments. If an issuer
can't meet its payment obligations or if its credit rating is lowered, the
value of its securities will decline. Debt securities which have the lowest
of the top four ratings assigned by S&P or Moody's have speculative
characteristics. Changes in the economy are more likely to affect the ability
of the issuers of these securities to make payments of principal and interest
than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain fixed
income investments held by the Fund to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that a
security is paid off sooner than expected because of a decline in interest
rates, the Fund may be unable to recoup all of its initial investment and may
also suffer from having to reinvest in lower-yielding securities. In the
event of a later than expected payment because of a rise in interest rates,
the value of the obligation will decrease and the Fund may suffer from the
inability to invest in higher-yielding securities.
- - PORTFOLIO COMPOSITION - The level of risk could increase if a larger
percentage of the Fund is invested in one particular asset class, such as
stocks or bonds. However, asset allocation funds are generally less volatile
than portfolios that contain only stocks.
- - SELECTION OF INVESTMENTS - Fleet evaluates the risks and rewards presented by
all securities purchased by the Fund and how they advance the Fund's
investment objective. It's possible, however, that these evaluations will
prove to be inaccurate.
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Donald Jones, a Vice President of Fleet since
1991. He's primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones has been with Fleet and its predecessors since
1977 and has been the Fund's portfolio manager since it began operations in
1993.
-13-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The returns set forth below include the effect of deducting the Fund's expenses,
but do not include the charges and expenses attributable to a particular
variable annuity contract or variable life insurance policy. You should
carefully review the prospectus for the variable annuity contract or variable
life insurance policy you have chosen for information on relevant charges and
expenses. If these charges and expenses were included, the Fund's returns would
be lower.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Fund has varied from year to
year.
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-2.15% 29.42% 14.64% 19.03% 17.51% 7.06%
- ---------------------------------------------------------------
</TABLE>
[Sidenote:]
Best quarter: 11.31% for the quarter ending December 31, 1998
Worst quarter: -3.25% for the quarter ending September 30, 1998
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to broad-based market indices.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund 7.06% 17.37% 12.80% (2/6/93)
- --------------------------------------------------------------------------------------------------
S&P 500 21.03% 28.54% 13.78% (since 1/31/93)
- --------------------------------------------------------------------------------------------------
DJIA 27.29% 27.10% 22.41% (since 1/31/93)
- --------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
[Sidenote:]
The Dow Jones Industrial Average (DJIA) is an unmanaged price-weighted average
based on the "price only" performance of 30 blue chip stocks.
-14-
<PAGE>
High Quality Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with prudent risk of
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, as well as in corporate debt
obligations such as notes and bonds. The Fund also invests in asset-backed and
mortgage-backed securities and in money market instruments, such as commercial
paper and bank obligations.
In selecting portfolio securities for the Fund, Fleet monitors and evaluates
economic trends. It establishes duration targets, ranges of interest rates on
bonds of various maturities and determines the appropriate allocation of the
Fund's investments among various market sectors.
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt obligations
in a Fund come due or mature. It is calculated by averaging the time to maturity
of all debt obligations held by a Fund with each maturity "weighted" according
to the percentage of assets it represents.
[Sidenote:]
DURATION
Duration is an approximate measure of the price sensitivity of a Fund to changes
in interest rates. Unlike maturity which measures only the time until final
payment, duration gives you the average time it takes to receive all expected
cash flows (including interest payments, prepayments and final payments) on the
debt obligations held by a Fund.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard & Poor's
Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's"), or are
unrated securities determined by Fleet to be of comparable quality. Under normal
market conditions, the Fund will invest at least 65% of its total assets in high
quality debt obligations that have one of the top two ratings assigned by S&P or
Moody's, or unrated securities determined by Fleet to be of comparable quality.
High quality securities tend to pay less income than lower-rated securities.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless Fleet determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by either S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current market and economic conditions and Fleet's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, Fleet
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move in
the opposite direction to interest rates. When rates are rising, the prices
of debt securities tend to fall. When rates are falling, the prices of debt
securities tend to rise. Generally, the longer the time until maturity, the
more sensitive the price of a debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet its
payment obligations or if its credit rating is lowered, the value of its debt
securities may fall. Debt securities which have the lowest of the top four
ratings assigned by
-15-
<PAGE>
S&P or Moody's have speculative characteristics. Changes in the economy are
more likely to affect the ability of the issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain debt
securities held by the Fund, particularly asset-backed and mortgage-backed
securities, to be paid off much sooner or later than expected, which could
adversely affect the Fund's value. In the event that a security is paid off
sooner than expected because of a decline in interest rates, the Fund may be
unable to recoup all of its initial investment and may also suffer from
having to reinvest in lower-yielding securities. In the event of a later than
expected payment because of a rise in interest rates, the value of the
obligation will decrease and the Fund may suffer from the inability to invest
in higher-yielding securities.
- - SELECTION OF INVESTMENTS - Fleet evaluates the risks and rewards presented by
all securities purchased by the Fund and how they advance the Fund's
investment objective. It's possible, however, that these evaluations will
prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These gains
are taxable at higher rates than long-term capital gains. Frequent trading
could also mean higher brokerage commissions and other transaction costs,
which could reduce the Fund's returns.
-16-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The returns set forth below include the effect of deducting the Fund's expenses,
but do not include the charges and expenses attributable to a particular
variable annuity contract or variable life insurance policy. You should
carefully review the prospectus for the variable annuity contract or variable
life insurance policy you have chosen for information on relevant charges and
expenses. If these charges and expenses were included, the Fund's returns would
be lower.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Fund has varied from year to
year.
[bar chart goes here ]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-5.85% 22.55% 1.57% 9.36% 9.70% -3.78%
- ---------------------------------------------------------------
</TABLE>
[Sidenote:]
Best quarter: 8.19% for the quarter ending June 30, 1995
Worst quarter: -3.49% for the quarter ending March 31, 1994
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Quality Bond Fund -3.78% 7.62% 5.41% (1/21/93)
- -------------------------------------------------------------------------------------------------
Lehman Brothers Government/
Corporate Bond Index -2.15% 7.61% 6.16% (since 1/31/93)
- -------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Government/Corporate Bond Index is an unmanaged index which
tracks the performance of U.S. Government and corporate bonds.
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of Fleet since February 1999. She's primarily responsible for the day-to-day
management of the Fund's investment portfolio. Ms. Schofield, who has over 20
years of investment experience, has been with Fleet since 1990 and served as a
Vice President and Manager of Fixed Income Investments until February 1999. She
has managed the Fund since March 1996.
-17-
<PAGE>
Columbia High Yield Fund II
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks 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.
[Sidenote:]
The Fund is designed for investors who are willing to assume the risk of
significant fluctuations in the value of their investment in order to achieve a
high level of current income. The Fund should represent only a portion of a
balanced investment program.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in high yielding
corporate debt securities, such as bonds, debentures and notes. These securities
will generally be rated BB or lower by Standard & Poor's Ratings Group ("S&P")
or Ba or lower by Moody's Investors Service, Inc. ("Moody's") or will be unrated
securities which Columbia has determined to be of comparable quality. Such lower
rated securities are not considered to be of investment grade quality and are
commonly referred to as "junk bonds." The Fund invests primarily in lower-rated
securities that are considered to be "upper tier," which means securities that
are rated BB or B by S&P or Ba or B by Moody's. No more than 10% of the Fund's
total assets will normally be invested in securities rated CCC or lower by S&P
or Caa or lower by Moody's.
While credit ratings are an important factor in evaluating lower-rated
securities, Columbia also considers a variety of other factors when selecting
portfolio securities for the Fund. These factors may include the issuer's
experience and managerial strength, its changing financial condition, its
borrowing requirements and debt maturity schedules, and its responsiveness to
changes in business conditions and interest rates. Because of the number of
considerations involved in investing in lower-rated debt securities, the success
of the Fund in achieving its investment objective may be more dependent upon
Columbia's credit analysis than would be the case if the Fund invested in higher
quality debt securities.
The Fund's average weighted maturity will vary from time to time depending on
current market conditions and Columbia's assessment of probable changes in
interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, Columbia
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund carries the following main risks:
- - LOWER-RATED SECURITIES - Lower-rated securities may be issued in connection
with certain corporate restructurings, such as leveraged buyouts, mergers or
acquisitions, or by smaller less creditworthy companies or companies with
substantial debt. Such securities are subject to a high degree of risk and
are considered speculative by S&P and Moody's with respect to the issuer's
ability to make principal and interest payments. An economic downturn or
increase in interest rates is likely to have a greater negative effect on the
issuers of lower-rated securities and result in more defaults than is the
case for higher-rated securities. In addition, the markets for lower-rated
securities may be less liquid
-18-
<PAGE>
and less active than the markets for higher rated securities, which may
limit the ability of the Fund to sell lower-rated securities at their
expected value.
- - INTEREST RATE RISK - The prices of debt securities generally tend to move in
the opposite direction to interest rates. When rates are rising, the prices
of debt securities tend to fall. When rates are falling, the prices of debt
securities tend to rise. Generally, the longer the time until maturity, the
more sensitive the price of a debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet its
payment obligations or if its credit rating is lowered, the value of its debt
securities may fall.
- - SELECTION OF INVESTMENTS - Columbia evaluates the risks and rewards presented
by all securities purchased by the Fund and how they advance the Fund's
investment objective. It's possible, however, that these evaluations will
prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These gains
are taxable at higher rates than long-term capital gains. Frequent trading
could also mean higher brokerage commissions and other transaction costs,
which could reduce the Fund's returns.
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Jeffrey L. Rippey, CFA, a Vice President of
Columbia. He's primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Rippey has managed the Fund since it began operations
in March 1998. He has been with Columbia since 1981.
-19-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The returns set forth below include the effect of deducting the Fund's expenses,
but do not include the charges and expenses attributable to a particular
variable annuity contract or variable life insurance policy. You should
carefully review the prospectus for the variable annuity contract or variable
life insurance policy you have chosen for information on relevant charges and
expenses. If these charges and expenses were included, the Fund's returns would
be lower.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows the performance of the Fund during the last calendar year.
[bar chart goes here ]
- -------------
1999
- -------------
0.56%
- -------------
[Sidenote:]
Best quarter: 2.18% for the quarter ending December 31, 1999
Worst quarter: -1.71% for the quarter ending September 30, 1999
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1 year Since inception
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Columbia High Yield Fund II 0.56% 5.46% (3/3/98)
- ---------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index -0.82% 3.49% (since 2/28/98)
- ---------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of the
Lehman Brothers Government/Corporate Bond Index, its Mortgage Backed Securities
Index and its Asset Backed Securities Index.
-20-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each Fund have been described
above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its main investment strategy to try to avoid losses during
unfavorable market conditions. These investments may include cash (which will
not earn any income) and, with respect to each Fund other than the Money Market
Fund, money market instruments, debt securities issued or guaranteed by the U.S.
Government or its agencies and repurchase agreements. This strategy could
prevent a Fund from achieving its investment objective and could reduce the
Fund's return and affect its performance during a market upswing.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's principal investment strategies and the
particular types of securities in which each Fund principally invests. Each Fund
may, from time to time, pursue other investment strategies and make other types
of investments in support of its overall investment goal. These supplemental
investment strategies, which are not considered to be main investment strategies
of the Funds - and the risks involved - are described in detail in the Statement
of Additional Information (SAI) which is referred to on the back cover of this
prospectus.
YEAR 2000 RISKS
Over the past several years, Fleet, Columbia and the Funds' other major service
providers expended considerable time and money in addressing the computer and
technology problems associated with the transition to the Year 2000. As a result
of those efforts, the Funds did not experience any material disruptions in their
operations as a result of the transition to the 21st century. Fleet, Columbia
and the Funds' other major service providers are continuing to monitor the Year
2000 or Y2K problem, however, and there can be no assurances that there will be
no adverse impact to the Funds as a result of future computer-related Y2K
difficulties.
-21-
<PAGE>
FUND MANAGEMENT
ADVISERS
Fleet and Columbia, subject to the general supervision of Galaxy VIP's Board of
Trustees, manage the Funds in accordance with their respective investment
objectives and policies, make decisions with respect to and place orders for all
purchases and sales of portfolio securities, and maintain related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
Fleet and Columbia may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with Fleet or Columbia or that have sold shares of the Funds, to the
extent permitted by law or by order of the Securities and Exchange Commission.
Fleet and Columbia will allocate orders to such institutions only if they
believe that the quality of the transaction and the commission are comparable to
what they would be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to Fleet or Columbia, as the case may be, by the Funds
during the last fiscal year are set forth below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Management fee as a % of
Fund average net assets
- -------------------------------------------------------------------------
<S> <C>
Money Market Fund 0.15%
- -------------------------------------------------------------------------
Equity Fund 0.75%
- -------------------------------------------------------------------------
Growth and Income Fund 0.75%
- -------------------------------------------------------------------------
Small Company Growth Fund 0.75%
- -------------------------------------------------------------------------
Columbia Real Estate Equity Fund II 0.75%
- -------------------------------------------------------------------------
Asset Allocation Fund 0.75%
- -------------------------------------------------------------------------
High Quality Bond Fund 0.29%
- -------------------------------------------------------------------------
Columbia High Yield Fund II 0.60%
- -------------------------------------------------------------------------
</TABLE>
-22-
<PAGE>
HOW TO INVEST IN THE FUNDS
PRICING OF SHARES
The net asset value per share ("NAV") of each Fund is determined as of the close
of regular trading hours on the New York Stock Exchange ("NYSE"), currently 4:00
p.m. Eastern time, on each day the NYSE is open for trading. The NYSE is
generally open for business every Monday through Friday, except for national
holidays. Each Fund's NAV 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 shares of the Fund held by investors.
The investments of the Money Market Fund are valued at amortized cost, which is
approximately equal to market value. The investments of the other Funds are
valued according to market value. When a market quote is not readily available,
the security's value is based on "fair value" as determined by Fleet or
Columbia, as the case may be, under the supervision of Galaxy VIP's Board of
Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
BUYING AND SELLING SHARES
Investors may not purchase or redeem shares of the Funds directly, but only
through variable annuity contracts and variable life insurance policies offered
by the separate accounts of participating insurance companies. You should refer
to your insurance company's prospectus 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 NYSE is open for trading. Orders for the purchase of shares of
a Fund are effected at the NAV next calculated after an order is received in
good order by the Fund. Redemptions are effected at the NAV 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 Securities and
Exchange Commission.
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
-23-
<PAGE>
contracts issued by both affiliated and unaffiliated participating 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, Galaxy VIP's Board of 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 irreconcilable conflict arise
between the holders of variable annuity contracts and variable life insurance
policies of affiliated or unaffiliated participating insurance companies, the
participating insurance companies may be required to withdraw the assets
allocable to some or all of the separate accounts from the Funds. Any such
withdrawal could disrupt orderly portfolio management to the potential
detriment of such holders. The variable annuity contracts and variable life
insurance policies are described in the separate prospectuses issued by the
participating insurance companies. Galaxy VIP assumes no responsibility for
such prospectuses.
-24-
<PAGE>
DIVIDENDS, DISTRIBUTION AND TAXES
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, are distributed at least once a
year. All dividends and capital gain distributions with respect to a particular
Fund will be automatically reinvested in additional shares of that Fund at the
NAV of such shares on the payment date.
TAXES
Each Fund qualified during its last taxable year, and intends to continue to
qualify, as a "regulated investment company" for federal income tax purposes by
satisfying the requirements under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, a Fund
generally will not be subject to federal income tax on its ordinary income and
net realized capital gains, provided that the Fund distributes them each year.
Each Fund also intends to comply with the diversification requirements of
Section 817(h) of the Code for variable annuity contracts and variable life
insurance policies so that the owners of such contracts and policies should not
be subject to federal income tax on dividends and distributions from the Fund to
the participating insurance companies' separate accounts.
Owners of variable annuity contracts and variable life insurance policies should
review the prospectus for their contract or policy for further tax information.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding the tax consequences of investments in
the Funds.
-25-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the Funds'
financial performance for the past five years (or the period since a particular
Fund began operations). Certain information reflects the financial performance
of a single share. The total returns in the tables represent the rate that an
investor would have earned (or lost) on an investment in each Fund, assuming all
dividends and distributions were reinvested. The information for the fiscal year
ended December 31, 1999 has been audited by Ernst & Young, LLP, independent
auditors, whose report, along with the Funds' financial statements, are included
in the Funds' Annual Report and incorporated by reference into the SAI. The
Annual Report and the SAI are available free of charge upon request. The
information for the fiscal years or periods ended December 31, 1998, 1997, 1996
and 1995 was audited by Galaxy VIP's former auditors, PricewaterhouseCoopers,
LLP.
MONEY MARKET FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<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(1) ................... 0.05 0.05 0.05 0.05 0.05
---- ---- ---- ---- ----
Total from Investment Operations: ........ 0.05 0.05 0.05 0.05 0.05
---- ---- ---- ---- ----
Less Dividends:
Dividends from net investment income ....... (0.05) (0.05) (0.05) (0.05) (0.05)
---- ---- ---- ---- ----
Total Dividends: ......................... (0.05) (0.05) (0.05) (0.05) (0.05)
---- ---- ---- ---- ----
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 ................................. 4.86% 5.16% 4.99% 4.91% 5.38%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ............ $21,817 $16,821 $15,330 $16,295 $17,925
Ratios to average net assets:
Net investment income including
reimbursement/waiver ....................... 4.78% 4.95% 4.88% 4.80% 5.25%
Operating expenses including
reimbursement/waiver ....................... 0.41% 0.55% 0.67% 0.60% 0.63%
Operating expenses excluding
reimbursement/waiver ....................... 0.82% 0.98% 1.12% 1.02% 1.11%
</TABLE>
- ------------------
(1) Net investment income per share before reimbursement/waiver of fees by the
investment adviser and/or administrator for the years ended December 31,
1999, 1998, 1997, 1996 and 1995 were $0.04, $0.05, $0.05, $0.05 and $0.05,
respectively.
-26-
<PAGE>
EQUITY FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $19.20 $19.68 $15.58 $12.99 $10.40
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income (loss)(1) ............ (0.02) 0.13 0.21 0.19 0.18
Net realized and unrealized gain
on investments ........................... 5.05 4.25 4.10 2.59 2.59
---- ---- ---- ---- ----
Total from Investment Operations: ........ 5.03 4.38 4.31 2.78 2.77
---- ---- ---- ---- ----
Less Dividends:
Dividends from net investment income ....... -- (0.13) (0.21) (0.19) (0.18)
Dividends from net realized
capital gains ............................ (2.02) (4.73) -- -- --
---- ---- ---- ---- ----
Total Dividends: ......................... (2.02) (4.86) (0.21) (0.19) (0.18)
---- ---- ---- ---- ----
Net increase (decrease) in net asset
value ...................................... 3.01 (0.48) 4.10 2.59 2.59
---- ---- ---- ---- ----
Net Asset Value, End of Period ............... $22.21 $19.20 $19.68 $15.58 $12.99
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return ................................. 27.18% 23.52% 27.74% 21.49% 26.76%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ............ $119,799 $92,620 $69,863 $46,242 $30,826
Ratios to average net assets:
Net investment income (loss) including
reimbursement/waiver ....................... (0.11)% 0.61% 1.20% 1.34% 1.55%
Operating expenses including
reimbursement/waiver ....................... 0.96% 1.05% 1.08% 1.10% 1.21%
Operating expenses excluding
reimbursement/waiver ....................... 0.96% 1.05% 1.08% 1.10% 1.24%
Portfolio Turnover Rate ...................... 60% 75% 1% 8% 3%
</TABLE>
- ------------------
(1) Net investment income (loss) per share before reimbursement/waiver of fees
by the investment adviser and/or administrator for the years ended December
31, 1999, 1998, 1997, 1996 and 1995 were $(0.02), $0.13, $0.21, $0.19 and
$0.18, respectively.
-27-
<PAGE>
GROWTH AND INCOME FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998(1)
----------------- --------------------
<S> <C> <C>
Net Asset Value, Beginning of Period............................... $10.34 $10.00
------ ------
Income from Investment Operations:
Net investment income(2)...................................... 0.05 0.05
Net realized and unrealized gain on investments............... 0.68 0.34
---- ----
Total from Investment Operations............................ 0.73 0.39
---- ----
Less Dividends:
Dividends from net investment income........................ (0.05) (0.05)
Dividends in excess of net investment income................ --(3) --(3)
Dividends from net realized capital gains................... (0.07) --
Dividends in excess of net realized capital gains........... (0.08) --
---- --
Total Dividends........................................... (0.20) (0.05)
---- ----
Net increase in net asset value.................................... 0.53 0.34
---- ----
Net Asset Value, End of Period..................................... $10.87 $10.34
------ ------
------ ------
Total Return....................................................... 7.10% 3.72%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............................. $12,424 $7,637
Ratios to average net assets:
Net investment income including reimbursement/waiver.......... 0.42% 0.69%(5)
Operating expenses including reimbursement/waiver............. 1.49% 1.50%(5)
Operating expenses excluding reimbursement/waiver............. 1.49% 2.58%(5)
Portfolio Turnover Rate............................................ 17% 30%(4)
</TABLE>
- ------------------
(1) The Fund commenced operations on March 4, 1998.
(2) Net investment income (loss) per share before reimbursement/waiver of fees
by the investment adviser and/or administrator for the year ended December
31, 1999 and the period ended December 31, 1998 were $0.05 and $(0.03),
respectively.
(3) Amount is less than $0.005 per share.
(4) Not Annualized.
(5) Annualized.
-28-
<PAGE>
SMALL COMPANY GROWTH FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998(1)
----------------- --------------------
<S> <C> <C>
Net Asset Value, Beginning of Period............................... $8.92 $10.00
----- ------
Income from Investment Operations:
Net investment (loss)(2)...................................... (0.11) (0.02)
Net realized and unrealized gain (loss) on investments........ 6.07 (1.05)
---- ----
Total from Investment Operations............................ 5.96 (1.07)
----
Less Dividends:
Dividends in excess of net investment income................ -- (0.01)
Dividends from net realized capital gains................... (0.59) --
---- --
Total Dividends........................................... (0.59) (0.01)
---- ----
Net increase (decrease) in net asset value......................... 5.37 (1.08)
---- ----
Net Asset Value, End of Period..................................... $14.29 $8.92
------ -----
------ -----
Total Return....................................................... 67.49% (10.68)%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............................. $2,305 $1,143
Ratios to average net assets:
Net investment (loss) including reimbursement/waiver.......... (1.14)% (0.65)%(4)
Operating expenses including reimbursement/waiver............. 1.60% 1.60%(4)
Operating expenses excluding reimbursement/waiver............. 5.97% 12.86%(4)
Portfolio Turnover Rate............................................ 134% 87%(3)
</TABLE>
- ------------------
(1) The Fund commenced operations on April 17, 1998.
(2) Net investment (loss) per share before reimbursement/waiver of fees by the
investment adviser and/or administrator for the year ended December 31,
1999 and the period ended December 31, 1998 were $(0.54) and $(0.36),
respectively.
(3) Not Annualized.
(4) Annualized.
-29-
<PAGE>
COLUMBIA REAL ESTATE EQUITY FUND II
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998(1)
----------------- --------------------
<S> <C> <C>
Net Asset Value, Beginning of Period............................... $8.78 $10.00
----- ------
Income from Investment Operations:
Net investment income(2)...................................... 0.38 0.28
Net realized and unrealized (loss) on investments............. (0.74) (1.24)
---- ----
Total from Investment Operations............................ (0.36) (0.96)
---- ----
Less Dividends:
Dividends from net investment income........................ (0.34) (0.26)
---- ----
Total Dividends........................................... (0.34) (0.26)
---- ----
Net (decrease) in net asset value.................................. (0.70) (1.22)
---- ----
Net Asset Value, End of Period..................................... $8.08 $8.78
----- -----
----- -----
Total Return....................................................... (4.13)% (9.57)%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............................. $983 $784
Ratios to average net assets:
Net investment income including reimbursement/waiver.......... 4.84% 4.62%(4)
Operating expenses including reimbursement/waiver............. 1.70% 1.70%(4)
Operating expenses excluding reimbursement/waiver............. 5.91% 10.49%(4)
Portfolio Turnover Rate............................................ 33% 3%(3)
</TABLE>
- ------------------
(1) The Fund commenced operations on March 3, 1998.
(2) Net investment income (loss) per share before reimbursement/waiver of fees
by the investment adviser and/or administrator for the year ended December
31, 1999 and the period ended December 31, 1998 were $0.05 and $(0.26),
respectively.
(3) Not Annualized.
(4) Annualized.
-30-
<PAGE>
ASSET ALLOCATION FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $16.37 $14.54 $13.37 $12.38 $9.80
------ ------ ------ ------ -----
Income from Investment Operations:
Net investment income(1) ................... 0.40 0.33 0.40 0.30 0.28
Net realized and unrealized gain
on investments ........................... 0.74 2.17 2.11 1.53 2.58
---- ---- ---- ---- ----
Total from Investment Operations: ........ 1.14 2.50 2.51 1.83 2.86
---- ---- ---- ---- ----
Less Dividends:
Dividends from net investment income ....... (0.40) (0.39) (0.40) (0.30) (0.28)
Dividends in excess of net investment
income ................................... --(2) --(2) -- -- --
Dividends from net realized
capital gains ............................ (0.14) (0.22) (0.94) (0.54) --
Dividends in excess of net realized
capital gains ........................... (0.01) (0.06) -- -- --
---- ---- ---- ---- ----
Total Dividends: ......................... (0.55) (0.67) (1.34) (0.84) (0.28)
---- ---- ---- ---- ----
Net increase in net asset
value ...................................... 0.59 1.83 1.17 0.99 2.58
---- ---- ---- ---- ----
Net Asset Value, End of Period ............... $16.96 $16.37 $14.54 $13.37 $12.38
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return ................................. 7.06% 17.51% 19.03% 14.64% 29.42%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ............ $106,869 $78,586 $42,535 $24,114 $17,246
Ratios to average net assets:
Net investment income including
reimbursement/waiver ....................... 2.45% 2.69% 2.90% 2.31% 2.54%
Operating expenses including
reimbursement/waiver ....................... 1.02% 1.07% 1.19% 1.33% 1.37%
Operating expenses excluding
reimbursement/waiver ....................... 1.02% 1.07% 1.25% 1.33% 1.54%
Portfolio Turnover Rate ...................... 111% 88% 74% 45% 46%
</TABLE>
- ------------------
(1) Net investment income per share before reimbursement/waiver of fees by the
investment adviser and/or administrator for the years ended December 31,
1999, 1998, 1997, 1996 and 1995 were $0.40, $0.33, $0.39, $0.30 and $0.26,
respectively.
(2) Amount is less than $0.005.
-31-
<PAGE>
HIGH QUALITY BOND FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $10.70 $10.31 $9.99 $10.37 $8.97
------ ------ ----- ------ ----
Income from Investment Operations:
Net investment income(1) ................... 0.58 0.58 0.58 0.58 0.57
Net realized and unrealized gain (loss)
on investments ........................... (0.98) 0.39 0.32 (0.38) 1.40
---- ---- ---- ---- ----
Total from Investment Operations: ........ (0.40) 0.97 0.90 0.20 1.97
---- ---- ---- ---- ----
Less Dividends:
Dividends from net investment income ....... (0.58) (0.58) (0.58) (0.58) (0.57)
Dividends from net realized
capital gains ............................ (0.01) -- -- -- --
---- ---- ---- ---- ----
Total Dividends: ......................... (0.59) (0.58) (0.58) (0.58) (0.57)
---- ---- ---- ---- ----
Net increase (decrease) in net asset
value ...................................... (0.99) 0.39 0.32 (0.38) 1.40
---- ---- ---- ---- ----
Net Asset Value, End of Period ............... $9.71 $10.70 $10.31 $9.99 $10.37
----- ------ ------ ----- ------
----- ------ ------ ----- ------
Total Return ................................. (3.78)% 9.70% 9.36% 1.57% 22.55%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ............ $22,753 $23,289 $14,457 $11,814 $11,067
Ratios to average net assets:
Net investment income including
reimbursement/waiver ....................... 5.69% 5.55% 5.82% 5.78% 5.86%
Operating expenses including
reimbursement/waiver ....................... 0.64% 0.54% 0.77% 0.72% 0.80%
Operating expenses excluding
reimbursement/waiver ....................... 1.03% 1.10% 1.44% 1.38% 1.57%
Portfolio Turnover Rate ...................... 197% 194% 160% 132% 21%
</TABLE>
- ---------------------------
(1) Net investment income per share before reimbursement/waiver of fees by the
investment adviser and/or administrator for the years ended December 31,
1999, 1998, 1997, 1996 and 1995 were $0.54, $0.52, $0.51, $0.51 and $0.50,
respectively.
-32-
<PAGE>
COLUMBIA HIGH YIELD FUND II
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998(1)
----------------- --------------------
<S> <C> <C>
Net Asset Value, Beginning of Period............................... $10.36 $10.00
------ -----
Income from Investment Operations:
Net investment income(2)...................................... 0.70 0.49
Net realized and unrealized gain on investments............... (0.65) 0.45
------ ----
Total from Investment Operations............................ 0.05 0.94
---- ----
Less Dividends:
Dividends from net investment income........................ (0.70) (0.49)
Dividends from net realized capital gains................... (0.01) (0.09)
------ ----
Total Dividends........................................... (0.71) (0.58)
------ ----
Net increase in net asset value.................................... (0.66) 0.36
------ ----
Net Asset Value, End of Period..................................... $9.70 $10.36
----- ------
----- ------
Total Return....................................................... 0.56% 9.61%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............................. $2,403 $2,454
Ratios to average net assets:
Net investment income including reimbursement/waiver.......... 7.00% 6.18%(4)
Operating expenses including reimbursement/waiver............. 1.60% 1.60%(4)
Operating expenses excluding reimbursement/waiver............. 2.89% 4.25%(4)
Portfolio Turnover Rate............................................ 35% 89%(3)
</TABLE>
- ------------------
(1) The Fund commenced operations on March 3, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by the
investment adviser and/or administrator for the year ended December 31,
1999 and the period ended December 31, 1998 were $0.57 and $0.28,
respectively.
(3) Not Annualized.
(4) Annualized.
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy VIP's annual and semi-annual reports contain more information about each
Fund and a discussion about the market conditions and investment strategies that
had a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy VIP at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy VIP Fund
4400 Computer Drive
Westborough, MA 01581-9896
You may also contact your insurance company for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
the SEC's e-mail address at [email protected].
Galaxy VIP's Investment Company Act File No. is 811-6726.
GVAPROVIP 4/30/00
<PAGE>
THE GALAXY VIP FUND
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 2000
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
This Statement of Additional Information is not a prospectus. It
relates to the prospectus for the Funds dated April 30, 2000 (the "Prospectus").
The Prospectus, as it may be supplemented or revised from time to time, as well
as the Funds' Annual Report to Shareholders dated December 31, 1999 (the "Annual
Report"), may be obtained, without charge, by writing:
The Galaxy VIP Fund
4400 Computer Drive
Westborough, MA 01581-5108
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
The financial statements included in the Annual Report and the
report thereon of Ernst & Young, LLP, The Galaxy VIP Fund's independent
auditors, are incorporated by reference into this Statement of Additional
Information. The report of PricewaterhouseCoopers LLP, The Galaxy VIP Fund's
former independent auditors, dated February 12, 1999 on the financial
statements included in The Galaxy VIP Fund's Annual Reports to Shareholders
with respect to the Funds for the fiscal year ended December 31, 1998 is also
incorporated by reference into this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION..........................................................1
DESCRIPTION OF THE GALAXY VIP FUND AND ITS SHARES............................1
INVESTMENT STRATEGIES, POLICIES AND RISKS....................................3
In General...................................................................3
Money Market Fund............................................................4
Equity Fund..................................................................5
Growth and Income Fund.......................................................6
Small Company Growth Fund....................................................6
Columbia Real Estate Equity Fund II..........................................7
Asset Allocation Fund........................................................8
High Quality Bond Fund.......................................................8
Columbia High Yield Fund II..................................................9
Special Risk Considerations.................................................10
Market Risk.................................................................10
Interest Rate Risk..........................................................10
Credit Risk.................................................................11
Foreign Securities..........................................................11
Real Estate Securities......................................................12
Lower-Rated Securities......................................................12
Other Investment Policies and Risk Considerations.....................12
U.S. Government Obligations and Money Market Instruments..............13
Types of Municipal Securities...............................................15
Variable and Floating Rate Obligations................................15
Repurchase and Reverse Repurchase Agreements..........................16
Securities Lending....................................................17
Investment Company Securities.........................................17
REITs.................................................................17
Guaranteed Investment Contracts.......................................18
Bank Investment Contracts.............................................19
Asset-Backed and Mortgage-Backed Securities.................................19
Mortgage Dollar Rolls.......................................................21
Stripped Obligations........................................................22
Derivative Securities.................................................23
American, European and Global Depository Receipts.....................29
Convertible Securities................................................30
When-Issued, Forward Commitment and Delayed Settlement Transactions...31
Stand-By Commitments........................................................32
Portfolio Securities Generally- Money Market Fund.....................33
Portfolio Turnover....................................................33
INVESTMENT LIMITATIONS......................................................33
VALUATION OF PORTFOLIO SECURITIES...........................................37
Valuation of the Money Market Fund..........................................37
-i-
<PAGE>
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...............38
Valuation of the High Quality Bond Fund.....................................39
DIVIDENDS - MONEY MARKET FUND...............................................39
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................39
ADDITIONAL INFORMATION ON TAXES.............................................40
TRUSTEES AND OFFICERS.......................................................41
Shareholder and Trustee Liability..................................45
INVESTMENT ADVISERS.........................................................45
DISTRIBUTOR.................................................................48
ADMINISTRATOR...............................................................48
CUSTODIAN...................................................................50
EXPENSES....................................................................50
PORTFOLIO TRANSACTIONS......................................................51
AUDITORS....................................................................55
COUNSEL.....................................................................55
CODES OF ETHICS.............................................................55
PERFORMANCE AND YIELD INFORMATION...........................................56
Yield Quotations - Money Market Fund........................................57
Yield and Total Returns Quotations - Non-Money Market Funds.................58
MISCELLANEOUS...............................................................60
FINANCIAL STATEMENTS........................................................61
APPENDIX A.................................................................A-1
APPENDIX B.................................................................B-1
-ii-
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information relates to the Prospectus for
shares of the eight Funds listed on the cover page and should be read in
conjunction with that Prospectus. This Statement of Additional Information is
incorporated by reference in its entirety into the Prospectus. No investment in
shares of the Funds should be made without reading the Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEETBOSTON FINANCIAL CORPORATION, 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 POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. ALTHOUGH THE
MONEY MARKET FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
DESCRIPTION OF THE GALAXY VIP FUND AND ITS SHARES
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. Galaxy VIP is currently
offering shares of beneficial interest in eight 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.
Galaxy VIP was organized as a Massachusetts business trust on May 27, 1992.
Galaxy VIP's Agreement and 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 or series 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. 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
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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.
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.
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. 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. The rights accompanying Fund shares are legally
vested in the Separate Accounts. However, Participating Insurance Companies will
vote Fund shares held in their Separate Accounts in a manner consistent with
timely voting instructions received from the holders of variable annuity
contracts and variable life insurance policies. Each Participating Insurance
Company will vote Fund shares held in its Separate Accounts for which no timely
instructions are received from the holders of variable annuity contracts and
variable life insurance policies, as well as shares it owns, in the same
proportion as those shares for which voting instructions are received.
Additional information concerning voting rights of the participants in the
Separate Accounts are more fully set forth in the prospectuses relating to those
Accounts issued by the Participating Insurance Companies.
Rule 18f-2 under the Investment Company Act of 1940, as amended (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 an investment objective, if
fundamental, or in a 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
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underwriting contracts and the election of trustees may be effectively acted
upon by shareholders of Galaxy VIP voting without regard to class.
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.
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.
INVESTMENT STRATEGIES, POLICIES AND RISKS
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 each Fund as described in the
Prospectus is fundamental and 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. The following
description of the Funds' investment strategies, policies and risks supplements
the description set forth in the Prospectus.
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MONEY MARKET FUND
Money market instruments that may be purchased by the Money Market Fund
include, but are not limited to, 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) and the average maturity of
all securities held by the Fund will be 90 days or less. For more information,
see "Other Investment Policies and Risk Considerations" below.
Money market instruments in which the Money Market Fund may invest include
debt obligations issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia and their authorities, agencies,
instrumentalities and political subdivisions, the interest on which, in the
opinion of bond counsel or counsel to the issuer, is exempt from federal income
tax. These debt obligations are commonly referred to as municipal securities.
Municipal securities may be advantageous for a taxable portfolio such as the
Fund when, as a result of prevailing economic, regulatory or other
circumstances, the yield of such securities on a pre-tax basis is comparable to
that of other debt securities the Fund can purchase. Dividends paid by a taxable
portfolio such as the Fund that come from interest on municipal securities will
be taxable to shareholders. The Fund may also invest in municipal securities the
interest on which is subject to federal income tax.
In accordance with a rule promulgated by the Securities and Exchange
Commission ("SEC"), the Fund will purchase only those instruments which meet the
applicable quality requirements described below. In general, the 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 nationally
recognized statistical rating organizations ("Rating Agencies") (such as
Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("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 this
Statement
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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.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Money Market Fund.
EQUITY FUND
Under normal market and economic conditions, the Equity Fund will invest 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. 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
considered to be investment grade securities although they 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 this
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
The 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 "Other Investment
Policies and Risk Considerations -- 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 "Other Investment Policies and Risk Considerations --
Options and Futures Contracts" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Fund.
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GROWTH AND INCOME FUND
Under normal market conditions, the Growth and Income 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 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 "Other Investment Policies and Risk Considerations
- -- Convertible Securities" below for a discussion of the risks of investing in
convertible bonds rated "BB" by S&P or Fitch IBCA or "Ba" by Moody's. See
Appendix A to this Statement of Additional Information for a description of
S&P's, Fitch IBCA's and Moody's rating categories. 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 "Other Investment Policies and Risk Considerations -- 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"). Securities of foreign issuers may present greater
risks in the form of nationalization, confiscation, domestic marketability, or
other national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of foreign issuers if any such risk appears to
Fleet to be substantial. See "Special Risk Considerations -- Foreign Securities"
and "Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Growth and Income
Fund.
SMALL COMPANY GROWTH FUND
Under normal market conditions, at least 65% of the Small Company Growth
Fund's total assets will be invested in the equity securities of companies with
market capitalizations of $1.5 billion or less ("small-cap securities").
Small-cap securities in which the Fund may invest include common stock,
preferred stock, securities convertible into common stock, rights and warrants.
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 "Equity
Fund" above for a description of the risks associated with investments in
securities rated BBB by S&P or Baa by Moody's. See Appendix A to this Statement
of Additional Information for a description of S&P's and Moody's rating
categories.
The issuers of small-cap 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-cap securities are primarily traded on the over-the-counter
market, although they may also be listed for trading on
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the New York or American Stock Exchanges. Because the issuers of small-cap
securities tend to be smaller or less well-established companies, they may have
limited product lines, markets or financial resources. As a result, small-cap
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 "Other Investment Policies and Risk
Considerations -- 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 "Other Investment Policies and Risk
Considerations -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Small Company Growth
Fund.
COLUMBIA REAL ESTATE EQUITY FUND II
Under normal market and economic conditions, 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. 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 "Other
Investment Policies and Risk Considerations -- REITs" below.
The Fund may also invest up to 35% of its total assets in the equity
securities of companies that are not principally engaged in the real estate
industry and in non-convertible debt securities. Columbia anticipates that
investments in companies not principally engaged in the real estate industry
will be primarily in securities of companies some of whose products and services
are related to the real estate industry.
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
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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 "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 this Statement of Additional Information for a description of
S&P's and Moody's rating categories.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Columbia Real Estate
Equity Fund II.
ASSET ALLOCATION FUND
The Asset Allocation Fund may invest up to 20% of its total assets in
foreign securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks, or governments
(or their political subdivisions or instrumentalities), or by supranational
banks or other organizations, or indirectly by purchasing ADRs and EDRs.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction and
development and international banking institutions and related governmental
agencies. Examples of these include the International Bank for Reconstruction
and Development ("World Bank"), the Asia Development Bank and the InterAmerican
Development Bank. Obligations of supranational banks may be supported by
appropriated but unpaid commitments of their member countries and there is no
assurance that those commitments will be undertaken or met in the future. See
"Special Risk Considerations -- Foreign Securities" and "Other Investment
Policies and Risk Considerations -- 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 "Other Investment Policies and Risk Considerations --
Derivative Securities" and "Other Investment Policies and Risk Considerations --
Asset-Backed and Mortgage-Backed Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Asset Allocation
Fund.
HIGH QUALITY BOND FUND
The High Quality Bond Fund may invest, from time to time, in 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 "Other Investment Policies and Risk
Considerations -- Municipal Securities" below. 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 "Asset Allocation Fund" above. The Fund may also invest in U.S.
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dollar-denominated high quality debt obligations of U.S. corporations issued
outside the United States.
The Fund may enter into interest rate futures contracts to hedge against
changes in the market values of fixed income instruments that the Fund holds or
intends to purchase. See "Other Investment Policies and Risk Considerations --
Derivative Securities" 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.
Debt securities purchased by the Fund will be rated 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 will be unrated securities determined by
Fleet to be of comparable quality, provided, however, that under normal market
and economic conditions at least 65% of the Fund's total assets will be invested
in debt securities rated in one of the two highest rating categories assigned by
S&P or Moody's or unrated debt securities determined by Fleet to be of
comparable quality. See "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 this Statement of Additional Information for a
description of S&P's and Moody's rating categories.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the High Quality Bond
Fund.
COLUMBIA HIGH YIELD FUND II
The Columbia High Yield Fund II may invest in a broad range of fixed income
securities, consisting of corporate debt securities, 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. 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. See "Special Risk Considerations --
Lower-Rated Securities" below. See Appendix A to this Statement of Additional
Information for a description of S&P's and Moody's rating categories.
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 a part of a
corporate transaction
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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.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Columbia High Yield
Fund II.
SPECIAL RISK CONSIDERATIONS
MARKET RISK
The Equity Fund, Growth and Income Fund, Small Company Growth Fund and
Columbia Real Estate Equity Fund II invest primarily, and the Asset Allocation
Fund invests to a significant degree, in equity securities. As with other mutual
funds that invest primarily or to a significant degree in equity securities, the
Funds are subject to market risk. That is, the possibility exists that common
stocks will decline in value over short or even extended periods of time and
both the U.S. and certain foreign equity markets tend to be cyclical,
experiencing both periods when stock prices generally increase and periods when
stock prices generally decrease.
INTEREST RATE RISK
To the extent that the Funds invest in fixed income securities, including
municipal securities, their holdings of such securities are sensitive to changes
in interest rates and the interest rate environment. Generally, the prices of
bonds and debt securities fluctuate inversely with interest rate changes.
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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 a
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
this 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. 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 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.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
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REAL ESTATE SECURITIES
As stated in the Prospectus, the Columbia Real Estate Equity Fund II will
not invest in real estate directly. However, 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, in addition to those described in the Prospectus,
risks related to general, local, and regional economic conditions, dependence on
management skills and heavy cash flow, increased competition, 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 and changes in the
appeal of properties to tenants.
In addition to the risks described above and in the Prospectus, 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 1940 Act. The risk factors affecting REITs 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 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 Columbia High Yield Fund II'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 Columbia High Yield Fund II 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.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectus and this Statement of
Additional Information are among those which one or more of the Funds have the
power to utilize. Some
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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 AND MONEY MARKET INSTRUMENTS
Each Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in money market instruments, which include but are not
limited to bank obligations, commercial paper and corporate bonds with remaining
maturities of 397 days or less.
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, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities
and time 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 those of
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the 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 of these instruments may be variable or floating rate
instruments. See "Variable and Floating Rate Obligations" below.
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 which 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 which 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. For purposes of the Money Market Fund's
investment policy with respect to bank obligations, the
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assets of a bank or savings institution will be deemed to include the assets of
its U.S. and foreign branches.
Time deposits with a maturity longer than seven days or that do not provide
for payment within seven days after notice will be limited to 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 a Fund's net assets.
Investments by the Money Market Fund, 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.
Domestic and foreign banks are subject to extensive but different
government regulation 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 U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of 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. Such investments may also subject a Fund to investment risks similar to
those accompanying direct investments in foreign securities. See "Special Risk
Considerations -- Foreign Securities." The Funds will invest in the obligations
of U.S. branches of foreign banks or foreign branches of U.S. banks 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 (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.
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TYPES OF MUNICIPAL SECURITIES
The two principal classifications of municipal securities which may be held
by the Money Market Fund and 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 Funds 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 Money Market Fund's and High Quality Bond Fund's portfolios 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 OBLIGATIONS
The Funds may purchase variable and floating rate instruments as described
in the Prospectus and this Statement of Additional Information. 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 that 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.
If a variable or floating rate instrument is not rated, Fleet or Columbia,
as the case may be, must determine that such instrument is comparable to rated
instruments eligible for purchase by a Fund and will consider the earning power,
cash flows and other liquidity ratios of the issuers and guarantors of such
instruments and will continuously monitor their financial status in order to
meet payment on demand. In determining average weighted portfolio maturity of a
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.
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Variable and floating rate obligations held by the Money Market Fund may
have maturities of more than 397 days, 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.
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. No Fund will enter into
repurchase agreements with Fleet or Columbia or any of their affiliates. 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. Repurchase
agreements are considered to be loans by a Fund under the 1940 Act.
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 or sub-custodian in a segregated account or in the Federal
Reserve/Treasury book-entry system.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. The Funds would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
Whenever a Fund enters into a reverse repurchase agreement, it will place
in a segregated custodial account liquid assets such as cash or liquid portfolio
securities equal to the repurchase
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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.
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. A Fund that loans portfolio securities would continue to accrue
interest on the securities loaned and would also earn income on the loans. Any
cash collateral received by the Funds would be invested in high quality,
short-term money market instruments. 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 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 Fund, other
investment portfolios of Galaxy VIP, or any other investment companies advised
by Fleet or Columbia.
REITS
The Columbia Real Estate Equity Fund II may invest without limit in real
estate investment trusts ("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
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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.
As described in the Prospectus under "Columbia Real Estate Equity Fund II,"
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 principally from rental and lease payments.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs make loans to commercial real estate
developers and derive their income primarily from interest payments on such
loans. Hybrid REITs combine the characteristics of both equity and mortgage
REITs. REITs may be subject to certain risks associated with the direct
ownership of real estate, including declines in the value of real estate, risks
related to general and local economic conditions, overbuilding and increased
competition, increases in property taxes and operating expenses, and variations
in rental income. Generally, increases in interest rates will decrease the value
of high yielding securities and increase the costs of obtaining financing, which
could decrease the value of a 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 tax-free pass-through of income
under the Code and to maintain exemption from the 1940 Act.
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 any investments in 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 U. S. 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 in the Prospectus. The High Quality Bond Fund will only purchase GICs
that are issued or guaranteed by insurance companies that at the time of
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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 "U. S. Government Obligations and Money Market
Instruments." Pursuant to BICs, cash contributions are made to a deposit account
at the bank in exchange for payments at negotiated, floating or fixed interest
rates. A BIC is a general obligation of the issuing bank. BICs are considered
illiquid securities and will be subject to the Fund's 10% limitation on such
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
ASSET-BACKED AND MORTGAGE-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 in the Prospectus.
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 Asset Allocation Fund, High Quality Bond Fund and Columbia High Yield
Fund II may invest in mortgage-backed securities that represent pools of
mortgage loans assembled for
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sale to investors by various governmental agencies and government-related
organizations, such as the Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). Mortgage-backed securities provide a monthly
payment consisting of interest and principal payments. Additional payments 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.
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 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 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 FNMA to borrow
from the Treasury. Mortgage-backed securities issued by 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 FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC is required to remit the
amount due on account of its guarantee of ultimate payment of principal no later
than one year after it becomes payable.
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
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government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
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.
The yield characteristics of asset-backed and mortgage-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 an asset-backed
or mortgage-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.
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
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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
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securities. The market value of the class consisting entirely of principal
payments generally is extremely volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
are generally higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped. SMBS which
are not issued by the U.S. Government (or a U.S. Government agency or
instrumentality) are considered illiquid. Obligations issued by the U.S.
Government may be considered liquid under guidelines established by Galaxy VIP's
Board of Trustees if they can be disposed of promptly in the ordinary course of
business at a value reasonably close to that used in the calculation of net
asset value per share. Fleet or Columbia, as the case may be, may determine that
SMBS acquired by a Fund are liquid under guidelines established by the Board of
Trustees.
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 contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest or exchange 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 to because of lack of market depth or market disruption; pricing
risk that the value of a derivative security will not correlate exactly to the
value of the underlying assets, rates or indices on which it is based; and
operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative securities are more complex
than others, and for those instruments that have been developed recently, data
are lacking regarding their actual performance over complete market cycles.
Fleet or Columbia, as the case may be, will evaluate the risks presented by
the derivative securities purchased by the Funds, and will determine, in
connection with their 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.
OPTIONS. Each Fund other than the Money Market Fund and High Quality Bond
Fund may write covered call options on securities. 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
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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. 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.
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.
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, as the case may be, are expected
to be substantially similar to those of the index or it 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 liquid portfolio securities in an amount not less than the
exercise price of the option at all times during the option period.
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The principal reason for writing call options on a securities portfolio is
the attempt to realize, through the receipt of premiums, a greater current
return than would be realized on the securities alone. In return for the
premium, the covered option writer gives up the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
its obligation as a writer continues, but retains the risk of loss should the
price of the security decline. Unlike one who owns securities not subject to an
option, the covered option writer has no control over when it may be required to
sell its securities, since it may be assigned an exercise notice at any time
prior to the expiration of its obligation as a writer.
A Fund's obligation to sell a security subject to a covered call option
written by it, or to purchase a security subject to a secured put option written
by it, may be terminated prior to the expiration date of the option by the
Fund's executing a closing purchase transaction, which is effected by purchasing
on an exchange an option of the same series (i.e., same underlying security,
exercise price and expiration date) as the option previously written. Such a
purchase does not result in the ownership of an option. A closing purchase
transaction will ordinarily be effected to prevent the underlying security from
being called, to permit the sale of the underlying security, or to permit the
writing of a new option containing different terms on the underlying security.
The cost of such a liquidation purchase plus transaction costs may be greater
than the premium received upon the original option, in which event the Fund will
have incurred a loss in the transaction. An option position may be closed out
only on an exchange which provides a secondary market for an 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
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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 these securities and options markets which 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, 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 be unsuccessful
to some degree because of market behavior or unexpected events.
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. 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. A Fund may not purchase or sell a
futures contract (or related option) unless immediately after any such
transaction the sum of the aggregate amount of margin deposits on its existing
futures positions and the amount of premiums paid for related options is 5% or
less of its total assets (after taking into account certain technical
adjustments).
The Growth and Income Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II and Columbia High Yield Fund II may also purchase and sell call
and put options on futures contracts traded on an exchange or board of trade.
When a Fund purchases an option
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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 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 contracts 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 this Statement of Additional Information.
SWAP AGREEMENTS AND INDEXED SECURITIES - GROWTH AND INCOME FUND AND SMALL
COMPANY GROWTH FUND. 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. 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,
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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.
These Funds may also invest in 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.
Neither Fund intends to invest more than 5% of its total assets in swap
agreements or indexed 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 denominated in currencies other than
the U.S. dollar, and may 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. 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. 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, which may be any fixed number of days from the date of the
contract, 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 a Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to a Fund 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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A Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency -- for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S. dollars
- -- at a future date and at a specified price in anticipation of a decline in the
value of the currency sold short relative to the currency that the Fund has
contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other liquid assets equal in value to the fluctuating market value of
the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position.
Forward foreign currency exchange contracts establish an exchange rate at a
future date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward foreign currency exchange contract generally has no deposit
requirement and is traded at a net price without commission. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of a Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Funds 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, the Funds will not routinely enter into foreign currency hedging
transactions with respect to portfolio security transactions; however, it is
important to have the flexibility to enter into foreign currency hedging
transactions when it is determined that the transactions would be in the Fund's
best interest. Although these transactions tend to minimize the risk of loss due
to a decline in the value of the hedged currency, at the same time they tend to
limit any potential gain that might be realized should the value of the hedged
currency increase. The precise matching of the forward contract amounts and the
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.
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
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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. If a Fund invests in an unsponsored ADR, EDR or GDR,
there may be less information available to the Fund concerning the issuer of the
securities underlying the unsponsored ADR, EDR or GDR than is available for an
issuer of securities underlying a sponsored ADR, EDR or GDR. 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 "Special Risk Considerations -- Foreign
Securities."
CONVERTIBLE SECURITIES
Each Fund, except the Money Market Fund, may from time to time, in
accordance with their respective 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 "usable" bonds and warrants
or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks 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. A Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock in instances in which, in Fleet's or Columbia's opinion, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. Otherwise, a Fund will hold or trade the
convertible securities. In selecting convertible securities for a Fund, Fleet
and Columbia evaluate the investment characteristics of the convertible security
as a fixed income instrument,
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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.
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 not 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
higher-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. A description of the rating categories of S&P, Moody's
and Fitch IBCA is contained in Appendix A to this Statement of Additional
Information.
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 "Special
Risk Considerations - Lower Rated Securities" above for a description of the
risks associated with investments in such lower-rated securities.
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.
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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, the Fund may be required to place additional assets
in the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. 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
forward commitments, when-issued purchases or delayed settlements exceeds 25% of
the value of its total assets.
When a Fund engages in when-issued, forward commitment or delayed
settlement transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous for a
security. For purposes of determining the average 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.
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.
STAND-BY COMMITMENTS
The Money Market Fund and High Quality Bond Fund may acquire "stand-by
commitments" with respect to municipal securities held by them. Under a stand-by
commitment, a dealer agrees to purchase, at a Fund's option, specified municipal
securities at a specified price. Stand-by commitments are exercisable by a 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. Each Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a 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). Where a 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. Stand-by
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commitments acquired by a Fund would be valued at zero in determining the Fund's
net asset value.
Each Fund will enter into stand-by commitments only with banks and
brokers/dealers which present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Fleet, as the Funds'
investment adviser, will review periodically the issuer's assets, liabilities,
contingent claims and other relevant financial information.
The Funds will acquire stand-by commitments solely to facilitate liquidity
and do not intend to exercise their rights thereunder for trading purposes.
Stand-by commitments will be valued at zero in determining a Fund's net asset
value.
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").
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. A portfolio turnover rate of 100% or more is considered high,
although the rate of portfolio turnover will not be a limiting factor in making
portfolio decisions. A high rate of portfolio turnover involves correspondingly
greater brokerage commission expenses and other transaction costs, which must be
ultimately borne by a Fund's shareholders. High portfolio turnover may result in
the realization of substantial net capital gains.
INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in the
Prospectus, the following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of its outstanding shares (as
defined under "Miscellaneous").
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<PAGE>
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.
-34-
<PAGE>
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of
the value of its total assets would be invested in such issuer (the
"5% Limitation"), except that up to 25% of the value of the total
assets of the Equity Fund, Growth and Income Fund, Small Company
Growth Fund, Columbia Real Estate Equity Fund II, Asset Allocation
Fund, High Quality Bond Fund and 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.
6. 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.
7. Act as an underwriter within the meaning of the 1933 Act, 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.
8. 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.
9. 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
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<PAGE>
1940 Act; (ii) the Growth and Income Fund, Small Company Growth Fund,
Columbia Real Estate Equity Fund II and Columbia High Yield Fund II
may enter into futures contracts and options on futures contracts; and
(iii) the Growth and Income Fund, Small Company Growth Fund, Columbia
Real Estate Equity Fund II and Asset Allocation Fund may enter into
forward currency contracts and foreign currency futures contracts and
related options to the extent permitted by their respective investment
objectives and policies.
10. 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.
11. Invest in companies for the purpose of exercising management or
control.
12. 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:
13. 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.
14. 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
-36-
<PAGE>
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.
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 the 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 resales 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, 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.
VALUATION OF PORTFOLIO SECURITIES
VALUATION OF THE MONEY MARKET FUND
As stated in the Prospectus, 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
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<PAGE>
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.
In order to use the amortized cost method, the Fund complies with the
various quality and maturity restrictions specified in Rule 2a-7 promulgated
under the 1940 Act ("Rule 2a-7"). Where it is not appropriate to value a
security by the amortized cost method, the security will be valued either by
market quotations or by fair value as determined by or under the direction of
Galaxy VIP's Board of Trustees. This method may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Fund would receive if it sold the security. The value of securities in the Fund
can be expected to vary inversely with changes in prevailing interest rates.
Thus, if interest rates have increased from the time a security was purchased,
such security, if sold, might be sold at a price less than its cost. Similarly,
if interest rates have declined from the time a security was purchased, such
security, if sold, might be sold at a price greater than its purchase cost. In
either instance, if the security is held to maturity, no gain or loss will be
realized.
The Money Market Fund invests only in instruments which meet the applicable
quality requirements of Rule 2a-7 and maintains a dollar-weighted average
portfolio maturity appropriate to its objective of maintaining a stable net
asset value per share, provided that the Fund will not purchase any security
deemed to have a remaining maturity (as defined in the 1940 Act) of more than
397 days 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.
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
In determining market value, 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
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<PAGE>
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
In determining market value, 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.
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 in each Fund are sold on a continuous basis by Galaxy VIP's
distributor, Provident Distributors, Inc. ("PDI"). PDI is a registered
broker/dealer with principal offices located at
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<PAGE>
3200 Horizon Drive, King of Prussia, Pennsylvania 19406. PDI has agreed to use
appropriate efforts to solicit all purchase orders.
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.
ADDITIONAL INFORMATION ON TAXES
In order to qualify as a regulated investment company under the Code, 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 may 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 policy.
-40-
<PAGE>
Persons investing in a variable annuity contract or variable life insurance
policy offered by a segregated asset account investing in a Fund should refer to
the prospectus with respect to such contract or policy 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 Statement of Additional
Information 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.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy VIP's Board of Trustees in accordance with the laws of the Commonwealth
of Massachusetts and the Trust's Agreement and Declaration of Trust. 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 The Galaxy VIP Fund and Other Affiliations
- ---------------- ------------------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks
Vicks Lithograph & Lithograph & Printing Corporation
Printing Corporation (book manufacturing and
Commercial Drive commercial printing); Director, Utica
P.O. Box 270 Fire Insurance Company; Trustee,
Yorkville, NY 13495 Savings Bank of Utica; Director,
Age 66 Monitor Life Insurance Company;
Director, Commercial Travelers
Mutual Insurance Company; Trustee,
The Galaxy Fund; Trustee, Galaxy
Fund II.
John T. O'Neill(1) President, Treasurer & Private Investor; Executive Vice
28 Narragansett Bay Trustee President and CFO, Hasbro, Inc. (toy
Avenue and game manufacturer) until
Warwick, RI 02889 December 1999; Trustee, The
Age 55 Galaxy Fund; Trustee, Galaxy Fund
II.
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<PAGE>
<CAPTION>
Principal Occupation
Positions with During Past 5 Years
Name and Address The Galaxy VIP Fund and Other Affiliations
- ---------------- ------------------- ----------------------
<S> <C> <C>
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day
of Minnesota Travel, Inc.; Trustee, Religious
Winona, MN 55987 Communities Trust; Trustee, The
Age 59 Galaxy Fund; Trustee, Galaxy
Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc.
10725 Quail Covey Road (broadcast services);
Boynton Beach, FL 33436 Director/Trustee, Lexington Funds;
Age 74 Chairman, Executive Committee,
Compton International, Inc.
(advertising agency); Trustee, Keuka
College; Trustee, The Galaxy Fund;
Trustee, Galaxy Fund II.
James M. Seed Trustee Chairman and President, The Astra
The Astra Ventures, Inc. Projects, Incorporated (land
One Citizens Plaza development); President, The Astra
Providence, RI 02903 Ventures, Incorporated (previously,
Age 58 Buffinton Box Company -
manufacturer of cardboard boxes);
Commissioner, Rhode Island
Investment Commission; Trustee,
The Galaxy Fund; Trustee, Galaxy
Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice President and
2468 Ohio Street Director, Acadia Management
Bangor, ME 04401 Company (investment services);
Age 68 Director, Essex County Gas
Company, until January 1994;
Director, Maine Mutual Fire
Insurance Co.; Member, Maine
Finance Authority; Trustee, The
Galaxy Fund; Trustee, Galaxy
Fund II.
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<PAGE>
<CAPTION>
Principal Occupation
Positions with During Past 5 Years
Name and Address The Galaxy VIP Fund and Other Affiliations
- ---------------- ------------------- ----------------------
<S> <C> <C>
W. Bruce McConnel, III Secretary Partner of the law firm Drinker
One Logan Square Biddle & Reath LLP, Philadelphia,
18th & Cherry Sreets Pennsylvania.
Philadelphia, PA 19103
Age 57
Jylanne Dunne Vice President and Vice President, PFPC, Inc., 1990 to
PFPC, Inc. Assistant Treasurer present.
4400 Computer Drive
Westborough, MA 01581-5108
Age 40
William Greilich Vice President Vice President, PFPC, Inc., 1991-96;
PFPC, Inc. Vice President and Division
4400 Computer Drive Manager, PFPC, Inc., 1996-present.
Westborough, MA 01581-5108
Age 46
</TABLE>
- -------------------------
1. May be deemed to be an "interested person" within the definition set forth
in Section 2(a)(19) of the 1940 Act.
Effective May 28, 1999, each trustee receives an annual aggregate fee of
$45,000 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 $3,500 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 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 May 28,
1999, each trustee was entitled to receive an annual aggregate fee of $40,000
for his services as a trustee of the Trusts, plus an additional $2,250 for each
in-person Galaxy Board meeting attended, with all other fees being the same as
those currently in effect.
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<PAGE>
Effective March 1, 1996, each trustee became entitled to participate in The
Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans
(the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments. Deferral
of trustees' fees will have no effect on a portfolio's assets, liabilities, and
net income per share, and will not obligate the Trusts to retain the services of
any trustee or obligate a portfolio to any level of compensation to the trustee.
The Trusts may invest in underlying securities without shareholder approval.
No employee of PFPC, Inc. ("PFPC") 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. The trustees and officers of Galaxy VIP own less than 1%
of its outstanding shares.
The following chart provides certain information about the fees received by
Galaxy VIP's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
=============================== ========================== ================== ========================
Pension or
Retirement
Benefits Accrued Total Compensation
Aggregate Compensation as Part of Fund from Fund Complex*
Name of Person/Position from Galaxy VIP Expenses Paid to Trustees
=============================== ========================== ================== ========================
<S> <C> <C> <C>
Bradford S. Wellman
Trustee $750 None $58,000
- ------------------------------- -------------------------- ------------------ ------------------------
Dwight E. Vicks, Jr.
Chairman and Trustee $802 None $62,000
- ------------------------------- -------------------------- ------------------ ------------------------
Donald B. Miller**
Trustee $750 None $58,000
- ------------------------------- -------------------------- ------------------ ------------------------
Rev. Louis DeThomasis
Trustee $718 None $55,500
- ------------------------------- -------------------------- ------------------ ------------------------
John T. O'Neill
President, Treasurer
and Trustee $782 None $60,500
- ------------------------------- -------------------------- ------------------ ------------------------
James M. Seed**
Trustee $750 None $58,000
=============================== ========================== ================== ========================
</TABLE>
- -------------
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<PAGE>
* The "Fund Complex" consists of Galaxy, Galaxy VIP and Galaxy II which
compromised a total of 43 separate portfolios as of December 31, 1999.
** Deferred compensation (including interest) in the amounts of $104,526 and
$117,092 accrued during Galaxy VIP's fiscal year ended December 31, 1999
for Messrs. Miller and Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy VIP's Agreement and Declaration of Trust provides
that shareholders shall not be subject to any personal liability 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 the trust property of any
shareholder held personally liable solely by reason of his or her being or
having been a shareholder and not because of his or her acts or omissions
outside such capacity or 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 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, claim, damage, judgment or decree arising out of or
connected with the administration or preservation of the trust estate 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 the trust 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.
-45-
<PAGE>
INVESTMENT ADVISERS
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 as 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.
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 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 FleetBoston Financial Corporation in
consideration for administrative and other services which they provide to
beneficial shareholders.
For the fiscal years ended December 31, 1999, 1998 and 1997, Galaxy VIP
paid advisory fees (net of fee waivers) to Fleet and Columbia, as the case may
be, as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market Fund........................ $ 28,027 $ 24,731 $ 23,186
Equity Fund.............................. $765,471 $601,685 $440,287
Growth and Income Fund................... $ 75,455 $ 26,269(1) *
Small Company Growth Fund................ $ 11,249 $ 3,708(2) *
Columbia Real Estate Equity Fund II...... $ 6,980 $ 3,545(3) *
Asset Allocation Fund.................... $707,718 $458,849 $235,874
High Quality Bond Fund................... $ 68,988 $ 26,608 $ 17,993
Columbia High Yield Fund II.............. $ 14,268 $ 8,055(3) *
- ---------------------
</TABLE>
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
December 31, 1998.
(2) For the period from April 17, 1998 (commencement of operations) through
December 31, 1998.
(3) For the period from March 3, 1998 (commencement of operations) through
December 31, 1998.
For the fiscal years ended December 31, 1999, 1998 and 1997, Fleet and
Columbia, as the case may be, waived advisory fees as follows:
-46-
<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market Fund........................ $46,712 $41,219 $38,641
Equity Fund.............................. $ 0 $ 0 $ 0
Growth and Income Fund................... $ 0 $ 0(1) *
Small Company Growth Fund................ $ 0 $ 0(2) *
Columbia Real Estate Equity Fund II...... $ 0 $ 0(3) *
Asset Allocation Fund.................... $ 0 $ 0 $ 0
High Quality Bond Fund................... $59,765 $70,943 $47,982
Columbia High Yield Fund II.............. $ 0 $ 0(3) *
- ------------------------
</TABLE>
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
December 31, 1998.
(2) For the period from April 17, 1998 (commencement of operations) through
December 31, 1998.
(3) For the period from March 3, 1998 (commencement of operations) through
December 31, 1998.
For the fiscal years ended December 31, 1999, 1998 and 1997, Fleet and
Columbia, as the case may be, reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market Fund........................ $ 0 $ 0 $ 1,144
Equity Fund.............................. $ 0 $ 0 $ 0
Growth and Income Fund................... $ 72 $37,806(1) *
Small Company Growth Fund................ $65,504 $55,990(2) *
Columbia Real Estate Equity Fund II...... $39,207 $41,560(3) *
Asset Allocation Fund.................... $ 0 $ 0 $16,327
High Quality Bond Fund................... $ 0 $ 0 $ 2,163
Columbia High Yield Fund II.............. $30,632 $35,619(3) *
- -------------------------
</TABLE>
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
December 31, 1998.
(2) For the period from April 17, 1998 (commencement of operations) through
December 31, 1998.
(3) For the period from March 3, 1998 (commencement of operations) through
December 31, 1998.
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 in the performance of its duties or from reckless disregard by
it of its duties and obligations thereunder. Unless sooner terminated, each
Advisory Agreement will continue in effect with respect to a particular Fund
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
-47-
<PAGE>
a meeting called for the purpose of voting on such approval; and (ii) by Galaxy
VIP's Board of Trustees, or by a vote of a majority of the outstanding shares of
such Fund. The term "majority of the outstanding shares of such Fund" means,
with respect to approval of an Advisory Agreement, the vote of the lesser of (i)
67% or more of the shares of the Fund present at a meeting, if the holders of
more than 50% of the outstanding shares of the Fund are present or represented
by proxy, or (ii) more than 50% of the outstanding shares of the Fund. Each
Advisory Agreement may be terminated by Galaxy VIP or by Fleet or by Columbia,
as the case may be, on sixty days' written notice, and will terminate
immediately in the event of its assignment.
DISTRIBUTOR
PDI serves as Galaxy VIP's distributor. PDI is a registered broker-dealer
with principal offices located at 3200 Horizon Drive, King of Prussia,
Pennsylvania 19406. Jane Haegele is the sole shareholder of PDI.
Unless otherwise terminated, the Distribution Agreement between Galaxy VIP
and PDI remains in effect until November 30, 2000, 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.
ADMINISTRATOR
PFPC, Inc. ("PFPC") (formerly known as First Data Investor Services Group,
Inc.), located at 4400 Computer Drive, Westborough, Massachusetts 01581-5108,
serves as the Funds' administrator. PFPC is a majority-owned subsidiary of PNC
Financial Services Group.
Under the Administration Agreement, PFPC has agreed to maintain office
facilities for Galaxy VIP, furnish Galaxy VIP with statistical and research
data, clerical, accounting, and bookkeeping services, provide certain other
services such as internal auditing services required by Galaxy VIP, and compute
the net asset value and net income of the Funds. PFPC 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.
Unless otherwise terminated, the Administration Agreement will remain in effect
until May 31, 2001 and thereafter will continue from year to year upon annual
approval of Galaxy VIP's Board of Trustees.
For the services provided and expenses assumed pursuant to the
Administration Agreement, Galaxy VIP has agreed to pay PFPC administration fees,
computed daily and paid
-48-
<PAGE>
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 PFPC for its
administration services. The minimum aggregate annual fee payable for
administration services is $100,000. In addition, PFPC 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, PFPC may waive voluntarily all or a portion of the fees payable to it by
the Funds. For the fiscal year ended December 31, 1999, the Funds paid PFPC
administration fees at the effective annual rate of 0.85% of each Fund's average
daily net assets.
For the fiscal years ended December 31, 1999, 1998 and 1997, PFPC received
administration, custody and fund accounting fees (net of fee waivers) as set
forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market Fund........................ $ 22,217 $ 29,160 $37,694
Equity Fund.............................. $148,694 $121,817 $74,956
Growth and Income Fund................... $ 55,186 $ 42,389(1) *
Small Company Growth Fund............... $ 63,238 $ 42,417(2) *
Columbia Real Estate Equity Fund II...... $ 33,055 $ 30,477(3) *
Asset Allocation Fund.................... $171,679 $113,830 $78,328
High Quality Bond Fund................... $ 45,903 $ 31,725 $38,071
Columbia High Yield Fund II.............. $ 37,870 $ 31,847(3) *
------------------
</TABLE>
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
December 31, 1998.
(2) For the period from April 17, 1998 (commencement of operations) through
December 31, 1998.
(3) For the period from March 3, 1998 (commencement of operations) through
December 31, 1998.
For the fiscal years ended December 31, 1999, 1998 and 1997, PFPC waived
administration fees as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market Fund........................ $ 30,423 $ 29,900 $ 30,000
Equity Fund.............................. $ 0 $ 0 $ 0
Growth and Income Fund................... $ 0 $ 0(1) *
Small Company Growth Fund................ $ 0 $ 0(2) *
Columbia Real Estate Equity Fund II...... $ 0 $ 0(3) *
Asset Allocation Fund.................... $ 0 $ 0 $ --
High Quality Bond Fund................... $ 29,941 $ 29,900 $ 30,000
Columbia High Yield Fund II.............. $ 0 $ 0(3) *
</TABLE>
- ---------------------
-49-
<PAGE>
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
December 31, 1998.
(2) For the period from April 17, 1998 (commencement of operations) through
December 31, 1998.
(3) For the period from March 3, 1998 (commencement of operations) through
December 31, 1998.
CUSTODIAN
The Chase Manhattan Bank ("Chase Manhattan"), 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
pursuant to a Global Custody Agreement. Chase Manhattan may employ
sub-custodians for the Growth and Income Fund, Small Company Growth Fund,
Columbia Real Estate Equity Fund II, Asset Allocation Fund and Columbia High
Yield Fund II for the purpose of providing custodial services for the Funds'
foreign assets held outside the United States.
Under the Global 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 also serves as Galaxy VIP's "foreign custody manager"
(as that term is defined in Rule 17f-5 under the 1940 Act) and in such capacity
employs sub-custodians for the Funds for the purpose of providing custodial
services for the foreign assets of the Funds held outside the United States. The
assets of the Funds are held under bank custodianship in compliance with the
1940 Act.
-50-
<PAGE>
EXPENSES
Galaxy VIP bears the expenses in connection with the Funds' operations,
whether incurred directly or on its behalf by Fleet, Columbia, PFPC or the
Participating Insurance Companies, including taxes; interest; fees (including
fees paid to its trustees and officers who are not affiliated with PFPC); 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 PFPC
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.
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.
Fleet or Columbia will select specific portfolio investments and effect
transactions for the Funds. Fleet and Columbia seek to obtain the best net price
and the most favorable execution of orders. Fleet or Columbia may, in its
discretion, effect transactions in portfolio securities with dealers who provide
research advice or other services to the Funds, Fleet or Columbia. Fleet or
Columbia is authorized to pay a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction for any
Fund which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if Fleet or Columbia
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer,
viewed in terms of either that particular transaction or Fleet or Columbia's
overall responsibilities to the particular Fund and to Galaxy VIP. Such
brokerage and research services might consist of
-51-
<PAGE>
reports and statistics relating to specific companies or industries, general
summaries of groups of stocks or bonds and their comparative earnings and
yields, or broad overviews of the stock, bond and government securities markets
and the economy. The fees under the investment advisory agreements between
Galaxy VIP and Fleet and Galaxy VIP and Columbia are not reduced by reason of
receiving such brokerage and research services. The Board of Trustees will
periodically review the commissions paid by the Funds to determine if the
commissions paid over representative periods of time were reasonable in relation
to the benefits inuring to the Funds.
For the fiscal year ended December 31, 1999, the Funds paid commissions in
return for brokerage and research services ("soft dollar commissions") as shown
below:
<TABLE>
<CAPTION>
SOFT DOLLAR
FUND COMMISSIONS
---- -----------
<S> <C>
Money Market Fund........................... $ 0
Equity Fund................................. $ 75,625
Growth and Income Fund...................... $ 15,531
Small Company Growth Fund................... $ 2,083
Columbia Real Estate Equity Fund II......... $ 93
Asset Allocation Fund....................... $ 25,535
High Quality Bond Fund...................... $ 0
Columbia High Yield Fund II................. $ 0
</TABLE>
For the fiscal years ended December 31, 1999, 1998 and 1997, the Funds paid
brokerage commissions as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market Fund....................................... $ 0 $ 0 $ 0
Equity Fund............................................. $ 99,742 $116,241 $ 7,285
Growth and Income Fund.................................. $ 16,413 $ 17,058(1) *
Small Company Growth Fund............................... $ 3,035 $ 1,423(2) *
Columbia Real Estate Equity Fund II..................... $ 2,111 $ 1,696(3) *
Asset Allocation Fund................................... $ 25,906 $ 28,923 $19,552
High Quality Bond Fund.................................. $ 0 $ 0 $ 0
Columbia High Yield Fund II............................. $ 0 $ 0(3) *
- -----------------
</TABLE>
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
December 31, 1998.
(2) For the period from April 17, 1998 (commencement of operations) through
December 31, 1998.
(3) For the period from March 3, 1998 (commencement of operations) through
December 31, 1998.
The increase in brokerage commissions paid by the Equity Fund during the
fiscal year ended December 31, 1998 resulted from a higher portfolio turnover
rate than in previous years. When Robert G. Armknecht was appointed as portfolio
manager for the Equity Fund on July 1, 1998, the Fund's investment portfolio was
restructured to more closely match the investment
-52-
<PAGE>
portfolio of another equity fund in the Galaxy fund complex that Mr. Armknecht
also manages with a substantially similar investment style. Consequently, there
were a greater number of purchases and sales of portfolio securities for the
Equity Fund than there had been in past years.
During the period February 1, 1998 through December 31, 1998 and the fiscal
year ended December 31, 1999, certain Funds effected a portion of their
portfolio transactions through Quick & Reilly Institutional Trading ("Quick &
Reilly"), a division of Fleet Securities, Inc., which is an affiliate of Fleet
and Columbia. The table below discloses the aggregate amount of commissions paid
to Quick & Reilly by the Funds during the fiscal years ended December 31, 1998
and December 31, 1999.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
DECEMBER 31
FUND 1999 1998
- ---- ---- ----
<S> <C> <C>
Equity.................................................. $ 9,426 $ 45,441
Growth and Income(1).................................... $ 1,505 $ 744
Small Company Growth(2)................................. $ 0 $ 0
Columbia Real Estate Equity II(3)....................... $ 0 $ 0
Asset Allocation........................................ $19,784 $ 16,815
</TABLE>
- ----------------------------
(1) For the period from March 4, 1998 (commencement of operations) through
December 31, 1998.
(2) For the period from April 17, 1998 (commencement of operations) through
December 31, 1998.
(3) For the period from March 3, 1998 (commencement of operations) through
December 31, 1998.
The table below shows (i) the percentage of each Fund's aggregate brokerage
commissions for the fiscal year ended December 31, 1999 that was paid to Quick &
Reilly, and (ii) the percentage of each Fund's aggregate dollar amount of
transactions that involved payment of commissions that was effected through
Quick & Reilly during the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
% OF
% OF AGGREGATE
AGGREGATE COMMISSION
FUND COMMISSIONS TRANSACTIONS
- ---- ----------- ------------
<S> <C> <C>
Equity.................................................. 9.45% 0.03%
Growth and Income....................................... 9.17% 9.33%
Small Company Growth.................................... 0.0% 0.0%
Columbia Real Estate Equity II.......................... 0.0% 0.0%
Asset Allocation........................................ 76.37% 0.15%
</TABLE>
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
-53-
<PAGE>
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.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to, Fleet,
Columbia, PFPC 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 the Funds have acquired during Galaxy VIP's most recent fiscal
year. At December 31, 1999 the following Galaxy VIP Funds held such securities:
<TABLE>
<CAPTION>
DEBT/ PAR/
FUND EQUITY SECURITY TYPE SHARES MARKET VALUE
- ----------------- ---------- --------------------- -------------- --------------
<S> <C> <C> <C> <C>
MONEY MARKET FUND
Morgan (J.P.) & Co., Inc. D Commercial Paper 300,000 $ 296,804
State Street Bank D Repurchase Agreement 2,356,000 $ 2,356,000
EQUITY FUND
Chase Manhattan Corp. E Common Stock 25,000 $ 1,942,187
State Street Bank D Repurchase Agreement 2,654,000 $ 2,654,000
GROWTH & INCOME FUND
Chase Manhattan Corp. E Common Stock 1,900 $ 147,606
Morgan (J.P.) & Co. E Common Stock 900 $ 113,963
State Street Bank D Repurchase Agreement 812,000 $ 812,000
SMALL COMPANY GROWTH FUND
State Street Bank D Repurchase Agreement 157,000 $ 157,000
ASSET ALLOCATION FUND
Chase Manhattan Corp. E Common Stock 13,000 $ 1,009,937
-54-
<PAGE>
Chase Manhattan Corp. D Corporate Bond 300,000 $ 295,875
State Street Bank D Repurchase Agreement 10,944,000 $10,944,000
HIGH QUALITY BOND FUND
State Street Bank D Repurchase Agreement 353,000 $ 353,000
</TABLE>
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.
AUDITORS
Ernst & Young, LLP, independent auditors, with offices at 200 Clarendon
Street, Boston, Massachusetts 02110, serve as auditors for Galaxy VIP. The
financial highlights for the Funds included in the Prospectus and the financial
statements for the Funds contained in Galaxy VIP's Annual Report to Shareholders
and incorporated by reference into this Statement of Additional Information for
the fiscal year ended December 31, 1999 have been audited by Ernst & Young, LLP.
For the respective years and periods ended December 31, 1998, 1997, 1996 and
1995, the financial highlights of the Funds included in the Prospectus and the
financial statements for such years and periods contained in the Annual Report
to Shareholders were audited by PricewaterhouseCoopers, LLP, Galaxy VIP's former
auditors.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy VIP, is a partner), One Logan Square, 18th & Cherry Streets,
Philadelphia, Pennsylvania 19103, are counsel to Galaxy VIP and will pass upon
certain legal matters on its behalf.
-55-
<PAGE>
CODES OF ETHICS
Galaxy VIP, Fleet and Columbia have adopted codes of ethics pursuant to
Rule 17j-1 under the 1940 Act that permit investment personnel subject to their
particular codes of ethics to invest in securities, including securities that
may be purchased or held by the Fund, for their own accounts. The codes of
ethics are on public file with, and are available from, the Securities and
Exchange Commission's Public Reference Room in Washington, D.C.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance and yields of the Funds may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
bond indexes or to rankings prepared by independent services or other financial
or industry publications that monitor the performance of mutual funds.
Performance and yield data as reported in national financial publications
including, but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET
JOURNAL and THE NEW YORK TIMES, as well as in publications of a local or
regional nature may be used in comparing the performance and yields of the
Funds.
The yield of the Money Market Fund will refer to the income generated over
a seven-day period identified in the advertisement. This income is annualized,
i.e., the income during a particular week is assumed to be generated each week
over a 52-week period, and is shown as a percentage of the investment. The Money
Market Fund may also advertise its effective yield which is calculated similarly
but, when annualized, the income from an investment in the Fund is assumed to be
reinvested. Consequently, the "effective yield" will be slightly higher because
of the compounding effect.
The standard yield is computed by dividing a Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Funds may
also advertise their "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested.
The Funds may also advertise their performance using "average annual total
return" 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
-56-
<PAGE>
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.
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 and
income other than investment income, in the value of a hypothetical pre-existing
account in the Fund having a balance of one Share at the beginning of a
seven-day period, for which the yield is to be quoted, (2) dividing the net
change in account value by the value of the account at the beginning of the base
period to obtain the base period return, and (3) annualizing the results (I.E.,
multiplying the base period return by (365/7)). The net change in the value of
the account in the Fund includes the value of additional Shares purchased with
dividends from the original Share and dividends declared on both the original
Share and any such additional Shares, and all fees that are charged by the Fund
to all shareholder accounts in proportion to the length of the base period,
other than nonrecurring account and sales charges. For any account fees that
vary with the size of the account, the amount of fees charged is computed with
respect to the Fund's mean (or median) account size. The capital changes to be
excluded from the calculation of the net change in
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<PAGE>
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 1-877-BUY-GALAXY (1-877-289-4252). For the seven-day period ended
December 31, 1999, the annualized yield of the Money Market Fund was 5.69% and
the effective yield was 5.85%.
YIELD AND TOTAL RETURNS QUOTATIONS - NON-MONEY MARKET FUNDS
The 30-day (or one month) yield for each of the Equity Fund, Growth and
Income Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund II,
Asset Allocation Fund, High Quality Bond Fund or Columbia High Yield Fund II is
calculated in accordance with the method prescribed by the SEC for mutual funds:
YIELD = 2[(a-b)/cd +1 ) TO THE POWER OF 6 - 1]
Where: a = dividends and interest earned by a Fund during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of shares outstanding during the
period entitled to receive dividends; and
d = maximum offering price per share on the last day of
the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the 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
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<PAGE>
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 that 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 for the Equity Fund, Asset
Allocation Fund, High Quality Bond Fund, Growth and Income Fund, Small Company
Growth Fund, Columbia Real Estate Equity Fund II and Columbia High Yield Fund II
for the 30-day period ended December 31, 1999 were -0.06%, 2.45%, 6.09%, -0.28%,
- -1.18%, 5.01% and 7.31%, respectively.
Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares 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:
T = [(ERV/P) - 1] TO THE POWER OF 1/n
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
l, 5 or 10 year (or other) periods at the
end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares 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:
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<PAGE>
Aggregate Total Return = [(ERV/P) - l]
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 aggregate total returns for the Funds from the date of commencement of
operations to December 31, 1999 are set forth below:
<TABLE>
<CAPTION>
TOTAL
FUND RETURNS
- ---- -------
<S> <C>
Equity Fund(1)..................................................... 232.99%
Growth and Income Fund(2).......................................... 11.36%
Small Company Growth Fund(3)....................................... 49.59%
Columbia Real Estate Equity Fund II(4)............................. -13.31%
Asset Allocation Fund(5)........................................... 129.55%
High Quality Bond Fund(6).......................................... 44.15%
Columbia High Yield Fund II(4)..................................... 10.22%
</TABLE>
- ----------------
(1) For the period from January 11, 1993 (commencement of operations) through
December 31, 1998.
(2) For the period from March 4, 1998 (commencement of operations) through
December 31, 1998.
(3) For the period from April 17, 1998 (commencement of operations) through
December 31, 1998.
(4) For the period from March 3, 1998 (commencement of operations) through
December 31, 1998.
(5) For the period from February 6, 1993 (commencement of operations) through
December 31, 1998.
(6) For the period from January 21, 1993 (commencement of operations) through
December 31, 1998.
The average annual total returns for the Funds for the one-year and
five-year periods (as applicable) ended December 31, 1999 are as set forth
below:
<TABLE>
<CAPTION>
FUND ONE-YEAR FIVE-YEAR
- ---- -------- ---------
<S> <C> <C>
Equity Fund............................................................ 27.18% 25.31%
Growth and Income Fund................................................. 7.10% N/A
Small Company Growth Fund.............................................. 67.49% N/A
Columbia Real Estate Equity Fund II.................................... -4.13% N/A
Asset Allocation Fund.................................................. 7.06% 17.37%
High Quality Bond Fund................................................. -3.78% 7.62%
Columbia High Yield Fund II............................................ 0.56% N/A
</TABLE>
MISCELLANEOUS
As used in this Statement of Additional Information, "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,
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<PAGE>
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 March 31, 2000, more than 25% of the issued and outstanding shares of
each Fund was owned by American Skandia Life Assurance Corporation and held in
Separate Accounts pursuant to variable annuity contracts. As of March 31, 2000,
Columbia Management Company owned more than 5% of the issued and outstanding
shares of the Columbia Real Estate Equity Fund II and the Columbia High Yield
Fund II.
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
A "vote of the holders of a majority of the outstanding shares" of a
particular Fund means, with respect to the approval of an investment advisory
agreement, a distribution plan or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of such Fund, or (b) 67% or more
of the shares of such Fund present at a meeting if more than 50% of the
outstanding shares of such Fund are represented at the meeting in person or by
proxy.
FINANCIAL STATEMENTS
Galaxy VIP's Annual Report to Shareholders with respect to the Funds
for the fiscal year ended December 31, 1999 has been filed with the SEC. The
financial statements in such Annual Report (the "Financial Statements") are
incorporated by reference into this Statement of Additional Information. The
Financial Statements included in the Annual Report for the Funds for the
fiscal year ended December 31, 1999 have been audited by Ernst & Young, LLP,
whose report thereon also appears in such Annual Report and is incorporated
herein by reference. The Financial Statements in such Annual Report have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing. The financial
statements and Financial Highlights included in the Annual Reports for the
Funds for prior periods were audited by PricewaterhouseCoopers LLP, Galaxy
VIP's former independent auditors. The report of PricewaterhouseCoopers LLP
dated February 12, 1999 on the Funds' financial statements included in the
Funds' Annual Reports to the Shareholders for the fiscal year ended December
31, 1998, is also incorporated herein by reference.
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<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current opinion of the
creditworthiness of an obligor with respect to financial obligations having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that the
obligor's capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on
these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior debt obligations not having an original maturity in
excess of one year, unless explicitly noted. The following summarizes the rating
categories used by Moody's for commercial paper:
A-1
<PAGE>
"Prime-1" - Issuers (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics: leading market
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earnings 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" - Issuers (or supporting institutions) have a strong ability for
repayment of senior short-term debt 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, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable ability
for repayment of senior short-term debt obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
"Not Prime" - Issuers do 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 the highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection factors. Risk factors
are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
"D-3" - Debt possesses satisfactory liquidity and other protection factors
qualify issues as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
A-2
<PAGE>
"D-4" - Debt possesses speculative investment characteristics. Liquidity is
not sufficient to insure against disruption in debt service. Operating factors
and market access may be subject to a high degree of variation.
"D-5" - Issuer failed to meet scheduled principal and/or interest payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the best capacity for timely payment of financial commitments and may
have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation indicates a
satisfactory capacity for timely payment of financial commitments, but the
margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation indicates
that the capacity for timely payment of financial commitments is adequate;
however, near-term adverse changes could result in a reduction to non-investment
grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates that
default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson Financial BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of
A-3
<PAGE>
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 Thomson Financial BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson Financial BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
A-4
<PAGE>
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial and economic conditions for
the obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action taken, but payments on this obligation
are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation 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.
"c" - The 'c' subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered bonds
if the long-term credit rating of the issuer is below an investment-grade level
and/or the issuer's bonds are deemed taxable.
"p" - The letter 'p' indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of or the risk of
default upon failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
* Continuance of the ratings is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
"r" - The 'r' highlights derivative, hybrid, and certain other obligations
that Standard & Poor's believes may experience high volatility or high
variability in expected returns as a result of noncredit risks. Examples of such
obligations are securities with principal or
A-5
<PAGE>
interest return indexed to equities, commodities, or currencies; certain swaps
and options; and interest-only and principal-only mortgage securities. The
absence of an 'r' symbol should not be taken as an indication that an obligation
will exhibit no volatility or variability in total return.
N.R. Not rated. Debt obligations of issuers outside the United States and
its territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not take
into account currency exchange and related uncertainties.
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 risk appear somewhat larger than the "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 are considered as 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
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" indicates 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 operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some
A-6
<PAGE>
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
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 to be 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 in periods of greater 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. This is the lowest
investment grade category.
"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 ratings used by Fitch IBCA for corporate and
municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest credit
quality. These ratings denote the lowest expectation of credit risk and are
assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
A-7
<PAGE>
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit quality.
These ratings denote a low expectation of credit risk and indicate strong
capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit quality.
These ratings denote that there is currently a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions are more likely
to impair this capacity. This is the lowest investment grade category.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic change over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate that
significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC", "CC" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. The ratings of obligations in
this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
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To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to denote relative standing within these major rating
categories.
`NR' indicates the Fitch IBCA does not rate the issuer or issue in
question.
`Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that
there is a reasonable probability of a rating change and the likely direction of
such change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. RatingAlert is typically resolved over a relatively short
period.
Thomson Financial 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 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 the lowest investment-grade category
and indicates an acceptable capacity to repay principal and interest. Issues
rated "BBB" are 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
Financial BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely repayment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
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"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 note rating reflects the liquidity factors and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong capacity to
pay principal and interest. Those issues determined to possess a very strong
capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory capacity
to pay principal and interest, with some vulnerability to adverse financial and
economic changes over the term of the notes.
"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" - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes 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.
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"MIG-4"/"VMIG-4" - This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
"SG" - This designation denotes speculative quality. Debt instruments in
this category 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 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
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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 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.
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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).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
PORTFOLIO FUTURES
--------- -------
-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
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
PORTFOLIO FUTURES
--------- -------
-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
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.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
PORTFOLIO FUTURES
--------- -------
-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
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
PORTFOLIO FUTURES
-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
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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
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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 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.
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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.
VI. OPTIONS ON FUTURES CONTRACTS.
Certain of the Funds may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.
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Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
or sale of an option also entails the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to the Funds because the maximum amount at risk is
the premium paid for the options (plus transaction costs). The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts. Although permitted by their investment policies,
the Funds do not currently intend to write futures options during the current
fiscal year.
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SAIVAVIP 4/30/00
<PAGE>
THE GALAXY VIP FUND
FORM N-1A
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Agreement and Declaration of Trust of Registrant dated May 27,
1992 is incorporated herein by reference to Exhibit (1) to
Registrant's Post-Effective Amendment No. 7 as filed with the
Commission on April 30, 1998.
(b) Registrant's Code of Regulations is incorporated herein by
reference to Exhibit (2) to Registrant's Post-Effective
Amendment No. 7 as filed with the Commission on April 30,
1998.
(c) Article V, Section 5.1, and Article VIII, Section 8.1, of
Registrant's Agreement and Declaration of Trust is
incorporated herein by reference as Exhibit (a).
(d) (1) Investment Advisory Agreement dated September 30, 1992 between
Registrant and Fleet Investment Advisors Inc. with respect to
the Money Market, Equity, Asset Allocation and High Quality
Bond Funds is incorporated herein by reference to Exhibit
(5)(a) to Registrant's Post-Effective Amendment No. 7 as filed
with the Commission on April 30, 1998.
(2) 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 is incorporated herein by reference to
Exhibit (5)(b) to Registrant's Post-Effective Amendment No. 7
as filed with the Commission on April 30, 1998.
(3) 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 is
incorporated herein by reference to Exhibit (5)(c) to
Registrant's Post-Effective Amendment No. 7 as filed with the
Commission on April 30, 1998.
(e) Distribution Agreement dated as of December 1, 1999 between
Registrant and Provident Distributors, Inc. is incorporated
herein by
<PAGE>
reference to Exhibit (e) to Registrant's Post-Effective
Amendment No. 10 as filed with the Commission on March 1,
2000.
(f) 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.
(g) (1) Global Custody Agreement dated November 13, 1992 between
Registrant and The Chase Manhattan Bank, N.A is incorporated
herein by reference to Exhibit (8)(a) to Registrant's
Post-Effective Amendment No. 7 as filed with the Commission on
April 30, 1998.
(2) Amendment No. 1 to Global Custody Agreement dated March 2,
1998 between Registrant and The Chase Manhattan Bank, N.A. is
incorporated herein by reference to Exhibit (g) (2) to
Registrant's Post-Effective Amendment No. 9 as filed with the
Commission on February 26, 1999.
(3) Amendment to Global Custody Agreement dated December 2, 1998
between Registrant and The Chase Manhattan Bank is
incorporated herein by reference to Exhibit (g)(3) to
Registrant's Post-Effective Amendment No. 9 as filed with the
Commission on April 26, 1999.
(h) (1) Administration Agreement dated as of June 1, 1997 between
Registrant and PFPC Inc. (formerly knows as 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.
(2) Amendment No. 1 dated February 27, 1998 to Administration
Agreement between Registrant and PFPC Inc, (formerly known as
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 is
incorporated herein by reference to Exhibit (9)(b) to
Registrant's Post-Effective Amendment No. 7 as filed with the
Commission on April 30, 1998.
(3) Amendment No. 2 dated March 5, 1998 to Administration
Agreement between Registrant and PFPC Inc. (formerly known as
First Data Investor Services Group Inc.) is incorporated
herein by reference to Exhibit (h) (3) to Registrant's
Post-Effective Amendment No. 9 as filed with the Commission on
February 26, 1999.
-2-
<PAGE>
(4) Amendment No. 3 dated September 10, 1998 to Administration
Agreement between Registrant and PFPC Inc. (formerly known as
First Data Investors Services Group Inc.) is incorporated
herein by reference to Exhibit (h) (4) to Registrant's
Post-Effective Amendment No. 9 as filed with the Commission on
February 26, 1999.
(5) Amendment No. 4 dated December 1, 1999 to Administration
Agreement between Registrant and PFPC Inc. (formerly known as
First Data Investor Services Group, Inc.) is incorporated
herein by reference to Exhibit (h)(5) to Registrant's
Post-Effective Amendment No. 10 as filed with the Commission
on March 1, 2000.
(6) Sales Agreement dated August 26, 1993 between Registrant and
American Skandia Life Assurance Corporation.
(7) Proposed Amendment No. 1 to Sales Agreement between Registrant
and American Skandia Life Assurance Corporation is
incorporated herein by reference to Exhibit (h) (6) to
Registrant's Post-Effective Amendment No. 9 as filed with the
Commission on February 26, 1999.
(8) Credit Agreement among The Galaxy Fund, the Registrant and
Galaxy Fund II and Deutsche Bank AG, New York Branch dated
December 29, 1999 is incorporated herein by reference to
Exhibit (h)(8) to Registrant's Post-Effective Amendment No. 10
as filed with the Commission on March 1, 2000.
(9) Participation Agreement among Golden American Life Insurance
Company, The Galaxy VIP Fund, Fleet Investment Advisors Inc.
and First Data Distributors, Inc. dated October 1, 1999.
(10) Participation Agreement among First Golden American Life
Insurance Company of New York, The Galaxy VIP Fund, Fleet
Investment Advisors Inc. and First Data Distributors, Inc.
dated October 1, 1999.
(i) Opinion of counsel that shares are validly issued, fully paid
and non-assessable is incorporated herein by reference to
Exhibit (10) to Registrant's Post-Effective Amendment No. 7 as
filed with the Commission on April 30, 1998.
(j) (1) Consent of Drinker Biddle & Reath LLP.
(2) Consent of Pricewaterhouse Coopers LLP.
(3) Consent of Ernst & Young LLP.
(k) None.
(l) (1) Purchase Agreement dated January 8, 1993 between
Registrant and Fleet Investment Advisors Inc. is incorporated
herein by reference to Exhibit
-3-
<PAGE>
(13)(a) to Registrant's Post-Effective Amendment No. 7 as
filed with the Commission on April 30, 1998.
(2) 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 is
incorporated herein by reference to Exhibit (13)(b) to
Registrant's Post-Effective Amendment No. 7 as filed with the
Commission on April 30, 1998.
(3) 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 is
incorporated herein by reference to Exhibit (13)(c) to
Registrant's Post-Effective Amendment No. 7 as filed with the
Commission on April 30, 1998.
(m) None.
(o) None.
(p) (1) Code of Ethics - The Galaxy VIP Fund
(2) Code of Ethics - Fleet Investment Advisors, Inc.
(3) Code of Ethics - Columbia Management Co.
ITEM 24. 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 25. 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 (e), and in Section 12 of the Global Custody Agreement,
incorporated herein by reference as Exhibit (g)(1). Registrant has
obtained from a major insurance carrier a directors' and officers'
liability policy covering certain types of errors and omissions. In
addition, Section 9.3 of Registrant's Agreement and Declaration of
Trust, incorporated herein by reference as Exhibit (a), provides as
follows:
-4-
<PAGE>
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 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.
-5-
<PAGE>
Section 9.6 of the Registrant's Agreement and Declaration of Trust,
filed herein as Exhibit (a), 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.
ITEM 26. 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 26 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 26 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 27. PRINCIPAL UNDERWRITER
(a) In addition to The Galaxy VIP Fund, Provident Distributors,
Inc. (the "Distributor") currently acts as distributor for The
Galaxy Fund, Galaxy Fund II, International Dollar Reserve Fund
I, Ltd., Provident Institutional Funds Trust, Columbia Common
Stock Fund, Inc., Columbia Growth Fund, Inc., Columbia
International Stock Fund, Inc., Columbia Special Fund, Inc.,
Columbia Small Cap Fund, Inc., Columbia Real Estate Equity
Fund, Inc., Columbia Balanced
-6-
<PAGE>
Fund, Inc., Columbia Daily Income Company, Columbia U.S.
Government Securities Fund, Inc., Columbia Fixed Income
Securities Fund, Inc., Columbia Municipal Bond Fund, Inc.,
Columbia High Yield Fund, Inc., Columbia National Municipal
Bond Fund, Inc., GAMNA Series Funds, Inc., WT Investment
Trust, Kalmar Pooled Investment Trust, The RBB Fund, Inc.,
Robertson Stephens Investment Trust, HT Insight Funds, Inc.,
Harris Insight Funds Trust, Hilliard-Lyons Government Fund,
Inc., Hilliard-Lyons Growth Fund, Inc., Hilliard-Lyons
Research Trust, Senbanc Fund, Warburg Pincus Trust, ABN AMRO
Funds, Alleghany Funds, BT Insurance Funds Trust, First Choice
Funds Trust, Forward Funds, Inc., IAA Trust Asset Allocation
Fund, Inc., IAA Trust Growth Fund, Inc., IAA Trust Tax Exempt
Bond Fund, Inc., IAA Trust Taxable Fixed Income Series Fund,
Inc., IBJ Funds Trust, Light Index Funds, Inc., LKCM Funds,
Matthews International Funds, McM Funds, Metropolitan West
Funds, New Covenant Funds, Inc., Panorama Trust, Smith Breeden
Series Funds, Smith Breeden Trust, Stratton Growth Fund, Inc.,
Stratton Monthly Dividend REIT Shares, Inc., The Stratton
Funds, Inc., The Govett Funds, Inc., Trainer, Wortham First
Mutual Funds, Undiscovered Managers Funds, Wilshire Target
Funds, Inc., Weiss, Peck & Greer Funds Trust, Weiss, Peck &
Greer International Fund, WPG Growth and Income Fund, WPG
Growth Fund, WPG Tudor Fund, RWB/WPG U.S. Large Stock Fund,
Tomorrow Funds Retirement Trust, The BlackRock Funds, Inc.
(distributed by BlackRock Distributors, Inc., a wholly-owned
subsidiary of Provident Distributors, Inc.), Northern Funds
Trust and Northern Institutional Funds Trust (distributed by
Northern Funds Distributors, LLC, a wholly-owned subsidiary of
Provident Distributors, Inc.), The Offit Investment Fund, Inc.
(distributed by Offit Funds Distributor, Inc., a wholly-owned
subsidiary of Provident Distributors, Inc.), The Offit
Variable Insurance Fund, Inc. (distributed by Offit Funds
Distributor, Inc., a wholly-owned subsidiary of Provident
Distributors, Inc.).
(b) The information required by this Item 27 (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 PFPC Inc. (formerly known as First Data
Investor Services Group, Inc.), the Registrant's
administrator, which receives administration fees as described
in parts A and B.
ITEM 28. 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).
-7-
<PAGE>
(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) Provident Distributors, Inc., 3200 Horizon Drive, King of
Prussia, Pennsylvania 19406 (records relating to its functions
as distributor).
(4) PFPC Inc. (formerly known as First Data Investor Services
Group, Inc.), 4400 Computer Drive, Westborough, Massachusetts
01581-5108 (records relating to its functions as
administrator).
(5) Drinker Biddle & Reath LLP, One Logan Square, 18th and Cherry
Streets, Philadelphia, Pennsylvania 19103 (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 29. MANAGEMENT SERVICES
Inapplicable.
ITEM 30. UNDERTAKINGS
None.
-8-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all the requirements for effectiveness of the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933,
as amended, and has duly caused this Post-Effective Amendment No. 11 to its
Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Bonita Springs, Florida,
on the 28th day of April, 2000.
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, this
Post-Effective Amendment No. 11 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/John T. O'Neill
- ------------------------ Trustee, President April 28, 2000
John T. O'Neill and Treasurer
*Dwight E. Vicks, Jr. Chairman of the Board April 28, 2000
- ------------------------
Dwight E. Vicks, Jr. of Trustees
*Donald B. Miller Trustee April 28, 2000
- ------------------------
Donald B. Miller
*Louis DeThomasis Trustee April 28, 2000
- ------------------------
Louis DeThomasis
*Bradford S. Wellman Trustee April 28, 2000
- ------------------------
Bradford S. Wellman
*James M. Seed Trustee April 28, 2000
- ------------------------
James M. Seed
/s/John T. O'Neill
- ------------------------
*By: John T. O'Neill
Attorney-in-Fact
</TABLE>
<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
EXHIBIT NO. DESCRIPTION
(h) (6) Sales Agreement dated August 26, 1993 between Registrant and
American Skandia Life Assurance Corporation.
(h) (9) Participation Agreement among Golden American Life Insurance
Company, The Galaxy VIP Fund, Fleet Investment Advisors Inc.
and First Data Distributors, Inc. dated October 1, 1999.
(h) (10) Participation Agreement among First Golden American Life
Insurance Company of New York, The Galaxy VIP Fund, Fleet
Investment Advisors Inc. and First Data Distributors, Inc.
dated October 1, 1999.
(j) (1) Consent of Drinker Biddle & Reath LLP.
(2) Consent of Pricewaterhouse Coopers LLP.
(3) Consent of Ernst & Young LLP.
(p) (1) Code of Ethics - The Galaxy VIP Fund.
(2) Code of Ethics - Fleet Investment Advisors, LLC.
(3) Code of Ethics - Columbia Management Co.
<PAGE>
Exhibit (h)(6)
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
<PAGE>
Trustees of TRUST may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any 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
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acts or failures to act with respect to SKANDIA's use of TRUST or its shares.
(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
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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.
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
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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.
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.
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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 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 26th 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: /s/ Jacqueline Crader By: illegible
---------------------------- --------------------------------
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Exhibit (h)(9)
PARTICIPATION AGREEMENT
AMONG
GOLDEN AMERICAN LIFE INSURANCE COMPANY,
THE GALAXY VIP FUND,
FLEET INVESTMENT ADVISORS INC.
AND
FIRST DATA DISTRIBUTORS, INC.
THIS AGREEMENT, dated as of the 1st day of October, 1999, by and among
Golden American Life Insurance Company (the "Company"), a life insurance company
organized under the laws of the State of Delaware, on its own behalf and on
behalf of each separate account of the Company set forth on Schedule A hereto as
may be amended from time to time (each such account hereinafter referred to as
the "Account"), The Galaxy VIP Fund (the "Fund"), a management investment
company and business trust organized under the laws of the Commonwealth of
Massachusetts, Fleet Investment Advisors Inc. (the "Adviser"), a corporation
organized under the laws of the State of New York, and First Data Distributors,
Inc. (the "Distributor"), a corporation organized under the laws of the
Commonwealth of Massachusetts.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance and variable annuity contracts (the
"Variable Insurance Products") to be offered by insurance companies which have
entered into participation agreements with the Fund, Adviser and Distributor
("Participating Insurance Companies");
WHEREAS, the shares of beneficial interest of the Fund are divided into
several series of shares, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (the "SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(the "Mixed and Shared Funding Exemptive Order"), and the parties to this
Agreement agree to comply with the conditions or undertakings specified in the
Mixed and Shared Funding Exemptive Order to the extent applicable to each such
party;
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (the "1933 Act");
<PAGE>
WHEREAS, the Adviser, which serves as investment adviser to the Designated
Portfolios (as hereinafter defined) of the Fund, is duly registered as an
investment adviser under the federal Investment Advisers Act of 1940, as
amended;
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act;
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by the Company under the insurance laws of the State
of Delaware, to set aside and invest assets attributable to the Contracts;
WHEREAS, the Company has registered the Account as a unit investment
trust under the 1940 Act;
WHEREAS, the Company has issued or will issue certain variable life
insurance and/or variable annuity contracts supported wholly or partially by the
Account (the "Contracts"), and said Contracts are listed in Schedule A hereto,
as it may be amended from time to time by mutual written agreement;
WHEREAS, the Distributor, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule B hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Distributor is authorized to sell such shares to
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund, the Adviser, and the Distributor agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares of the Designated
Portfolios that each Account or the appropriate subaccount of each Account
orders, executing such orders on a daily basis at the net asset value next
computed after receipt and acceptance by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company will
be the designee of the Fund for receipt of such orders from each Account or the
appropriate subaccount of each Account and receipt by such designee will
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m. Eastern Time on the next following business day ("T+1").
"Business Day" will mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the SEC.
1.2. The Company will pay for Fund shares on T+1 that an order to purchase
Fund shares is made in accordance with Section 1.1 above. Payment will be in
federal funds transmitted by wire. This wire transfer will be initiated by 12:00
p.m. Eastern Time.
1.3. The Fund agrees to make shares of the Designated Portfolios available
indefinitely for purchase at the applicable net asset value per share by
Participating Insurance Companies and their separate accounts on those days on
which the Fund calculates its Designated Portfolio net asset value pursuant to
rules of the SEC and the Fund shall use reasonable efforts to calculate such net
asset value on
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<PAGE>
each day the New York Stock Exchange is open for trading; provided, however,
that the Board of Trustees of the Fund (the "Fund Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Fund Board,
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders of
such Portfolio.
1.4. On each Business Day on which the Fund calculates its net asset
value, the Company will aggregate and calculate the net purchase or redemption
orders for each Account or the appropriate subaccount of each Account maintained
by the Fund in which contractowner assets are invested. Net orders will only
reflect orders that the Company has received prior to the close of regular
trading on the New York Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m.,
Eastern Time) on that Business Day. Orders that the Company has received after
the close of regular trading on the NYSE will be treated as though received on
the next Business Day. Each communication of orders by the Company will
constitute a representation that such orders were received by it prior to the
close of regular trading on the NYSE on the Business Day on which the purchase
or redemption order is priced in accordance with Rule 22c-1 under the 1940 Act.
Other procedures relating to the handling of orders will be in accordance with
the prospectus and statement of information of the relevant Designated Portfolio
or with oral or written instructions that the Distributor or the Fund will
forward to the Company from time to time.
1.5. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts, qualified pension
and retirement plans or such other persons as are permitted under applicable
provisions of the Internal Revenue Code of 1986, as amended, (the "Internal
Revenue Code"), and regulations promulgated thereunder, the sale to which will
not impair the tax treatment currently afforded the Contracts. No shares of any
Portfolio will be sold to the general public except as set forth in this Section
1.5.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company will be the designee of the Fund for receipt of
requests for redemption from each Account or the appropriate subaccount of each
Account and receipt by such designee will constitute receipt by the Fund,
provided the Fund receives notice of request for redemption by 10:00 a.m.
Eastern Time on the next following Business Day. Payment will be in federal
funds transmitted by wire to the Company's account as designated by the Company
in writing from time to time, on the same Business Day the Fund receives notice
of the redemption order from the Company. The Fund reserves the right to delay
payment of redemption proceeds, but in no event may such payment be delayed
longer than the period permitted by the 1940 Act. The Fund will not bear any
responsibility whatsoever for the proper disbursement or crediting of redemption
proceeds; the Company alone will be responsible for such action. If notification
of redemption is received after 10:00 a.m. Eastern Time, payment for redeemed
shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Designated Portfolios offered by the then current prospectus of the Fund in
accordance with the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
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<PAGE>
1.9. The Fund will furnish same day notice (by telecopier, followed by
written confirmation) to the Company of the declaration of any income, dividends
or capital gain distributions payable on each Designated Portfolio's shares. The
Company hereby elects to receive all such dividends and distributions as are
payable on the Designated Portfolio shares in the form of additional shares of
that Designated Portfolio. The Fund will notify the Company of the number of
shares so issued as payment of such dividends and distributions. The Company
reserves the right to revoke this election upon reasonable prior notice to the
Fund and to receive all such dividends and distributions in cash.
1.10. The Fund will make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and will use its
best efforts to make such net asset value per share available by 6:00 p.m.,
Eastern Time, but in no event later than 7:00 p.m., Eastern Time, each Business
Day.
1.11. In the event adjustments are required to correct any error in the
computation of the net asset value of the Fund's shares, the Fund or the
Distributor will notify the Company as soon as practicable after discovering the
need for those adjustments that result in an aggregate reimbursement of $150 or
more to any one subaccount of each Account maintained by a Designated Portfolio
unless notified otherwise by the Company (or, if greater, results in an
adjustment of $10 or more to each contractowner's account). Any such notice will
state for each day for which an error occurred the incorrect price, the correct
price and, to the extent communicated to the Fund's shareholders, the reason for
the price change. The Company may send this notice or a derivation thereof (so
long as such derivation is approved in advance by the Distributor or the
Adviser) to contractowners whose accounts are affected by the price change. The
parties will negotiate in good faith to develop a reasonable method for
effecting such adjustments. The Fund shall provide the Company, on behalf of the
Account or the appropriate subaccount of each Account, with a prompt adjustment
to the number of shares purchased or redeemed to reflect the correct share net
asset value.
1.12.
(a) The parties hereto acknowledge that the arrangement contemplated
by this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.5 hereof) and the cash value of
the Contracts may be invested in other investment companies, provided,
however, that until this Agreement is terminated pursuant to Article X,
the Company shall promote the Designated Portfolios on the same basis as
other funding vehicles available under the Contracts and funding vehicles
other than those listed on Schedule B to this Agreement may be available
for the investment of the cash value of the Contracts.
(b) The Company shall not, without prior notice to the Advisor and
the Distributor (unless otherwise required by applicable law), take any
action to operate the Account as a management investment company under the
1940 Act.
(c) The Company shall not, without prior notice to the Advisor and
the Distributor (unless otherwise required by applicable law), induce
contractowners to change or modify the Fund or change the Fund's
distributor or investment adviser.
(d) The Company shall not, without prior notice to the Fund, induce
contractowners to vote on any matter submitted for consideration by the
shareholders of the Fund in a manner other than as recommended by the Fund
Board.
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<PAGE>
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance with all applicable federal and state laws, including state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account as a separate
account under applicable state law and has registered the Account as a unit
investment trust in accordance with the provisions of thin 1940 Act to serve as
a segregated investment account for the Contracts, and that it will maintain
such registration for so long as any Contracts are outstanding. The Company will
amend the registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the Contracts or as may
otherwise be required by applicable law. The Company will register and qualify
the Contracts for sale in accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at the
time of issuance will be treated as endowment, annuity or life insurance
contracts under applicable provisions of the Internal Revenue Code, and that it
will make every effort to maintain such treatment and that it will notify the
Fund and the Adviser immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Company represents and warrants that it will not purchase shares
of the Designated Portfolios with assets derived from tax-qualified retirement
plans except, indirectly, through Contracts purchased in connection with such
plans.
2.4. The Fund represents and warrants that Fund shares of the Designated
Portfolios sold pursuant to this Agreement will be registered under the 1933 Act
and duly authorized for issuance in accordance with applicable law and that the
Fund is and will remain registered under the 1940 Act for as long as such shares
of the Designated Portfolios are outstanding. The Fund will amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund will register and qualify the shares of the Designated
Portfolios for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by the Fund.
2.5. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, and that it
will make every effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.6. The Fund represents and warrants that in performing the services
described in this Agreement, the Fund will comply with all applicable laws,
rules and regulations. The Fund makes no representation as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies, objectives and restrictions) complies with the insurance
laws and regulations of any state. The Fund and the Distributor agree that upon
request they will use their best efforts to furnish the information required by
state insurance laws so that the Company can obtain the authority needed to
issue the Contracts in the various states.
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2.7. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it
reserves the right to make such payments in the future. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1 the Fund
undertakes to have its Fund Board formulate and approve any plan under Rule
12b-1 to finance distribution expenses in accordance with the 1940 Act.
2.8. The Distributor represents and warrants that it will distribute the
Fund shares of the Designated Portfolios in accordance with all applicable
federal and state securities laws including, without limitation, the 1933 Act,
the 1934 Act and the 1940 Act.
2.9. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with applicable provisions of the 1940
Act.
2.10. The Distributor represents and warrants that it is and will remain
duly registered under all applicable federal and state securities laws and that
it will perform its obligations for the Fund in accordance in all material
respects with any applicable state and federal securities laws.
2.11. The Fund and the Distributor represent and warrant that all of their
trustees, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Fund or the Distributor will provide the Company, at the Fund's
or its affiliate's expense, with as many copies of the current Fund prospectus
for the Designated Portfolios as the Company may reasonably request for
distribution, at the Company's expense, to prospective contractowners and
applicants. The Fund or the Distributor will provide, at the Fund's or its
affiliate's expense, as many copies of said prospectus as necessary for
distribution, at the Company's expense, to existing contractowners. The Fund or
the Distributor will provide the copies of said prospectus to the Company or to
its mailing agent. If requested by the Company in lieu thereof, the Fund or the
Distributor will provide such documentation, including a computer diskette or a
final copy of a current prospectus set in type at the Fund's or its affiliate's
expense, and such other assistance as is reasonably necessary in order for the
Company at least annually (or more frequently if the Fund prospectus is amended
more frequently) to have the Fund's prospectus and the prospectuses of other
mutual funds in which assets attributable to the Contracts may be invested
printed together in one document, in which case the Fund or its affiliate will
bear its reasonable share of expenses as described above, allocated based on the
proportionate number of pages of the Fund's and other fund's respective portions
of the document.
3.2. The Fund or the Distributor will provide the Company, at the Fund's
or its affiliate's expense, with as many copies of the statement of additional
information as the Company may reasonably request for distribution, at the
Company's expense, to prospective contractowners and applicants. The Fund or the
Distributor will provide, at the Fund's or its affiliate's expense, as many
copies of said statement of additional information as necessary for
distribution, at the Company's expense, to any existing contractowner who
requests such statement or whenever state or federal law otherwise requires that
such
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<PAGE>
statement be provided. The Fund or the Distributor will provide the copies
of said statement of additional information to the Company or to its mailing
agent.
3.3. The Fund or the Distributor, at the Fund's or its affiliate's
expense, will provide the Company or its mailing agent with copies of its proxy
material, if any, reports to shareholders and other communications to
shareholders in such quantity as the Company will reasonably require. The
Company will distribute this proxy material, reports and other communications to
existing contractowners and tabulate the votes.
3.4. If and to the extent required by law the Company will:
(a) solicit voting instructions from contractowners;
(b) vote the shares of the Designated Portfolios held in the Account
in accordance with instructions received from contractowners; and
(c) vote shares of the Designated Portfolios held in the Account for
which no timely instructions have been received, as well as shares it
owns, in the same proportion as shares of such Designated Portfolio for
which instructions have been received from the Company's contractowners;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contractowners. Except as
set forth above, the Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law. The
Company will be responsible for assuring that each of its separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with all legal requirements, including the Mixed and Shared Funding Exemptive
Order.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular, the Fund either will provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends to comply
with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of trustees and with whatever rules the SEC may promulgate
with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Distributor will provide the Company on a timely basis with
investment performance information for each Designated Portfolio in which the
Company maintains a subaccount of the Account, including total return for the
preceding calendar month and calendar quarter, the calendar year to date, and
the prior one-year, five-year, and ten year (or life of the Fund) periods. The
Company may, based on the SEC mandated information supplied by the Distributor,
prepare communications for contractowners ("Contractowner Materials"). The
Company will provide copies of all Contractowner Materials concurrently with
their first use for the Distributor's internal recordkeeping purposes. It is
understood that neither the Distributor nor any Designated Portfolio will be
responsible for errors or omissions in, or the content of, Contractowner
Materials except to the extent that the error or omission resulted from
information provided by or on behalf of the Distributor or the Designated
Portfolio. Any printed information that is furnished to the Company pursuant to
this Agreement other than each Designated
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Portfolio's prospectus or statement of additional information (or information
supplemental thereto), periodic reports and proxy solicitation materials is the
Distributor's sole responsibility and not the responsibility of any Designated
Portfolio or the Fund. The Company agrees that the Portfolios, the shareholders
of the Portfolios and the officers and governing Board of the Fund will have no
liability or responsibility to the Company in these respects.
4.2. The Company will not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or statement of additional
information for Fund shares, as such registration statement, prospectus and
statement of additional information may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in published reports
for the Fund which are in the public domain or approved by the Fund or the
Distributor for distribution, or in sales literature or other material provided
by the Fund, Adviser or by the Distributor, except with permission of the
Distributor. Any piece of sales literature or other promotional material
intended to be used by the Company which requires the permission of the
Distributor prior to use will be furnished by Company to the Distributor, or its
designee, at least ten (10) business days prior to its use. No such material
will be used if the Distributor reasonably objects to such use within five (5)
business days after receipt of such material.
Nothing in this Section 4.2 will be construed as preventing the Company or its
employees or agents from giving advice on investment in the Fund.
4.3. The Fund, the Adviser or the Distributor will furnish, or will cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company or its Account is named, at
least ten (10) business days prior to its use. No such material will be used if
the Company reasonably objects to such use within five (5) business days after
receipt of such material.
4.4. The Fund, the Adviser and the Distributor will not give any
information or make any representations or statements on behalf of the Company
or concerning the Company, each Account, or the Contracts other than the
information or representations contained in a registration statement, prospectus
or statement of additional information for the Contracts, as such registration
statement, prospectus and statement of additional information may be amended or
supplemented from time to time, or in published reports for each Account or the
Contracts which are in the public domain or approved by the Company for
distribution to contractowners, or in sales literature or other material
provided by the Company, except with permission of the Company. The Company
agrees to respond to any request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, 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 Fund or its shares, contemporaneously
with the filing of such document with the SEC, the NASD or other regulatory
authority.
4.6. The Company will provide to the Fund 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 Contracts or
each Account, contemporaneously with the filing of such document with the SEC,
the NASD or other regulatory authority.
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4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisements, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.8. The Fund and the Distributor hereby consent to the Company's use of
the names Fleet Investment Advisors Inc., The Galaxy VIP Fund, the portfolio
names designated on Schedule B or other designated names as may be used from
time to time in connection with the marketing of the Contracts, subject to the
terms of Sections 4.1 and 4.2 of this Agreement. Such consent will terminate
with the termination of this Agreement.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund, the Adviser and the Distributor will pay no fee or other
compensation to the Company under this Agreement except if the Fund or any
Designated Portfolio adopts and implements a plan pursuant to Rule 12b-1 under
the 1940 Act to finance distribution expenses, then, subject to obtaining any
required exemptive orders or other regulatory approvals, the Fund may make
payments to the Company or to the underwriter for the Contracts if and in such
amounts agreed to by the Fund in writing.
5.2. All expenses incident to performance by the Fund of this Agreement
will be paid by the Fund to the extent permitted by law. The Fund will bear the
expenses for the cost of registration and qualification of the Fund's shares;
preparation and filing of the Fund's prospectus, statement of additional
information and registration statement, proxy materials and reports; setting in
type and printing the Fund's prospectus; setting in type and printing proxy
materials and reports by it to contractowners (including the costs of printing a
Fund prospectus that constitutes an annual report); the preparation of all
statements and notices required by any federal or state law; all taxes on the
issuance or transfer of the Fund's shares; any expenses permitted to be paid or
assumed by the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act; and all other expenses set forth in Article III of this Agreement.
ARTICLE VI. DIVERSIFICATION AND QUALIFICATION
6.1. The Adviser will ensure that the Fund will at all times invest money
from the Contracts in such a manner as to ensure that the Contracts will be
treated as variable annuity contracts under the Internal Revenue Code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Fund will comply with Section 817(h) of the Internal Revenue Code and Treasury
Regulation 1.817-5, as amended from time to time, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulation. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps: (a) to notify the Company of such breach; and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Treasury Regulation 1.817-5.
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6.2. The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, and that it
will make every effort to maintain such qualification (under Subchapter M or any
successor or similar provisions) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
6.3. The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Internal Revenue Code, and that it
will make every effort to maintain such treatment, and that it will notify the
Fund and the Distributor immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus offering a
contract that is a "modified endowment contract" as that term is defined in
Section 7702A of the Internal Revenue Code (or any successor or similar
provision), shall identify such contract as a modified endowment contract.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Fund Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contractowners of
all separate accounts investing in the Fund. An irreconcilable material 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, no-action or interpretative letter, 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 and variable life insurance
contractowners; or (f) a decision by an insurer to disregard the voting
instructions of contractowners. The Fund Board shall promptly inform the Company
if it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Fund Board. The Company will assist the Fund Board in
carrying out its responsibilities under the Mixed and Shared Funding Exemptive
Order, by providing the Fund Board with all information reasonably necessary for
the Fund Board to consider any issues raised. This includes, but is not limited
to, an obligation by the Company to inform the Fund Board whenever contractowner
voting instructions are disregarded.
7.3. If it is determined by a majority of the Fund Board, or a majority of
its disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Fund Board members), take whatever steps are necessary to remedy
or eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contractowners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contractowners, life insurance
contractowners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected contractowners the option of making such a change; and (2) establishing
a new registered management investment company or managed separate account.
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7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to each Account; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Fund Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Fund Board informs the
Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Fund Board. Until the end of the foregoing six month period, the Fund
shall continue to accept and implement orders by the Company for the purchase
(and redemption) of shares of the Fund.
7.6. For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Fund Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Fund Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Fund Board informs
the Company in writing of the foregoing determination; provided, however, that
such withdrawal and termination shall be limited to the extent required by any
such material irreconcilable conflict as determined by a majority of the
disinterested members of the Fund Board.
7.7. If and to the extent the Mixed and Shared Funding Exemptive Order or
any amendment thereto contains terms and conditions different from Sections 3.4,
3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or
the Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with the Mixed and Shared Funding Exemptive Order,
and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in the Mixed and Shared Funding
Exemptive Order or any amendment thereto. If and to the extent that Rule 6e-2
and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Mixed and Shared
Funding Exemptive Order) on terms and conditions materially different from those
contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in
effect only to the
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extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Distributor, and each person, if any, who controls or is
associated with the Fund, the Adviser or the Distributor within the
meaning of such terms under the federal securities laws and any director,
trustee, officer, partner, employee or agent of the foregoing
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or litigation (including reasonable legal and other expenses), to
which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(1) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Contracts or contained in the Contracts or sales
literature or other promotional material for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein
a material fact required to be stated or necessary to make such
statements not misleading in light of the circumstances in which
they were made; provided that this agreement to indemnify will not
apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with written information furnished to the Company by the
Fund, the Adviser or the Distributor for use in the registration
statement, prospectus or statement of additional information for the
Contracts or in the Contracts or sales literature (or any amendment
or supplement) or otherwise for use in connection with the sale of
the Contracts or Fund shares; or
(2) arise out of or as a result of statements or
representations by or on behalf of the Company or wrongful conduct
of the Company or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(3) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund registration
statement, prospectus, statement of additional information or sales
literature or other promotional material of the Fund (or amendment
or supplement) or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make
such statements not misleading in light of the circumstances in
which they were made, if such a statement or omission was made in
reliance upon and in conformity with information furnished to the
Fund by or on behalf of the Company or persons under its control; or
(4) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement; or
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(5) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out
of or result from any other material breach by the Company of this
Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification will be in addition to any liability that the Company
otherwise may have.
(b) No party will be entitled to indemnification under Section
8.1(a) to the extent such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence in the
performance of such party's duties under this Agreement, or by reason of
such party's reckless disregard of its obligations or duties under this
Agreement by the party seeking indemnification.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions by
regulatory authorities against them in connection with the issuance or
sale of the Fund shares or the Contracts or the operation of the Fund.
8.2. INDEMNIFICATION BY THE ADVISER, THE FUND AND THE DISTRIBUTOR
(a) The Adviser, the Fund and the Distributor, in each case solely
to the extent relating to such party's responsibilities hereunder, agree
to indemnify and hold harmless the Company and each person, if any, who
controls or is associated with the Company within the meaning of such
terms under the federal securities laws and any director, trustee,
officer, partner, employee or agent of the foregoing (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and
all losses, claims, expenses, damages, liabilities (including amounts paid
in settlement with the written consent of the Adviser) or litigation
(including reasonable legal and other expenses) to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Fund or sales literature or other promotional
material of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated or necessary to make such statements not misleading in light
of the circumstances in which they were made; provided that this
agreement to indemnify will not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished
to the Adviser, the Distributor or the Fund by or on behalf of the
Company for use in the registration statement, prospectus or
statement of additional information for the Fund or in sales
literature of the Fund (or any amendment or supplement thereto) or
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(2) arise out of or as a result of statements or
representations or wrongful conduct of the Adviser, the Fund or the
Distributor or persons under the control of the Adviser, the Fund or
the Distributor respectively, with respect to the sale of the Fund
shares; or
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<PAGE>
(3) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, statement of additional information or sales literature
or other promotional material covering the Contracts (or any
amendment or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be stated or
necessary to make such statement or statements not misleading in
light of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in conformity
with written information furnished to the Company by the Adviser,
the Fund or the Distributor or persons under the control of the
Adviser, the Fund or the Distributor; or
(4) arise as a result of any failure by the Fund, the Adviser
or the Distributor to provide the services and furnish the materials
under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the
diversification requirements and procedures related thereto
specified in Article VI of this Agreement); or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser, the Fund or the
Distributor in this Agreement, or arise out of or result from any
other material breach of this Agreement by the Adviser, the Fund or
the Distributor;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification will be in addition to any liability that the Fund,
Adviser or the Distributor otherwise may have.
(b) No party will be entitled to indemnification under Section
8.2(a) to the extent such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence in the
performance of such party's duties under this Agreement, or by reason of
such party's reckless disregard of its obligations or duties under this
Agreement by the party seeking indemnification.
(c) The Indemnified Parties will promptly notify the Adviser, the
Fund and the Distributor of the commencement of any litigation,
proceedings, complaints or actions by regulatory authorities against them
in connection with the issuance or sale of the Contracts or the operation
of the account.
8.3. INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.3) will not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("Indemnified Party" for the purpose of this Section 8.3) unless such
Indemnified Party will have notified the Indemnifying Party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim will have been served upon such
Indemnified Party (or after such party will have received notice of such service
on any designated agent), but failure to notify the Indemnifying Party of any
such claim will not relieve the Indemnifying Party from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of the indemnification provision of this Article VIII, except to
the extent that the failure to notify results in the failure of actual notice to
the Indemnifying Party and such Indemnifying Party is damaged solely as a result
of failure to give such notice. In case any such action is brought against the
Indemnified Party, the
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<PAGE>
Indemnifying Party will be entitled to participate, at its own expense, in the
defense thereof. The Indemnifying Party also will be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Indemnifying Party to the Indemnified Party of the
Indemnifying Party's election to assume the defense thereof, the Indemnified
Party will bear the fees and expenses of any additional counsel retained by it,
and the Indemnifying Party will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation, unless: (a) the Indemnifying Party and the Indemnified Party
will have mutually agreed to the retention of such counsel; or (b) the named
parties to any such proceeding (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The Indemnifying Party will not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent or if there is a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and against
any loss or liability by reason of such settlement or judgment. A successor by
law of the parties to this Agreement will be entitled to the benefits of the
indemnification contained in this Article VIII. The indemnification provisions
contained in this Article VIII will survive any termination of this Agreement.
8.4 DISTRIBUTOR LIMITATION ON LIABILITY. Notwithstanding the foregoing,
the Distributor shall not be liable to any party to this Agreement for lost
profits, punitive, special, incidental, indirect or consequential damages.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Delaware.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
If, in the future, the Mixed and Shared Funding Exemptive Order should no longer
be necessary under applicable law, then Article VII shall no longer apply.
ARTICLE X. TERMINATION
10.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect
to some or all of the Designated Portfolios, upon sixty (60) days' advance
written notice to the other parties or, if later, upon receipt of any
required exemptive relief or orders from the SEC, unless otherwise agreed
in a separate written agreement among the parties; or
(b) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated
Portfolio if shares of the Designated Portfolio are not reasonably
available to meet the requirements of the Contracts as determined in good
faith by the Company; or
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(c) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated
Portfolio in the event any of the Designated Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or
Federal law or such law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by Company; or
(d) at the option of the Fund, upon receipt of the Fund's written
notice by the other parties, upon institution of formal proceedings
against the Company by the NASD, the SEC, the insurance commission of any
state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the administration
of the Contracts, the operation of the Account, or the purchase of the
Fund shares, provided that the Fund determines in its sole judgment,
exercised in good faith, that any such proceeding would have a material
adverse effect on the Company's ability to perform its obligations under
this Agreement; or
(e) at the option of the Company, upon receipt of the Company's
written notice by the other parties, upon institution of formal
proceedings against the Fund, Adviser or the Distributor by the NASD, the
SEC, or any state securities or insurance department or any other
regulatory body, provided that the Company determines in its sole
judgment, exercised in good faith, that any such proceeding would have a
material adverse effect on the Fund's or the Distributor's ability to
perform its obligations under this Agreement; or
(f) at the option of the Company, upon receipt of the Company's
written notice by the other parties, if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Internal Revenue
Code, or under any successor or similar provision, or if the Company
reasonably and in good faith believes that the Fund may fail to so
qualify; or
(g) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated
Portfolio if the Fund fails to meet the diversification requirements
specified in Article VI hereof or if the Company reasonably and in good
faith believes the Fund may fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon written
notice to the other parties, upon another party's material breach of any
provision of this Agreement which material breach is not cured within
thirty (30) days of said notice; or
(i) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that either the Fund, the Adviser
or the Distributor has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is
the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the Company,
such termination to be effective sixty (60) days' after receipt by the
other parties of written notice of the election to terminate; or
(j) at the option of the Fund or the Distributor, if the Fund or the
Distributor respectively, determines in its sole judgment exercised in
good faith, that the Company has suffered a material adverse change in its
business, operations or financial condition since the date of this
Agreement or is the subject of material adverse publicity which is likely
to have a material adverse impact upon the business and operations of the
Fund or the Adviser, such termination to be effective sixty (60) days'
after receipt by the other parties of written notice of the election to
terminate; or
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(k) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners
having an interest in the Account (or any subaccount) to substitute the
shares of another investment company for the corresponding Designated
Portfolio shares of the Fund in accordance with the terms of the Contracts
for which those Designated Portfolio shares had been selected to serve as
the underlying investment media. The Company will give sixty (60) days'
prior written notice to the Fund of the date of any proposed vote or other
action taken to replace the Fund's shares; or
(l) at the option of the Company or the Fund upon a determination by
a majority of the Fund Board, or a majority of the disinterested Fund
Board members, that an irreconcilable material conflict exists among the
interests of: (1) all contractowners of variable insurance products of all
separate accounts; or (2) the interests of the Participating Insurance
Companies investing in the Fund as set forth in Article VII of this
Agreement; or
(m) at the option of the Fund in the event any of the Contracts are
not issued or sold in accordance with applicable federal and/or state law.
Termination will be effective immediately upon such occurrence without
notice.
10.2. NOTICE REQUIREMENT. No termination of this Agreement will be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties of its intent to terminate, which notice
will set forth the basis for the termination.
10.3. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Distributor will, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement ( hereinafter referred to as "Existing
Contracts.") . Specifically, without limitation, the owners of the Existing
Contracts will be permitted to reallocate investments in the Portfolios (as in
effect on such date), redeem investments in the Portfolios and/or invest in the
Portfolios upon the making of additional purchase payments under the Existing
Contracts.
10.4. SURVIVING PROVISIONS. Notwithstanding any termination of this
Agreement, each party's obligations under Article VIII to indemnify other
parties will survive and not be affected by any termination of this Agreement.
In addition, each party's obligations under Section 12.7 will survive and not be
affected by any termination of this Agreement. Finally, with respect to Existing
Contracts, all provisions of this Agreement also will survive and not be
affected by any termination of this Agreement.
ARTICLE XI. NOTICES
11.1. Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund: THE GALAXY VIP FUND
c/o William Greilich
4400 Computer Drive
Westborough, MA 01581-9896
If to the Company: Golden American Life Insurance Company
c/o Myles Tashman
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<PAGE>
Executive Vice President and General Counsel
1475 Dunwoody Drive
West Chester, PA 19380
If to Adviser: Fleet Investment Advisers Inc.
c/o Tom O' Neill, President
4400 Computer Drive
Westborough, MA 01581-9896
If to Distributor: First Data Distributors, Inc.
c/o President
4400 Computer Drive
Westborough, MA 01581-9896
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
directors, trustees, officers, partners, employees, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio or series of the Fund will be liable for the obligations or
liabilities of any other Portfolio or series.
12.2. The Fund, the Adviser and the Distributor acknowledge that the
identities of the customers of the Company or any of its affiliates, except for
customers of the Adviser or its affiliates (collectively the "Company Protected
Parties" for purposes of this Section 12.2), information maintained regarding
those customers, and all computer programs and procedures or other information
developed or used by the Company Protected Parties or any of their employees or
agents in connection with the Company's performance of its duties under this
Agreement are the valuable property of the Company Protected Parties. The Fund,
the Adviser and the Distributor agree that if they come into possession of any
list or compilation of the identities of or other information about the Company
Protected Parties' customers, or any other information or property of the
Company Protected Parties, other than such information as is publicly available
or as may be independently developed or compiled by the Fund, the Adviser or the
Distributor from information supplied to them by the Company Protected Parties'
customers who also maintain accounts directly with the Fund, the Adviser or the
Distributor, the Fund, the Adviser and the Distributor will hold such
information or property in confidence and refrain from using, disclosing or
distributing any of such information or other property except: (a) with the
Company's prior written consent; or (b) as required by law or judicial process.
The Company acknowledges that the identities of the customers of the Fund, the
Adviser, the Distributor or any of their affiliates (collectively the "Adviser
Protected Parties" for purposes of this Section 12.2), information maintained
regarding those customers, and all computer programs and procedures or other
information developed or used by the Adviser Protected Parties or any of their
employees or agents in connection with the Fund's, the Adviser's or the
Distributor's performance of their respective duties under this Agreement are
the valuable property of the Adviser Protected Parties. The Company agrees that
if it comes into possession of any list or compilation of the identities of or
other information about the Adviser Protected Parties' customers, or any other
information or property of the Adviser Protected Parties, other than such
information as is publicly available or as may be independently developed or
compiled by the Company from information supplied to them by the Adviser
Protected Parties' customers who also maintain accounts directly with the
Company, the Company will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with the Fund's, the Adviser's or the Distributor's prior
written
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<PAGE>
consent; or (b) as required by law or judicial process. Each party acknowledges
that any breach of the agreements in this Section 12.2 would result in immediate
and irreparable harm to the other parties for which there would be no adequate
remedy at law and agree that in the event of such a breach, the other parties
will be entitled to equitable relief by way of temporary and permanent
injunctions, as well as such other relief as any court of competent jurisdiction
deems appropriate.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
12.5. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.6. This Agreement will not be assigned by any party hereto without the
prior written consent of all the parties, except that the Distributor may assign
this Agreement to Provident Distributors Inc. (or one of its properly qualified
affiliates) with prior written notice to all parties.
12.7. Each party to this Agreement will maintain all records required by
law, including records detailing the services it provides. Such records will be
preserved, maintained and made available to the extent required by law and in
accordance with the 1940 Act and the rules thereunder. Each party to this
Agreement will cooperate with each other party and all appropriate governmental
authorities (including without limitation the SEC, the NASD and state insurance
regulators) and will permit each other and such authorities reasonable access to
its books and records in connection with any investigation or inquiry relating
to this Agreement or the transactions contemplated hereby. Upon request by the
Fund or the Distributor, the Company agrees to promptly make copies or, if
required, originals of all records pertaining to the performance of services
under this Agreement available to the Fund or the Distributor, as the case may
be. The Fund agrees that the Company will have the right to inspect, audit and
copy all records pertaining to the performance of services under this Agreement
pursuant to the requirements of any state insurance department. Each party also
agrees to promptly notify the other parties if it experiences any difficulty in
maintaining the records in an accurate and complete manner. This provision will
survive termination of this Agreement.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or board action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Designated Portfolios of the Fund or other applicable terms
of this Agreement.
12.10. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights.
12.11. 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
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<PAGE>
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Fund. The
obligations of "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 Fund personally, but bind only
the Trust Property, and all persons dealing with any class of Shares of the Fund
must look solely to the Trust Property belonging to such class for the
enforcement of any claims against the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below:
GOLDEN AMERICAN LIFE INSURANCE
COMPANY:
By:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
THE GALAXY VIP FUND:
By:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
FLEET INVESTMENT ADVISORS INC :
By:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
FIRST DATA DISTRIBUTORS, INC.
By:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
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<PAGE>
SCHEDULE A
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONTRACTS AND SEPARATE ACCOUNT(S)
CONTRACT(S):
Deferred Combination Variable and Fixed Annuity Contract --
Premium Plus featuring The Galaxy VIP Fund
SEPARATE ACCOUNT(S):
Separate Account B of Golden American Life Insurance Company
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<PAGE>
SCHEDULE B
THE GALAXY VIP FUND
DESIGNATED PORTFOLIOS
PORTFOLIOS:
Equity Fund
Growth and Income Fund
Small Company Growth Fund
Asset Allocation Fund
High Quality Bond Fund
Schedule Date: October 1, 1999
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<PAGE>
Exhibit (h)(10)
PARTICIPATION AGREEMENT
AMONG
FIRST GOLDEN AMERICAN LIFE INSURANCE COMPANY OF NEW YORK,
THE GALAXY VIP FUND,
FLEET INVESTMENT ADVISORS INC.
AND
FIRST DATA DISTRIBUTORS, INC.
THIS AGREEMENT, dated as of the 1st day of October, 1999, by and among
First Golden American Life Insurance Company of New York (the "Company"), a life
insurance company organized under the laws of the State of New York, on its own
behalf and on behalf of each separate account of the Company set forth on
Schedule A hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"), The Galaxy VIP Fund (the "Fund"), a
management investment company and business trust organized under the laws of the
Commonwealth of Massachusetts, Fleet Investment Advisors Inc. (the "Adviser"), a
corporation organized under the laws of the State of New York, and First Data
Distributors, Inc. (the "Distributor"), a corporation organized under the laws
of the Commonwealth of Massachusetts.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance and variable annuity contracts (the
"Variable Insurance Products") to be offered by insurance companies which have
entered into participation agreements with the Fund, Adviser and Distributor
("Participating Insurance Companies");
WHEREAS, the shares of beneficial interest of the Fund are divided into
several series of shares, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (the "SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(the "Mixed and Shared Funding Exemptive Order"), and the parties to this
Agreement agree to comply with the conditions or undertakings specified in the
Mixed and Shared Funding Exemptive Order to the extent applicable to each such
party;
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (the "1933 Act");
<PAGE>
WHEREAS, the Adviser, which serves as investment adviser to the Designated
Portfolios (as hereinafter defined) of the Fund, is duly registered as an
investment adviser under the federal Investment Advisers Act of 1940, as
amended;
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act;
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by the Company under the insurance laws of the State
of Delaware, to set aside and invest assets attributable to the Contracts;
WHEREAS, the Company has registered the Account as a unit investment
trust under the 1940 Act;
WHEREAS, the Company has issued or will issue certain variable life
insurance and/or variable annuity contracts supported wholly or partially by the
Account (the "Contracts"), and said Contracts are listed in Schedule A hereto,
as it may be amended from time to time by mutual written agreement;
WHEREAS, the Distributor, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule B hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Distributor is authorized to sell such shares to
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund, the Adviser, and the Distributor agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares of the Designated
Portfolios that each Account or the appropriate subaccount of each Account
orders, executing such orders on a daily basis at the net asset value next
computed after receipt and acceptance by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company will
be the designee of the Fund for receipt of such orders from each Account or the
appropriate subaccount of each Account and receipt by such designee will
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m. Eastern Time on the next following business day ("T+1").
"Business Day" will mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the SEC.
1.2. The Company will pay for Fund shares on T+1 that an order to purchase
Fund shares is made in accordance with Section 1.1 above. Payment will be in
federal funds transmitted by wire. This wire transfer will be initiated by 12:00
p.m. Eastern Time.
1.3. The Fund agrees to make shares of the Designated Portfolios available
indefinitely for purchase at the applicable net asset value per share by
Participating Insurance Companies and their separate accounts on those days on
which the Fund calculates its Designated Portfolio net asset value pursuant to
rules of the SEC and the Fund shall use reasonable efforts to calculate such net
asset value on
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<PAGE>
each day the New York Stock Exchange is open for trading; provided, however,
that the Board of Trustees of the Fund (the "Fund Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Fund Board,
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders of
such Portfolio.
1.4. On each Business Day on which the Fund calculates its net asset
value, the Company will aggregate and calculate the net purchase or redemption
orders for each Account or the appropriate subaccount of each Account maintained
by the Fund in which contractowner assets are invested. Net orders will only
reflect orders that the Company has received prior to the close of regular
trading on the New York Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m.,
Eastern Time) on that Business Day. Orders that the Company has received after
the close of regular trading on the NYSE will be treated as though received on
the next Business Day. Each communication of orders by the Company will
constitute a representation that such orders were received by it prior to the
close of regular trading on the NYSE on the Business Day on which the purchase
or redemption order is priced in accordance with Rule 22c-1 under the 1940 Act.
Other procedures relating to the handling of orders will be in accordance with
the prospectus and statement of information of the relevant Designated Portfolio
or with oral or written instructions that the Distributor or the Fund will
forward to the Company from time to time.
1.5. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts, qualified pension
and retirement plans or such other persons as are permitted under applicable
provisions of the Internal Revenue Code of 1986, as amended, (the "Internal
Revenue Code"), and regulations promulgated thereunder, the sale to which will
not impair the tax treatment currently afforded the Contracts. No shares of any
Portfolio will be sold to the general public except as set forth in this Section
1.5.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company will be the designee of the Fund for receipt of
requests for redemption from each Account or the appropriate subaccount of each
Account and receipt by such designee will constitute receipt by the Fund,
provided the Fund receives notice of request for redemption by 10:00 a.m.
Eastern Time on the next following Business Day. Payment will be in federal
funds transmitted by wire to the Company's account as designated by the Company
in writing from time to time, on the same Business Day the Fund receives notice
of the redemption order from the Company. The Fund reserves the right to delay
payment of redemption proceeds, but in no event may such payment be delayed
longer than the period permitted by the 1940 Act. The Fund will not bear any
responsibility whatsoever for the proper disbursement or crediting of redemption
proceeds; the Company alone will be responsible for such action. If notification
of redemption is received after 10:00 a.m. Eastern Time, payment for redeemed
shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Designated Portfolios offered by the then current prospectus of the Fund in
accordance with the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
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<PAGE>
1.9. The Fund will furnish same day notice (by telecopier, followed by
written confirmation) to the Company of the declaration of any income, dividends
or capital gain distributions payable on each Designated Portfolio's shares. The
Company hereby elects to receive all such dividends and distributions as are
payable on the Designated Portfolio shares in the form of additional shares of
that Designated Portfolio. The Fund will notify the Company of the number of
shares so issued as payment of such dividends and distributions. The Company
reserves the right to revoke this election upon reasonable prior notice to the
Fund and to receive all such dividends and distributions in cash.
1.10. The Fund will make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and will use its
best efforts to make such net asset value per share available by 6:00 p.m.,
Eastern Time, but in no event later than 7:00 p.m., Eastern Time, each Business
Day.
1.11. In the event adjustments are required to correct any error in the
computation of the net asset value of the Fund's shares, the Fund or the
Distributor will notify the Company as soon as practicable after discovering the
need for those adjustments that result in an aggregate reimbursement of $150 or
more to any one subaccount of each Account maintained by a Designated Portfolio
unless notified otherwise by the Company (or, if greater, results in an
adjustment of $10 or more to each contractowner's account). Any such notice will
state for each day for which an error occurred the incorrect price, the correct
price and, to the extent communicated to the Fund's shareholders, the reason for
the price change. The Company may send this notice or a derivation thereof (so
long as such derivation is approved in advance by the Distributor or the
Adviser) to contractowners whose accounts are affected by the price change. The
parties will negotiate in good faith to develop a reasonable method for
effecting such adjustments. The Fund shall provide the Company, on behalf of the
Account or the appropriate subaccount of each Account, with a prompt adjustment
to the number of shares purchased or redeemed to reflect the correct share net
asset value.
1.12.
(a) The parties hereto acknowledge that the arrangement contemplated
by this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.5 hereof) and the cash value of
the Contracts may be invested in other investment companies, provided,
however, that until this Agreement is terminated pursuant to Article X,
the Company shall promote the Designated Portfolios on the same basis as
other funding vehicles available under the Contracts and funding vehicles
other than those listed on Schedule B to this Agreement may be available
for the investment of the cash value of the Contracts.
(b) The Company shall not, without prior notice to the Advisor and
the Distributor (unless otherwise required by applicable law), take any
action to operate the Account as a management investment company under the
1940 Act.
(c) The Company shall not, without prior notice to the Advisor and
the Distributor (unless otherwise required by applicable law), induce
contractowners to change or modify the Fund or change the Fund's
distributor or investment adviser.
(d) The Company shall not, without prior notice to the Fund, induce
contractowners to vote on any matter submitted for consideration by the
shareholders of the Fund in a manner other than as recommended by the Fund
Board.
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<PAGE>
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance with all applicable federal and state laws, including state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account as a separate
account under applicable state law and has registered the Account as a unit
investment trust in accordance with the provisions of thin 1940 Act to serve as
a segregated investment account for the Contracts, and that it will maintain
such registration for so long as any Contracts are outstanding. The Company will
amend the registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the Contracts or as may
otherwise be required by applicable law. The Company will register and qualify
the Contracts for sale in accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at the
time of issuance will be treated as endowment, annuity or life insurance
contracts under applicable provisions of the Internal Revenue Code, and that it
will make every effort to maintain such treatment and that it will notify the
Fund and the Adviser immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Company represents and warrants that it will not purchase shares
of the Designated Portfolios with assets derived from tax-qualified retirement
plans except, indirectly, through Contracts purchased in connection with such
plans.
2.4. The Fund represents and warrants that Fund shares of the Designated
Portfolios sold pursuant to this Agreement will be registered under the 1933 Act
and duly authorized for issuance in accordance with applicable law and that the
Fund is and will remain registered under the 1940 Act for as long as such shares
of the Designated Portfolios are outstanding. The Fund will amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund will register and qualify the shares of the Designated
Portfolios for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by the Fund.
2.5. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, and that it
will make every effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.6. The Fund represents and warrants that in performing the services
described in this Agreement, the Fund will comply with all applicable laws,
rules and regulations. The Fund makes no representation as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies, objectives and restrictions) complies with the insurance
laws and regulations of any state. The Fund and the Distributor agree that upon
request they will use their best efforts to furnish the information required by
state insurance laws so that the Company can obtain the authority needed to
issue the Contracts in the various states.
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<PAGE>
2.7. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it
reserves the right to make such payments in the future. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1 the Fund
undertakes to have its Fund Board formulate and approve any plan under Rule
12b-1 to finance distribution expenses in accordance with the 1940 Act.
2.8. The Distributor represents and warrants that it will distribute the
Fund shares of the Designated Portfolios in accordance with all applicable
federal and state securities laws including, without limitation, the 1933 Act,
the 1934 Act and the 1940 Act.
2.9. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with applicable provisions of the 1940
Act.
2.10. The Distributor represents and warrants that it is and will remain
duly registered under all applicable federal and state securities laws and that
it will perform its obligations for the Fund in accordance in all material
respects with any applicable state and federal securities laws.
2.11. The Fund and the Distributor represent and warrant that all of their
trustees, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Fund or the Distributor will provide the Company, at the Fund's
or its affiliate's expense, with as many copies of the current Fund prospectus
for the Designated Portfolios as the Company may reasonably request for
distribution, at the Company's expense, to prospective contractowners and
applicants. The Fund or the Distributor will provide, at the Fund's or its
affiliate's expense, as many copies of said prospectus as necessary for
distribution, at the Company's expense, to existing contractowners. The Fund or
the Distributor will provide the copies of said prospectus to the Company or to
its mailing agent. If requested by the Company in lieu thereof, the Fund or the
Distributor will provide such documentation, including a computer diskette or a
final copy of a current prospectus set in type at the Fund's or its affiliate's
expense, and such other assistance as is reasonably necessary in order for the
Company at least annually (or more frequently if the Fund prospectus is amended
more frequently) to have the Fund's prospectus and the prospectuses of other
mutual funds in which assets attributable to the Contracts may be invested
printed together in one document, in which case the Fund or its affiliate will
bear its reasonable share of expenses as described above, allocated based on the
proportionate number of pages of the Fund's and other fund's respective portions
of the document.
3.2. The Fund or the Distributor will provide the Company, at the Fund's
or its affiliate's expense, with as many copies of the statement of additional
information as the Company may reasonably request for distribution, at the
Company's expense, to prospective contractowners and applicants. The Fund or the
Distributor will provide, at the Fund's or its affiliate's expense, as many
copies of said statement of additional information as necessary for
distribution, at the Company's expense, to any existing contractowner who
requests such statement or whenever state or federal law otherwise requires that
such
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<PAGE>
statement be provided. The Fund or the Distributor will provide the copies of
said statement of additional information to the Company or to its mailing agent.
3.3. The Fund or the Distributor, at the Fund's or its affiliate's
expense, will provide the Company or its mailing agent with copies of its proxy
material, if any, reports to shareholders and other communications to
shareholders in such quantity as the Company will reasonably require. The
Company will distribute this proxy material, reports and other communications to
existing contractowners and tabulate the votes.
3.4. If and to the extent required by law the Company will:
(a) solicit voting instructions from contractowners;
(b) vote the shares of the Designated Portfolios held in the Account
in accordance with instructions received from contractowners; and
(c) vote shares of the Designated Portfolios held in the Account for
which no timely instructions have been received, as well as shares it
owns, in the same proportion as shares of such Designated Portfolio for
which instructions have been received from the Company's contractowners;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contractowners. Except as
set forth above, the Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law. The
Company will be responsible for assuring that each of its separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with all legal requirements, including the Mixed and Shared Funding Exemptive
Order.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular, the Fund either will provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends to comply
with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of trustees and with whatever rules the SEC may promulgate
with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Distributor will provide the Company on a timely basis with
investment performance information for each Designated Portfolio in which the
Company maintains a subaccount of the Account, including total return for the
preceding calendar month and calendar quarter, the calendar year to date, and
the prior one-year, five-year, and ten year (or life of the Fund) periods. The
Company may, based on the SEC mandated information supplied by the Distributor,
prepare communications for contractowners ("Contractowner Materials"). The
Company will provide copies of all Contractowner Materials concurrently with
their first use for the Distributor's internal recordkeeping purposes. It is
understood that neither the Distributor nor any Designated Portfolio will be
responsible for errors or omissions in, or the content of, Contractowner
Materials except to the extent that the error or omission resulted from
information provided by or on behalf of the Distributor or the Designated
Portfolio. Any printed information that is furnished to the Company pursuant to
this Agreement other than each Designated
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Portfolio's prospectus or statement of additional information (or information
supplemental thereto), periodic reports and proxy solicitation materials is the
Distributor's sole responsibility and not the responsibility of any Designated
Portfolio or the Fund. The Company agrees that the Portfolios, the shareholders
of the Portfolios and the officers and governing Board of the Fund will have no
liability or responsibility to the Company in these respects.
4.2. The Company will not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or statement of additional
information for Fund shares, as such registration statement, prospectus and
statement of additional information may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in published reports
for the Fund which are in the public domain or approved by the Fund or the
Distributor for distribution, or in sales literature or other material provided
by the Fund, Adviser or by the Distributor, except with permission of the
Distributor. Any piece of sales literature or other promotional material
intended to be used by the Company which requires the permission of the
Distributor prior to use will be furnished by Company to the Distributor, or its
designee, at least ten (10) business days prior to its use. No such material
will be used if the Distributor reasonably objects to such use within five (5)
business days after receipt of such material.
Nothing in this Section 4.2 will be construed as preventing the Company or its
employees or agents from giving advice on investment in the Fund.
4.3. The Fund, the Adviser or the Distributor will furnish, or will cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company or its Account is named, at
least ten (10) business days prior to its use. No such material will be used if
the Company reasonably objects to such use within five (5) business days after
receipt of such material.
4.4. The Fund, the Adviser and the Distributor will not give any
information or make any representations or statements on behalf of the Company
or concerning the Company, each Account, or the Contracts other than the
information or representations contained in a registration statement, prospectus
or statement of additional information for the Contracts, as such registration
statement, prospectus and statement of additional information may be amended or
supplemented from time to time, or in published reports for each Account or the
Contracts which are in the public domain or approved by the Company for
distribution to contractowners, or in sales literature or other material
provided by the Company, except with permission of the Company. The Company
agrees to respond to any request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, 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 Fund or its shares, contemporaneously
with the filing of such document with the SEC, the NASD or other regulatory
authority.
4.6. The Company will provide to the Fund 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 Contracts or
each Account, contemporaneously with the filing of such document with the SEC,
the NASD or other regulatory authority.
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<PAGE>
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisements, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.8. The Fund and the Distributor hereby consent to the Company's use of
the names Fleet Investment Advisors Inc., The Galaxy VIP Fund, the portfolio
names designated on Schedule B or other designated names as may be used from
time to time in connection with the marketing of the Contracts, subject to the
terms of Sections 4.1 and 4.2 of this Agreement. Such consent will terminate
with the termination of this Agreement.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund, the Adviser and the Distributor will pay no fee or other
compensation to the Company under this Agreement except if the Fund or any
Designated Portfolio adopts and implements a plan pursuant to Rule 12b-1 under
the 1940 Act to finance distribution expenses, then, subject to obtaining any
required exemptive orders or other regulatory approvals, the Fund may make
payments to the Company or to the underwriter for the Contracts if and in such
amounts agreed to by the Fund in writing.
5.2. All expenses incident to performance by the Fund of this Agreement
will be paid by the Fund to the extent permitted by law. The Fund will bear the
expenses for the cost of registration and qualification of the Fund's shares;
preparation and filing of the Fund's prospectus, statement of additional
information and registration statement, proxy materials and reports; setting in
type and printing the Fund's prospectus; setting in type and printing proxy
materials and reports by it to contractowners (including the costs of printing a
Fund prospectus that constitutes an annual report); the preparation of all
statements and notices required by any federal or state law; all taxes on the
issuance or transfer of the Fund's shares; any expenses permitted to be paid or
assumed by the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act; and all other expenses set forth in Article III of this Agreement.
ARTICLE VI. DIVERSIFICATION AND QUALIFICATION
6.1. The Adviser will ensure that the Fund will at all times invest money
from the Contracts in such a manner as to ensure that the Contracts will be
treated as variable annuity contracts under the Internal Revenue Code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Fund will comply with Section 817(h) of the Internal Revenue Code and Treasury
Regulation 1.817-5, as amended from time to time, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulation. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps: (a) to notify the Company of such breach; and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Treasury Regulation 1.817-5.
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6.2. The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, and that it
will make every effort to maintain such qualification (under Subchapter M or any
successor or similar provisions) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
6.3. The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Internal Revenue Code, and that it
will make every effort to maintain such treatment, and that it will notify the
Fund and the Distributor immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus offering a
contract that is a "modified endowment contract" as that term is defined in
Section 7702A of the Internal Revenue Code (or any successor or similar
provision), shall identify such contract as a modified endowment contract.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Fund Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contractowners of
all separate accounts investing in the Fund. An irreconcilable material 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, no-action or interpretative letter, 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 and variable life insurance
contractowners; or (f) a decision by an insurer to disregard the voting
instructions of contractowners. The Fund Board shall promptly inform the Company
if it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Fund Board. The Company will assist the Fund Board in
carrying out its responsibilities under the Mixed and Shared Funding Exemptive
Order, by providing the Fund Board with all information reasonably necessary for
the Fund Board to consider any issues raised. This includes, but is not limited
to, an obligation by the Company to inform the Fund Board whenever contractowner
voting instructions are disregarded.
7.3. If it is determined by a majority of the Fund Board, or a majority of
its disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Fund Board members), take whatever steps are necessary to remedy
or eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contractowners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contractowners, life insurance
contractowners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected contractowners the option of making such a change; and (2) establishing
a new registered management investment company or managed separate account.
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7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to each Account; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Fund Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Fund Board informs the
Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Fund Board. Until the end of the foregoing six month period, the Fund
shall continue to accept and implement orders by the Company for the purchase
(and redemption) of shares of the Fund.
7.6. For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Fund Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Fund Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Fund Board informs
the Company in writing of the foregoing determination; provided, however, that
such withdrawal and termination shall be limited to the extent required by any
such material irreconcilable conflict as determined by a majority of the
disinterested members of the Fund Board.
7.7. If and to the extent the Mixed and Shared Funding Exemptive Order or
any amendment thereto contains terms and conditions different from Sections 3.4,
3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or
the Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with the Mixed and Shared Funding Exemptive Order,
and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in the Mixed and Shared Funding
Exemptive Order or any amendment thereto. If and to the extent that Rule 6e-2
and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Mixed and Shared
Funding Exemptive Order) on terms and conditions materially different from those
contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in
effect only to the
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extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Distributor, and each person, if any, who controls or is
associated with the Fund, the Adviser or the Distributor within the
meaning of such terms under the federal securities laws and any director,
trustee, officer, partner, employee or agent of the foregoing
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or litigation (including reasonable legal and other expenses), to
which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(1) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Contracts or contained in the Contracts or sales
literature or other promotional material for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein
a material fact required to be stated or necessary to make such
statements not misleading in light of the circumstances in which
they were made; provided that this agreement to indemnify will not
apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with written information furnished to the Company by the
Fund, the Adviser or the Distributor for use in the registration
statement, prospectus or statement of additional information for the
Contracts or in the Contracts or sales literature (or any amendment
or supplement) or otherwise for use in connection with the sale of
the Contracts or Fund shares; or
(2) arise out of or as a result of statements or
representations by or on behalf of the Company or wrongful conduct
of the Company or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(3) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund registration
statement, prospectus, statement of additional information or sales
literature or other promotional material of the Fund (or amendment
or supplement) or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make
such statements not misleading in light of the circumstances in
which they were made, if such a statement or omission was made in
reliance upon and in conformity with information furnished to the
Fund by or on behalf of the Company or persons under its control; or
(4) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement; or
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<PAGE>
(5) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out
of or result from any other material breach by the Company of this
Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification will be in addition to any liability that the Company
otherwise may have.
(b) No party will be entitled to indemnification under Section
8.1(a) to the extent such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence in the
performance of such party's duties under this Agreement, or by reason of
such party's reckless disregard of its obligations or duties under this
Agreement by the party seeking indemnification.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions by
regulatory authorities against them in connection with the issuance or
sale of the Fund shares or the Contracts or the operation of the Fund.
8.2. INDEMNIFICATION BY THE ADVISER, THE FUND AND THE DISTRIBUTOR
(a) The Adviser, the Fund and the Distributor, in each case solely
to the extent relating to such party's responsibilities hereunder, agree
to indemnify and hold harmless the Company and each person, if any, who
controls or is associated with the Company within the meaning of such
terms under the federal securities laws and any director, trustee,
officer, partner, employee or agent of the foregoing (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and
all losses, claims, expenses, damages, liabilities (including amounts paid
in settlement with the written consent of the Adviser) or litigation
(including reasonable legal and other expenses) to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Fund or sales literature or other promotional
material of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated or necessary to make such statements not misleading in light
of the circumstances in which they were made; provided that this
agreement to indemnify will not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished
to the Adviser, the Distributor or the Fund by or on behalf of the
Company for use in the registration statement, prospectus or
statement of additional information for the Fund or in sales
literature of the Fund (or any amendment or supplement thereto) or
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(2) arise out of or as a result of statements or
representations or wrongful conduct of the Adviser, the Fund or the
Distributor or persons under the control of the Adviser, the Fund or
the Distributor respectively, with respect to the sale of the Fund
shares; or
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<PAGE>
(3) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, statement of additional information or sales literature
or other promotional material covering the Contracts (or any
amendment or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be stated or
necessary to make such statement or statements not misleading in
light of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in conformity
with written information furnished to the Company by the Adviser,
the Fund or the Distributor or persons under the control of the
Adviser, the Fund or the Distributor; or
(4) arise as a result of any failure by the Fund, the Adviser
or the Distributor to provide the services and furnish the materials
under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the
diversification requirements and procedures related thereto
specified in Article VI of this Agreement); or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser, the Fund or the
Distributor in this Agreement, or arise out of or result from any
other material breach of this Agreement by the Adviser, the Fund or
the Distributor;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification will be in addition to any liability that the Fund,
Adviser or the Distributor otherwise may have.
(b) No party will be entitled to indemnification under Section
8.2(a) to the extent such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence in the
performance of such party's duties under this Agreement, or by reason of
such party's reckless disregard of its obligations or duties under this
Agreement by the party seeking indemnification.
(c) The Indemnified Parties will promptly notify the Adviser, the
Fund and the Distributor of the commencement of any litigation,
proceedings, complaints or actions by regulatory authorities against them
in connection with the issuance or sale of the Contracts or the operation
of the account.
8.3. INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.3) will not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("Indemnified Party" for the purpose of this Section 8.3) unless such
Indemnified Party will have notified the Indemnifying Party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim will have been served upon such
Indemnified Party (or after such party will have received notice of such service
on any designated agent), but failure to notify the Indemnifying Party of any
such claim will not relieve the Indemnifying Party from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of the indemnification provision of this Article VIII, except to
the extent that the failure to notify results in the failure of actual notice to
the Indemnifying Party and such Indemnifying Party is damaged solely as a result
of failure to give such notice. In case any such action is brought against the
Indemnified Party, the
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<PAGE>
Indemnifying Party will be entitled to participate, at its own expense, in the
defense thereof. The Indemnifying Party also will be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Indemnifying Party to the Indemnified Party of the
Indemnifying Party's election to assume the defense thereof, the Indemnified
Party will bear the fees and expenses of any additional counsel retained by it,
and the Indemnifying Party will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation, unless: (a) the Indemnifying Party and the Indemnified Party
will have mutually agreed to the retention of such counsel; or (b) the named
parties to any such proceeding (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The Indemnifying Party will not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent or if there is a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and against
any loss or liability by reason of such settlement or judgment. A successor by
law of the parties to this Agreement will be entitled to the benefits of the
indemnification contained in this Article VIII. The indemnification provisions
contained in this Article VIII will survive any termination of this Agreement.
8.4 DISTRIBUTOR LIMITATION ON LIABILITY. Notwithstanding the foregoing,
the Distributor shall not be liable to any party to this Agreement for lost
profits, punitive, special, incidental, indirect or consequential damages.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Delaware.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
If, in the future, the Mixed and Shared Funding Exemptive Order should no longer
be necessary under applicable law, then Article VII shall no longer apply.
ARTICLE X. TERMINATION
10.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect
to some or all of the Designated Portfolios, upon sixty (60) days' advance
written notice to the other parties or, if later, upon receipt of any
required exemptive relief or orders from the SEC, unless otherwise agreed
in a separate written agreement among the parties; or
(b) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated
Portfolio if shares of the Designated Portfolio are not reasonably
available to meet the requirements of the Contracts as determined in good
faith by the Company; or
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(c) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated
Portfolio in the event any of the Designated Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or
Federal law or such law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by Company; or
(d) at the option of the Fund, upon receipt of the Fund's written
notice by the other parties, upon institution of formal proceedings
against the Company by the NASD, the SEC, the insurance commission of any
state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the administration
of the Contracts, the operation of the Account, or the purchase of the
Fund shares, provided that the Fund determines in its sole judgment,
exercised in good faith, that any such proceeding would have a material
adverse effect on the Company's ability to perform its obligations under
this Agreement; or
(e) at the option of the Company, upon receipt of the Company's
written notice by the other parties, upon institution of formal
proceedings against the Fund, Adviser or the Distributor by the NASD, the
SEC, or any state securities or insurance department or any other
regulatory body, provided that the Company determines in its sole
judgment, exercised in good faith, that any such proceeding would have a
material adverse effect on the Fund's or the Distributor's ability to
perform its obligations under this Agreement; or
(f) at the option of the Company, upon receipt of the Company's
written notice by the other parties, if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Internal Revenue
Code, or under any successor or similar provision, or if the Company
reasonably and in good faith believes that the Fund may fail to so
qualify; or
(g) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated
Portfolio if the Fund fails to meet the diversification requirements
specified in Article VI hereof or if the Company reasonably and in good
faith believes the Fund may fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon written
notice to the other parties, upon another party's material breach of any
provision of this Agreement which material breach is not cured within
thirty (30) days of said notice; or
(i) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that either the Fund, the Adviser
or the Distributor has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is
the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the Company,
such termination to be effective sixty (60) days' after receipt by the
other parties of written notice of the election to terminate; or
(j) at the option of the Fund or the Distributor, if the Fund or the
Distributor respectively, determines in its sole judgment exercised in
good faith, that the Company has suffered a material adverse change in its
business, operations or financial condition since the date of this
Agreement or is the subject of material adverse publicity which is likely
to have a material adverse impact upon the business and operations of the
Fund or the Adviser, such termination to be effective sixty (60) days'
after receipt by the other parties of written notice of the election to
terminate; or
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(k) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners
having an interest in the Account (or any subaccount) to substitute the
shares of another investment company for the corresponding Designated
Portfolio shares of the Fund in accordance with the terms of the Contracts
for which those Designated Portfolio shares had been selected to serve as
the underlying investment media. The Company will give sixty (60) days'
prior written notice to the Fund of the date of any proposed vote or other
action taken to replace the Fund's shares; or
(l) at the option of the Company or the Fund upon a determination by
a majority of the Fund Board, or a majority of the disinterested Fund
Board members, that an irreconcilable material conflict exists among the
interests of: (1) all contractowners of variable insurance products of all
separate accounts; or (2) the interests of the Participating Insurance
Companies investing in the Fund as set forth in Article VII of this
Agreement; or
(m) at the option of the Fund in the event any of the Contracts are
not issued or sold in accordance with applicable federal and/or state law.
Termination will be effective immediately upon such occurrence without
notice.
10.2. NOTICE REQUIREMENT. No termination of this Agreement will be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties of its intent to terminate, which notice
will set forth the basis for the termination.
10.3. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Distributor will, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement ( hereinafter referred to as "Existing
Contracts.") . Specifically, without limitation, the owners of the Existing
Contracts will be permitted to reallocate investments in the Portfolios (as in
effect on such date), redeem investments in the Portfolios and/or invest in the
Portfolios upon the making of additional purchase payments under the Existing
Contracts.
10.4. SURVIVING PROVISIONS. Notwithstanding any termination of this
Agreement, each party's obligations under Article VIII to indemnify other
parties will survive and not be affected by any termination of this Agreement.
In addition, each party's obligations under Section 12.7 will survive and not be
affected by any termination of this Agreement. Finally, with respect to Existing
Contracts, all provisions of this Agreement also will survive and not be
affected by any termination of this Agreement.
ARTICLE XI. NOTICES
11.1. Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund: THE GALAXY VIP FUND
c/o William Greilich
4400 Computer Drive
Westborough, MA 01581-9896
If to the Company: First Golden American Life Insurance Company of
New York
c/o Myles Tashman
-17-
<PAGE>
Executive Vice President and General Counsel
230 Park Avenue, Suite 966
New York, NY 10169
If to Adviser: Fleet Investment Advisers Inc.
c/o Tom O' Neill, President
4400 Computer Drive
Westborough, MA 01581-9896
If to Distributor: First Data Distributors, Inc.
c/o President
4400 Computer Drive
Westborough, MA 01581-9896
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
directors, trustees, officers, partners, employees, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio or series of the Fund will be liable for the obligations or
liabilities of any other Portfolio or series.
12.2. The Fund, the Adviser and the Distributor acknowledge that the
identities of the customers of the Company or any of its affiliates, except for
customers of the Adviser or its affiliates (collectively the "Company Protected
Parties" for purposes of this Section 12.2), information maintained regarding
those customers, and all computer programs and procedures or other information
developed or used by the Company Protected Parties or any of their employees or
agents in connection with the Company's performance of its duties under this
Agreement are the valuable property of the Company Protected Parties. The Fund,
the Adviser and the Distributor agree that if they come into possession of any
list or compilation of the identities of or other information about the Company
Protected Parties' customers, or any other information or property of the
Company Protected Parties, other than such information as is publicly available
or as may be independently developed or compiled by the Fund, the Adviser or the
Distributor from information supplied to them by the Company Protected Parties'
customers who also maintain accounts directly with the Fund, the Adviser or the
Distributor, the Fund, the Adviser and the Distributor will hold such
information or property in confidence and refrain from using, disclosing or
distributing any of such information or other property except: (a) with the
Company's prior written consent; or (b) as required by law or judicial process.
The Company acknowledges that the identities of the customers of the Fund, the
Adviser, the Distributor or any of their affiliates (collectively the "Adviser
Protected Parties" for purposes of this Section 12.2), information maintained
regarding those customers, and all computer programs and procedures or other
information developed or used by the Adviser Protected Parties or any of their
employees or agents in connection with the Fund's, the Adviser's or the
Distributor's performance of their respective duties under this Agreement are
the valuable property of the Adviser Protected Parties. The Company agrees that
if it comes into possession of any list or compilation of the identities of or
other information about the Adviser Protected Parties' customers, or any other
information or property of the Adviser Protected Parties, other than such
information as is publicly available or as may be independently developed or
compiled by the Company from information supplied to them by the Adviser
Protected Parties' customers who also maintain accounts directly with the
Company, the Company will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with the Fund's, the Adviser's or the Distributor's prior
written
-18-
<PAGE>
consent; or (b) as required by law or judicial process. Each party
acknowledges that any breach of the agreements in this Section 12.2 would result
in immediate and irreparable harm to the other parties for which there would be
no adequate remedy at law and agree that in the event of such a breach, the
other parties will be entitled to equitable relief by way of temporary and
permanent injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
12.5. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.6. This Agreement will not be assigned by any party hereto without the
prior written consent of all the parties, except that the Distributor may assign
this Agreement to Provident Distributors Inc. (or one of its properly qualified
affiliates) with prior written notice to all parties.
12.7. Each party to this Agreement will maintain all records required by
law, including records detailing the services it provides. Such records will be
preserved, maintained and made available to the extent required by law and in
accordance with the 1940 Act and the rules thereunder. Each party to this
Agreement will cooperate with each other party and all appropriate governmental
authorities (including without limitation the SEC, the NASD and state insurance
regulators) and will permit each other and such authorities reasonable access to
its books and records in connection with any investigation or inquiry relating
to this Agreement or the transactions contemplated hereby. Upon request by the
Fund or the Distributor, the Company agrees to promptly make copies or, if
required, originals of all records pertaining to the performance of services
under this Agreement available to the Fund or the Distributor, as the case may
be. The Fund agrees that the Company will have the right to inspect, audit and
copy all records pertaining to the performance of services under this Agreement
pursuant to the requirements of any state insurance department. Each party also
agrees to promptly notify the other parties if it experiences any difficulty in
maintaining the records in an accurate and complete manner. This provision will
survive termination of this Agreement.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or board action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Designated Portfolios of the Fund or other applicable terms
of this Agreement.
12.10. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights.
12.11. 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
-19-
<PAGE>
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Fund. The
obligations of "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 Fund personally, but bind only
the Trust Property, and all persons dealing with any class of Shares of the Fund
must look solely to the Trust Property belonging to such class for the
enforcement of any claims against the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below:
FIRST GOLDEN AMERICAN LIFE
INSURANCE COMPANY OF NEW
YORK:
By:
--------------------------------
Title:
------------------------------
Date:
-------------------------------
THE GALAXY VIP FUND:
By:
--------------------------------
Title:
------------------------------
Date:
-------------------------------
FLEET INVESTMENT ADVISORS INC :
By:
--------------------------------
Title:
------------------------------
Date:
-------------------------------
FIRST DATA DISTRIBUTORS, INC.:
By:
--------------------------------
Title:
------------------------------
Date:
-------------------------------
-20-
<PAGE>
SCHEDULE A
FIRST GOLDEN AMERICAN LIFE INSURANCE COMPANY OF NEW YORK
CONTRACTS AND SEPARATE ACCOUNT(S)
CONTRACT(S):
Deferred Combination Variable and Fixed Annuity Contract --
DVA Plus featuring The Galaxy VIP Fund
SEPARATE ACCOUNT(S):
Separate Account NY-B of First Golden American Life
Insurance Company of New York
SCHEDULE B
THE GALAXY VIP FUND
DESIGNATED PORTFOLIOS
PORTFOLIOS:
Equity Fund
Growth and Income Fund
Small Company Growth Fund
Asset Allocation Fund
High Quality Bond Fund
Schedule Date: October 1, 1999
-21-
<PAGE>
Exhibit (j)(1)
CONSENT OF COUNSEL
We hereby consent to: (i) 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. 11 to the
Registration Statement (No. 33-49290) on Form N-1A under the Investment Company
Act of 1940, as amended and 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); and (ii) the use and
incorporation by reference in said Post Effective Amendment No. 11 of our firm's
opinion of counsel filed as Exhibit (10) to Post-Effective Amendment No. 7 to
the Registration Statement on Form N-1A under the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended.
/s/ Drinker Biddle & Reath LLP
------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
April 28, 2000
<PAGE>
Exhibit (j)(2)
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. 11 to the Registration Statement on Form N-1A (File No. 811-6726) under the
Securities Act of 1933, as amended, of The Galaxy VIP Fund:
1. The incorporation by reference of our report dated February 12, 1999
accompanying the financial statements of 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 (eight series of The Galaxy VIP Fund)
as of December 31, 1998 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 on the cover page and under the headings
"Auditors" and "Financial Statements" in the Statement of Additional
Information.
/s/ PricewaterhouseCoopers LLP
---------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 28, 2000
<PAGE>
Exhibit (j)(3)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Auditors" and "Financial Statements" in the
Statement of Additional Information in Post-Effective Amendment No. 11 to the
Registration Statement (Form N-1A No. 33-49290), and to the incorporation
therein by reference of our report dated February 11, 2000 with respect to the
financial statements included in the Annual Report of The Galaxy VIP Fund
(comprising respectively, 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).
/s/ Ernst & Young LLP
-----------------------------
ERNST & YOUNG LLP
Boston, Massachusetts
April 25, 2000
<PAGE>
Exhibit (p)(1)
THE GALAXY VIP FUND
(the "Trust")
CODE OF ETHICS
I. LEGAL REQUIREMENT.
Rule 17j-1(a) under the Investment Company Act of 1940, as amended (the
"1940 Act"), makes it unlawful for any officer or trustee of the Trust in
connection with the purchase or sale by such person of a security "held or to be
acquired" by the Trust:
1. To employ any device, scheme or artifice to defraud the
Trust;
2. To make to the Trust any untrue statement of a material
fact or omit to state to the Trust a material fact
necessary in order to make the statements made, in light of
the circumstances under which they are made, not
misleading;
3. To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon the
Trust; or
4. To engage in any manipulative practice with respect to the
Trust's investment portfolios.
II. PURPOSE OF THE CODE OF ETHICS.
The Trust expects that its officers and trustees will conduct their
personal investment activities in accordance with (1) the duty at all times to
place the interests of the Trust's shareholders first, (2) the requirement that
all personal securities transactions be conducted consistent with this Code of
Ethics and in such a manner as to avoid any actual or potential conflict of
interest or any abuse of an individual's position of trust and responsibility,
and (3) the fundamental standard that investment company personnel should not
take inappropriate advantage of their positions.
In view of the foregoing, the provisions of Section 17(j) of the 1940
Act, the "Report of the Advisory Group on Personal Investing" issued by the
Investment Company Institute on May 9, 1994 and the Securities and Exchange
Commission's September 1994 Report on "Personal Investment Activities of
Investment Company Personnel," the Trust has determined to adopt this Code of
Ethics
<PAGE>
on behalf of the Trust to specify a code of conduct for certain types of
personal securities transactions which might involve conflicts of interest or an
appearance of impropriety, and to establish reporting requirements and
enforcement procedures.
III. DEFINITIONS.
A. An "Access Person" means: (1) each trustee or officer of the
Trust; (2) each employee (if any) of the Trust (or of any company
in a control relationship to the Trust) who in connection with his
or her regular functions or duties, makes, participates in, or
obtains information regarding the purchase or sale of a security
by the Trust or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (3)
any natural person in a control relationship to the Trust who
obtains information concerning recommendations made to the Trust
with regard to the purchase or sale of a security.
For purposes of this Code of Ethics, an "Access Person" does not
include any person who is subject to the securities transaction
pre-clearance requirements and securities transaction reporting
requirements of the Code of Ethics adopted by the Trust's
investment adviser, administrator or principal underwriter in
compliance with Rule 17j-1 of the 1940 Act and Rule 204-2(a)(12)
of the Investment Advisers Act of 1940 or Section 15(f) of the
Securities Exchange Act of 1934, as applicable.(1)
B. "Restricted Trustee" or "Restricted Officer" means each trustee or
officer of the Trust who is not also a trustee, officer, partner,
employee or controlling person of the Trust's investment adviser,
administrator, custodian, transfer agent, or distributor.
C. An Access Person's "immediate family" includes a spouse, minor
children and adults living in the same household as the Access
Person.
D. A security is "held or to be acquired" if within the most recent
15 days it (1) is or has been held by any of the Trust, or (2) is
being or has been considered by the Trust or its investment
adviser for purchase by the Trust.
- ----------------------
1. For purposes of this Code of Ethics, Rule 17j-1 of the Investment Company
Act of 1940 shall be deemed to be applicable to the Trust's
administrator.
-2-
<PAGE>
E. A purchase or sale includes the writing of an option to purchase
or sell.
F. "Exempt Security" means:
1. Securities which the Trust's investment portfolios are not
permitted to purchase under the investment objectives and
policies set forth in the Trust's then current prospectuses
under the Securities Act of 1933 or the Trust's
registration statements on Form N-1A.
2. Securities issued by the Government of the United States
(i.e., U.S. Treasury securities), short-term debt
securities which are "government securities" within the
meaning of section 2(a)(16) of the 1940 Act (which includes
securities of the U.S. Government and its
instrumentalities), bankers' acceptances, bank certificates
of deposit, commercial paper, and shares of registered
open-end investment companies.
3. Securities purchased or sold in any account over which the
Access Person has no direct or indirect influence or
control.
4. Securities purchased or sold in a transaction which is
non-volitional on the part of either the Access Person or
the Trust.
5. Securities acquired as a part of an automatic dividend
reinvestment plan.
6. Securities acquired upon the exercise of rights issued by
an issuer PRO RATA to all holders of a class of its
securities, to the extent such rights were acquired from
such issuer, and sales of such rights so acquired.
IV. POLICIES OF THE TRUST REGARDING PERSONAL SECURITIES TRANSACTIONS.
A. GENERAL POLICY.
No Access Person of the Trust shall engage in any act, practice or
course of business that would violate the provisions of Rule
17j-1(a) set forth above, or in connection with any personal
investment activity, engage in conduct inconsistent with this Code
of Ethics.
B. SPECIFIC POLICIES.
-3-
<PAGE>
1. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS BY ACCESS
PERSONS OTHER THAN RESTRICTED TRUSTEES AND RESTRICTED
OFFICERS.
a. No Access Person who is not a Restricted Trustee or
Restricted Officer may buy or sell securities other
than Exempt Securities for his or her personal
portfolio or the portfolio of a member of his or her
immediate family without obtaining oral
authorization from the Compliance Officer of the
Trust's investment adviser PRIOR to effecting such
security transaction.
A written authorization for such security
transaction will be provided by the investment
adviser's Compliance Officer to the person receiving
the authorization (if granted) and to the Trust's
administrator to memorialize the oral authorization
that was granted.
NOTE: If an Access Person has questions
as to whether purchasing or selling a
security for his or her personal
portfolio or the portfolio of a member
of his or her immediate family requires
prior oral authorization, the Access
Person should consult the
administrator's Compliance Officer
PRIOR to effecting any securities
transactions.
b. Pre-clearance approval under paragraph (a) will
expire at the close of business on the next trading
day after the date on which oral authorization is
received, and the Access Person is required to renew
clearance for the transaction if the trade is not
completed before the authority expires.
c. No clearance will be given to an Access Person other
than a Restricted Trustee or Restricted Officer to
purchase or sell any security (1) on a day when any
portfolio of the Trust has a pending "buy" or "sell"
order in that same security until that order is
executed or withdrawn or (2) when the Compliance
Officer has been advised by the investment adviser
that the same security is being considered for
purchase or sale for any portfolio of the Trust.
-4-
<PAGE>
2. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS BY
RESTRICTED TRUSTEES AND RESTRICTED OFFICERS.
The Trust recognizes that Restricted Trustees and
Restricted Officers do not have on-going, day-to-day
involvement with the operations of the Trust. In addition,
it has been the practice of the Trust to provide
information about securities purchased or sold by the Trust
or considered for purchase or sale by the Trust to
Restricted Trustees and Restricted Officers in materials
circulated more than 15 days after such securities are
purchased or sold by the Trust or are considered for
purchase or sale by the Trust. Accordingly, the Trust
believes that less stringent controls are appropriate for
Restricted Trustees and Restricted officers, as follows:
a. The securities pre-clearance requirement contained
in paragraph IV.B.1.a. above shall only apply to a
Restricted Trustee or Restricted Officer if he or
she knew or, in the ordinary course of fulfilling
his or her official duties as a trustee or officer,
should have known, that during the fifteen-day
period before the transaction in a security other
than an Exempt Security or at the time of the
transaction that the security purchased or sold by
him or her other than an Exempt Security was also
purchased or sold by the Trust or considered for the
purchase or sale by the Trust.
b. If the pre-clearance provisions of the preceding
paragraph apply, no clearance will be given to a
Restricted Trustee or Restricted Officer to purchase
or sell any security (1) on a day when any portfolio
of the Trust has a pending "buy" or "sell" order in
that same security until that order is executed or
withdrawn or (2) when the Compliance Officer has
been advised by the investment adviser that the same
security is being considered for purchase or sale
for any portfolio of the Trust.
V. PROCEDURES.
A. In order to provide the Trust with information to enable it to
determine with reasonable assurance whether the provisions of this
Code are being observed by its Access Persons:
-5-
<PAGE>
1. Each Access Person of the Trust other than a Restricted
Trustee or Restricted Officer shall direct his or her
broker to supply to the Compliance Officer of the Trust's
administrator, on a timely basis, duplicate copies of
confirmations of all securities transactions in which the
person has, or by reason of such transaction acquires any
direct or indirect beneficial ownership(2) and copies of
periodic statements for all securities accounts.
2. Each Access Person of the Trust, other than a trustee who
is not an "interested person" (as defined in the 1940 Act),
shall submit reports in the form attached hereto as Exhibit
A to the Trust's administrator, showing all transactions in
securities other than Exempt Securities in which the person
has, or by reason of such transaction acquires, any direct
or indirect beneficial ownership.(3) Such reports shall be
filed no later than 10 days after the end of each calendar
quarter.
3. Each trustee who is not an "interested person" of the Trust
shall submit the same quarterly report as required under
paragraph 2 to the Trust's administrator, but only for a
transaction in a security other than an Exempt Security
where he or
- -----------------------
2. You will be treated as the "beneficial owner" of a security under this
policy only if you have a direct or indirect pecuniary interest in the security.
(a) A direct pecuniary interest is the opportunity, directly or
indirectly, to profit, or to share the profit, from the
transaction.
(b) An indirect pecuniary interest is any nondirect financial
interest, but is specifically defined in the rules to include
securities held by members of your immediate family sharing the
same household; securities held by a partnership of which you are
a general partner; securities held by a trust of which you are the
settlor if you can revoke the trust without the consent of another
person, or a beneficiary if you have or share investment control
with the trustee; and equity securities which may be acquired upon
exercise of an option or other right, or through conversion.
For interpretive guidance on this test, you should consult
counsel.
3. See footnote 2 above.
-6-
<PAGE>
she knew at the time of the transaction or, in the ordinary
course of fulfilling his or her official duties as a
trustee or officer, should have known that during the
15-day period immediately preceding or after the date of
the transaction, such security is or was purchased or sold,
or considered for purchase or sale, by the Trust.
4. The administrator of the Trust shall notify each Access
Person of the Trust who may be required to make reports
pursuant to this Code that such person is subject to this
reporting requirement and shall deliver a copy of this Code
to each such person.
5. The administrator of the Trust shall review the reports
received, and as appropriate compare the reports with the
pre-clearance authorization received, and report to the
Trust's Board of Trustees:
a. with respect to any transaction that appears to
evidence a possible violation of this Code; and
b. apparent violations of the reporting requirements
stated herein.
6. The Board shall consider reports made to it hereunder and
shall determine whether the policies established in
Sections IV and V of this Code of Ethics have been
violated, and what sanctions, if any, should be imposed on
the violator, including but not limited to a letter of
censure, suspension or termination of the employment of the
violator, or the unwinding of the transaction and the
disgorgement of any profits to the Trust. The Board shall
review the operation of this Code of Ethics at least once a
year.
7. The Trust's investment adviser, administrator and principal
underwriter shall adopt, maintain and enforce separate
codes of ethics with respect to their personnel in
compliance with Rule 17j-1 and Rule 204-2(a)(12) of the
Investment Advisers Act of 1940 or Section 15(f) of the
Securities Exchange Act of 1934, as applicable, and shall
forward to the administrator and the Trust's counsel copies
of such codes and all future amendments and modifications
thereto.
8. At each quarterly board of trustees' meeting the investment
adviser and principal underwriter of the Trust shall report
to the Trust's Board of Trustees:
-7-
<PAGE>
a. any reported securities transaction that occurred
during the prior quarter that may have been
inconsistent with the provisions of the codes of
ethics adopted by the Trust's investment adviser,
administrator or principal underwriter; and
b. all disciplinary actions(4) taken in response to
such violations.
9. At least once a year, the Trust's investment adviser,
administrator and principal underwriter shall provide to
the Board a report which contains (a) a summary of existing
procedures concerning personal investing by advisory
persons and any changes in the procedures during the past
year and (b) an evaluation of current compliance procedures
and a report on any recommended changes in existing
restrictions or procedures based upon the Trust's
experience under this Code of Ethics, industry practices,
or developments in applicable laws and regulations.
10. This Code, the codes of the investment adviser,
administrator and principal underwriter, a copy of each
report by an Access Person, any written report hereunder by
the Trust's administrator, investment adviser or principal
underwriter and lists of all persons required to make
reports shall be preserved with the Trust's records for the
period required by Rule 17j-1.
VI. CERTIFICATION.
Each Access Person will be required to certify annually that he or she
has read and understood this Code of Ethics, and will abide by them. Each Access
Person will further certify that he or she has disclosed or reported all
personal securities transactions required to be disclosed or reported under the
Code of Ethics. A form of such certification is attached hereto as Exhibit B.
The Board of Trustees of The Galaxy VIP Fund
- -------------------------
4. Disciplinary action includes but is not limited to any action that has a
material financial effect upon the employee, such as fining, suspending, or
demoting the employee, imposing a substantial fine or requiring the disgorgement
of profits.
-8-
<PAGE>
Dated: March 5, 1998
-9-
<PAGE>
Exhibit A
The Galaxy VIP Fund
(the "Trust")
Securities Transaction Report
For the Calendar Quarter Ended _______________________
(month/day/year)
To: First Data Investor Services Group, Inc., as Administrator of the above
listed Trust
During the quarter referred to above, the following transactions
were effected in securities of which I had, or by reason of such transactions
acquired, direct or indirect beneficial ownership, and which are required to be
reported pursuant to the Code of Ethics of the Trust:
<TABLE>
<CAPTION>
Number of Nature of Broker/Dealer
Shares or Dollar Amount Transaction or Bank
Date of Principal of (Purchase, Through Whom
Security Transaction Amount Transaction Sale, Other) Price Effected
- -------- ----------- --------- ------------- ------------ ----- -------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
THIS REPORT (I) EXCLUDES TRANSACTIONS WITH RESPECT TO WHICH I HAD
NO DIRECT OR INDIRECT INFLUENCE OR CONTROL, (II) EXCLUDES OTHER TRANSACTIONS NOT
REQUIRED TO BE REPORTED, AND (III) IS NOT AN ADMISSION THAT I HAVE OR HAD ANY
DIRECT OR INDIRECT BENEFICIAL OWNERSHIP IN THE SECURITIES LISTED ABOVE.
SIGNATURE:_________________
PRINT NAME:________________
A-1
<PAGE>
Exhibit B
The Galaxy VIP Fund
(the "Trust")
ANNUAL CERTIFICATE
PURSUANT TO THE REQUIREMENTS OF THE CODE OF ETHICS OF THE GALAXY
VIP FUND, THE UNDERSIGNED HEREBY CERTIFIES AS FOLLOWS:
1. I HAVE READ THE TRUST'S CODE OF ETHICS.
2. I UNDERSTAND THE CODE OF ETHICS AND ACKNOWLEDGE THAT I AM
SUBJECT TO IT.
3. SINCE THE DATE OF THE LAST ANNUAL CERTIFICATE (IF ANY)
GIVEN PURSUANT TO THE CODE OF ETHICS, I HAVE REPORTED ALL
PERSONAL SECURITIES TRANSACTIONS REQUIRED TO BE REPORTED
UNDER THE REQUIREMENTS OF THE CODE OF ETHICS.
DATE:
-----------------------
PRINT NAME
-----------------------
SIGNATURE
B-1
<PAGE>
Exhibit (p)(2)
FLEET INVESTMENT ADVISORS ("FIA")
FLEET INVESTMENT MANAGEMENT ("FIM")
CODE OF ETHICS
Effective Date: April 1, 1996
Revision Date:: July 31, 1998
Affected Areas: Fleet Investment Advisors
Access Persons of Fleet Investment Management
Approved by: Jorge Brathwaite
Thomas O'Neill
David Rozenson
Issued by: Investment Compliance
- ------------------------------------------------------------------------------
I - BASIC PHILOSOPHY
The primary purpose of the FIA Code of Ethics is to protect the interests
of all our clients. Our Code is a critical part of maintaining our high
standards and reputation and guarding against an inadvertent violation of our
fiduciary duties or the requirements of the securities laws which govern the
conduct of our investment business. The following points should be constantly
kept in mind:
1. FIA holds itself out as professional investment counsel which provides
UNBIASED advice -- that is, advice based solely on the merits of the individual
investment and undiluted by any conflicts of interest which could prejudice the
investment decision in any way. Thus, the very nature of our business requires
that the main thrust of our Code be the elimination of any conflicts that could
jeopardize our unbiased investment approach.
2. The relationship with our clients is FIDUCIARY in nature. FIA is
considered to be a fiduciary with respect to all its investment clients,
including both non-Trust and non-ERISA accounts. This fiduciary relationship has
been stressed by the SEC and state and federal courts, including the U.S.
Supreme Court. Fiduciary standards require FIA to act honestly and fairly in all
respects in our dealings with clients and to serve their interests with
UNDIVIDED loyalty.
You are obliged to put the interest of FIA clients before your own personal
interests. This is an obligation we all assume as members of an investment
counsel firm. This principle has particular significance with reference to the
flow of investment information our personnel receive from brokers. Such
brokerage information is the property of FIA and is to be used for the exclusive
benefit of our clients and not to be used for the personal advantage of our
personnel.
We recognize that the actual experience of investing one's own capital,
whether it be small or large, is a valuable means of learning firsthand the
opportunities, risks and characteristics of the
<PAGE>
investment markets. Therefore, WE ENCOURAGE SOUND, PERSONAL INVESTMENT BY
MEMBERS OF FIA. On the other hand, we must make certain that there is no abuse
of our responsibilities to clients or to the reputation and professional
standing of our organization or any of its members. Above all we were guided by
three basic principles:
THE INTERESTS OF THE CLIENTS MUST COME FIRST
FIA PERSONNEL SHOULD AVOID ACTUAL OR POTENTIAL CONFLICTS OF INTEREST,
AND
FIA PERSONNEL SHOULD NOT TAKE INAPPROPRIATE ADVANTAGE OF THEIR
POSITIONS.
<PAGE>
II - LEGAL REQUIREMENTS
Section 206 of the Investment Advisers Act makes it unlawful, inter alia,
for any investment adviser, directly or indirectly, to employ any device, scheme
or artifice to defraud any client or prospective client, or to engage in any
transaction or practice which operates as a fraud or deceit on such persons
Rule 17j-l under the Investment Company Act of 1940 (the "1940 Act") makes
it unlawful for any director, trustee, officer or employee of an investment
adviser of an investment company (as well as other persons), in connection with
the purchase and sale by such person of a security "held or to be acquired" by
the investment company (the "Fund"):
1. To employ any device, scheme or artifice to defraud the Fund;
2. To make to the Fund any untrue statement of a material fact or omit to
state to the Fund a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not misleading;
3. To engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon the Fund; or
4. To engage in any manipulative practice with respect to the Fund.
To assure compliance with these restrictions, Rule 17j-1 requires the
Adviser (and others) to adopt and agree to be governed by the provisions
contained in this Code of Ethics.
There are numerous similar provisions in other Federal securities laws and
states laws which govern the conduct of FIA's business, including a prohibition
on trading on the basis of material nonpublic information, as discussed below.
The restrictions and obligations under this Code of Ethics apply to ALL
CLIENT ACCOUNTS under FIA management.
<PAGE>
III- PERSONS COVERED BY THE REQUIREMENTS OF THE CODE OF ETHICS
Unless expressly stated otherwise, the requirements of this Code of Ethics
apply to all FIA employees and certain Access Persons (as defined below ) of
FIM. Many of the specific requirements, however, apply to the following
categories:
ACCESS PERSON: Any employee who, as a part of his or her regular duties, makes,
participates in, or obtains information regarding the purchase or sale of a
security for any client account or whose functions relate to the making of any
recommendations with respect to such purchases or sales.
PORTFOLIO MANAGER: Any employee authorized to make investment decisions on
behalf of a client account.
INVESTMENT PERSONNEL: any Portfolio Manager or other employee, such as a
securities analyst or trader, who advises Portfolio Managers or helps execute
their investment decisions.
Note that this Code of Ethics applies to all transactions in securities in which
the covered person has BENEFICIAL OWNERSHIP (as more fully defined in Section
VI, below), which is presumed to include securities and accounts held in the
name of or for the benefit of a spouse or other household member, and
transactions by entities over which a covered person has ownership, voting or
investment control.
IV - SUBSTANTIVE RESTRICTIONS
A. The price paid or received by a client for any security should not be
affected by buying or selling activity on the part of an Access Person, or
otherwise result in an inappropriate advantage to the Access Person. To that
end:
(a) No Access Person shall buy or sell a security within seven days before
or after any portfolio trades in the security, unless an Approval Officer
determines that it is clear that, in view of the nature of the security and the
market for such security, the order of the Access Person will not affect the
price paid or received by the clients; and
(b) A Portfolio Manager may not buy or sell a security within seven days
before or after the portfolios which he or she manages trade in the security.
B. No Investment Person may acquire any securities issued as part of an
initial public offering of the issuer.
C. Each Investment Person must seek prior approval for investment in private
placement transactions from both (1) the Chief Investment Officer, and (2) the
Director of Corporate Compliance. In the case where the Chief Investment Officer
seeks approval for investing in a private placement transaction, approval must
be obtained from the Vice Chairman responsible for investment management
activities and the Director of Compliance. Such approval shall take into
account, among other factors, whether the investment opportunity should be
reserved for a client and whether the opportunity is being offered to such
person because of his or her position with FIA. Any such Investment Person who
has been authorized to acquire securities in a private placement must disclose
his or her interest if he or she is involved in a consideration of an investment
in such issuer. Any decision to acquire such issuer's securities on behalf of a
client shall be subject to review by Investment Persons with no personal
interest in the issuer.
<PAGE>
D. An Investment Person may not profit from the purchase and sale or sale and
purchase of the same or equivalent securities within sixty calendar days.
Nothing in this restriction shall be deemed to prohibit avoidance of loss
through trading within a period shorter than sixty calendar days.
E. An Investment Person must not accept gifts from any entity doing business
with or on behalf of FIA in excess of limits contained in Rule 3060(a) of the
Conduct Rules of the National Association of Securities Dealers, Inc.
(currently, $100 per year).
F. An Investment Person shall not serve on the boards of directors of publicly
traded companies, or in any similar capacity, absent the prior approval of such
service by a Compliance Officer following the receipt of a written request for
such approval. In the event such a request is approved, procedures shall be
developed to avoid potential conflicts of interest.
G. Any profits derived from securities transactions in violation of paragraphs
A, B, C or D, above, shall be forfeited and paid to the appropriate clients or,
in appropriate circumstances, donated to charity. Gifts accepted in violation of
paragraph E shall be forfeited, if practicable, and/or dealt with in any manner
determined appropriate and in the best interests of any affected Trust and its
shareholders.
H. The restrictions of this Section IV shall not apply to the following
transactions unless an Approval Officer determines that such transactions
violate the General Principles of this Code:
1. participation in an issuer's dividend reinvestment plan;
2. transactions in: securities issued or guaranteed by the U.S.
Government or an agency or instrumentality of the U.S. Government; bankers'
acceptances; U.S. bank certificates of deposit; and commercial paper; and
purchases or redemptions of shares of open-end investment companies registered
under the investment Company Act of 1940;
3. transactions in which direct or indirect beneficial ownership is not
acquired or disposed of (e.g., a stock split or an automatic conversion);
4. transactions in accounts as to which an Access Person has no
investment control, subject, as applicable, to Section IV.H.5;
5. transactions in accounts of an Access Person for which investment
discretion is not maintained by the Access Person but is granted to any of the
following that are unaffiliated with the Adviser: a registered broker-dealer,
registered investment adviser or other investment manager acting in a similar
fiduciary capacity (e.g., blind trusts and certain discretionary accounts)
PROVIDED the following conditions are satisfied:
(a) The terms of the account agreement ("Agreement") must be in
writing and filed pursuant to FIA/FIM Insider Trading Procedures prior to any
transactions and must provide that the Access Person have no access to
information about the specific securities or transactions in the account;
(b) Any amendment to the Agreement must be filed prior to its
effective date;
<PAGE>
(c) The Agreement shall prohibit acquisitions of securities in
initial public offerings; and
(d) The exemption provided by this Section III.H.5 shall not be
available for a transaction or class of transactions which is suggested or
directed by the Access Person;
and
6. transactions in securities in connection with an
employer-sponsored tax-qualified plan, such as a 401(k) plan or an ESOP.
<PAGE>
V - MISUSE OF MATERIAL NONPUBLIC INFORMATION
Generally, it is illegal to trade in securities while you are in possession
of material nonpublic information that might affect the value of those
securities or to transmit that information to others who trade in those
securities. Because the law of insider trading involves a number of complex
legal interpretations, FIA requires every employee to confer with an Approval
Officer, before entering into any securities transaction involving material
nonpublic information, whether for a client account for the employee's account.
The Approval Officer will determine whether proceeding with the proposed
transaction would involve substantial risks that the transactions would violate
the law. Every employee of the Company must follow the procedures described
below or risk serious sanctions, including dismissal, substantial personal
liability and criminal penalties, including jail sentences.
1. Identifying Inside Information
Before trading for yourself or others, including any accounts
managed by FIA, in the securities of a company about which you may
have material nonpublic, or "inside information," ask yourself the
following questions:
i. Is the information material? That is, information that an
investor would consider important in making his or her investment
decision. Is this information that would affect the market price
of the securities if generally disclosed?
ii. Is the information nonpublic? To whom has this
information been provided? Has the information been effectively
communicated to the marketplace by, for example, being published
in REUTERS, THE WALL STREET JOURNAL or other publications of
general circulation? Do not assume that information that has been
provided to you by personnel of the issuer has been publicly
disseminated unless you know otherwise.
If, after consideration of the above, you believe that the information is
material and nonpublic, or if you have any questions as to whether the
information is material and nonpublic, you should take the following steps.
i. Report the matter immediately to an Approval Officer.
ii. Do not purchase or sell the securities on behalf of yourself
or others, including investment companies or private
accounts managed by FIA.
iii. Do not communicate the information inside or outside FIA,
other than to the Approval Officer.
iv. After the Approval Officer has reviewed the issue, you will
be instructed to continue the prohibitions against trading
and communication, or you will be allowed to trade and
communicate the information.
If, after consideration of the items set forth above you have any doubt as
to whether information is material or nonpublic, or if there is any unresolved
question as to the applicability or interpretation of the foregoing procedures,
or as to the propriety of any action, you must discuss it with an Approval
Officer before trading or communicating the information to anyone.
<PAGE>
2. Restricting Access to Material Nonpublic Information
Information in your possession that you identify as potentially
material and nonpublic may not be communicated to anyone, including persons
within the FIA, except as provided in paragraph 1 above. In addition, care
should be taken so that such information is secure. For example, files
containing material nonpublic information should be sealed; access to computer
files containing material nonpublic information should be restricted.
<PAGE>
VI - PROCEDURES
The requirements and restrictions of this Code apply to all transactions in
Reportable Securities in which the subject employee has Beneficial Ownership. As
used in this Code:
"BENEFICIAL OWNERSHIP" generally means having a direct or indirect
pecuniary interest in a security and is legally defined to be beneficial
ownership as used in Rule 16a-1(a)(2) under Section 16 of the Securities
Exchange Act of 1934. Beneficial ownership is presumed regarding securities and
ACCOUNTS HELD IN THE NAME OF OR FOR THE BENEFIT OF A SPOUSE OR OTHER HOUSEHOLD
MEMBER. Beneficial ownership also extends to transactions by entities over which
a person has ownership, voting or investment control, including corporations
(and similar entities), trusts and foundations.
"REPORTABLE SECURITIES" include generally all securities, and financial
instruments related to securities, except the securities referenced in Section
IV.H.2, and securities held in accounts referenced in Section IV.H.5 (unless the
Executive Committee shall determine otherwise).
A. To enable FIA to determine with reasonable assurance whether the provisions
of applicable laws and this Code of Ethics are being observed by its Access
Persons, FIA and FIM have developed INSIDER TRADING PROCEDURES, which must be
followed by all employees who are subject to this Code. Among these Procedures
are the following:
1. Upon commencement of employment or otherwise assuming the status of
"Access Person", and annually thereafter, each Access Person shall disclose in
writing, on a form entitled "Acknowledgment and Certificate of Compliance", all
direct or indirect "Beneficial Ownership" interests of such Access Person in
"Reportable Securities."
2. Each Access Person shall obtain the prior approval of an Approval
Officer of all personal securities transactions (other than those exempted under
Section IV.H) in Reportable Securities by submitting a "Preclearance Request
Form."
3. Each Access Person shall notify the Compliance Officer of all
brokerage accounts in which he or she has any beneficial interest and shall
arrange for the broker to mail directly to Investment Compliance at the same
time they are mailed or furnished to such Access Person (a) duplicate copies of
confirmations covering each transaction in Reportable Securities in such account
and (b) copies of periodic statements with respect to the account.
B. Investment Compliance shall notify each Access Person that he or she is
subject to these reporting requirements, and shall deliver a copy of this Code
and the Insider Trading Procedures to each affected employee. (The Fleet
Financial Group Code of Ethics, to which all Fleet employees are subject, is
distributed to all employees by the Human Resources Department.)
The Executive Committee shall review the Code and its operation at least
once a year.
<PAGE>
VII - PENALTIES FOR NONCOMPLIANCE
SUBJECT EMPLOYEES WHO EITHER WILLFULLY OR NEGLIGENTLY VIOLATE THE
PROVISIONS OF THE CODE MAY BE SUBJECT TO ANY OR ALL OF THE FOLLOWING SANCTIONS:
FORMAL WRITTEN WARNING (WITH COPY TO SUPERVISOR AND PERSONNEL FILE)
BANS ON PERSONAL TRADING
REDUCTIONS IN COMPENSATION
DISGORGEMENT OF TRADING PROFITS
SUSPENSION
TERMINATION
<PAGE>
Exhibit (p)(3)
CODE OF ETHICS
EFFECTIVE: NOVEMBER 1, 1999
THE FOLLOWING CODE OF ETHICS (THE "CODE") IS DESIGNED TO COMPLY WITH
SECTION 17(J) OF THE INVESTMENT COMPANY ACT OF 1940 (THE "1940 ACT") AND THE
INSIDER TRADING AND SECURITIES FRAUD ENFORCEMENT ACT OF 1988 AND HAS BEEN
ADOPTED BY COLUMBIA MANAGEMENT CO., COLUMBIA FUNDS MANAGEMENT COMPANY, COLUMBIA
TRUST COMPANY, COLUMBIA FINANCIAL CENTER INCORPORATED, AND CMC FUND TRUST AND
EACH INVESTMENT COMPANY MANAGED BY COLUMBIA FUNDS MANAGEMENT COMPANY
(COLLECTIVELY, "COLUMBIA"). CMC FUND TRUST AND EACH INVESTMENT COMPANY MANAGED
BY COLUMBIA FUNDS MANAGEMENT COMPANY ARE REFERRED TO IN THIS CODE AS A "COLUMBIA
FUND."
1. STATEMENT OF GENERAL PRINCIPLES
The specific standards and guidelines set forth in the Code must be
applied and followed in the context of the following general fiduciary
principles that govern personal investment activities. The Code is based on the
principle that officers, directors and employees of Columbia owe a fiduciary
duty to conduct their personal securities transactions in a manner that does not
interfere with portfolio transactions or take unfair advantage of their
relationship with Columbia. This fiduciary duty is owed to both Columbia
advisory clients and shareholders of the Columbia Funds. Columbia personnel must
adhere to this general principle as well as the specific requirements set forth
in this Code. COLUMBIA OFFICERS, DIRECTORS AND EMPLOYEES SHOULD UNDERSTAND,
HOWEVER, THAT TECHNICAL COMPLIANCE WITH THE SPECIFIC REQUIREMENTS OF THE CODE
DOES NOT AUTOMATICALLY INSULATE THEM FROM LIABILITY OR A REVIEW OF TRADES THAT
SHOW A PATTERN OF A BREACH OF AN INDIVIDUAL'S FIDUCIARY DUTY.
Personnel should avoid situations that present actual as well as potential
conflicts of interest. As a general principle, it is imperative that Columbia's
officers, directors and employees also avoid any situation that might compromise
or call into question their exercise of independent judgment in the interest of
Columbia Fund shareholders and Columbia advisory clients. Areas of concerns
relating to independent judgment include, among others, unusual investment
opportunities, perks, and gifts of more than "de minimus" value from persons
doing or seeking to do business with Columbia.
Purchases or sales of securities shall be made only in accordance with
this Code and Columbia's Policy and Procedures Designed to Detect and Prevent
Insider Trading (the "Insider Trading Policy"). Although all employees and
disinterested directors/trustees of Columbia are covered by this Code and the
Insider Trading Policy, certain employees deemed under the Code to be "access
persons" are subject to greater trading restrictions and reporting obligations.
Disinterested directors/trustees, however, are generally subject to fewer
trading restrictions and reporting obligations because of their limited access
to current investment information.
<PAGE>
2. DEFINITIONS
(a) "ACCESS PERSON" means (i) any director or officer of Columbia, (ii)
any employee of Columbia who, in connection with his or her regular
functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a security by Columbia or whose
functions relate to the making of any recommendations with respect to such
purchases or sales; and (iii) any natural person in a control relationship
to Columbia who obtains information concerning recommendations made to
Columbia with regard to the purchase or sale of a security. The Ethics
Committee shall maintain a list of employees deemed to be access persons
for purposes of this Code. "Access person" does not include a
disinterested director/trustee of a Columbia Fund.
(b) A security is "BEING CONSIDERED FOR PURCHASE OR SALE" when a
recommendation to purchase or sell a security has been made and
communicated or, with respect to the person making the recommendation,
when such person seriously considers making such a recommendation.
(c) "BENEFICIAL OWNERSHIP" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 and the rules and
regulations thereunder, which states that the term "beneficial owner"
means "any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares a
direct or indirect pecuniary interest in" a security. The term "pecuniary
interest" is further defined to mean "the opportunity, directly or
indirectly, to profit or share in any profit derived from a transaction in
the subject securities." "Beneficial ownership" includes accounts of a
spouse, minor children and relatives resident in the home of the access
person, as well as accounts of another person if the employee obtains
therefrom benefits substantially equivalent to those of ownership. For
additional information, see appendix A.
(d) "CONTROL" shall have the same meaning as that set forth in Section
2(a)(9) of the 1940 Act.
(e) "DISINTERESTED DIRECTOR/TRUSTEE" means a director/trustee of a
Columbia Fund who is not an "interested person" of the Columbia Fund
within the meaning of Section 2(a)(19) of the 1940 Act.
(f) "EMPLOYEE" means any employee or officer of Columbia or any Columbia
Fund. Employee does not include a disinterested director/trustee of a
Columbia Fund.
(g) "PURCHASE OR SALE OF A SECURITY" includes, among other things, the
writing of an option to purchase or sell a security.
<PAGE>
(h) "SECURITY" shall have the meaning set forth in Section 2(a)(36) of the
Investment Company Act, except that it shall not include shares of
registered open-end investment companies, securities issued by the U.S.
Government or an instrumentality thereof, short-term debt securities that
are government securities within the meaning of Section 2(a)(16) of the
1940 Act, bankers' acceptances, bank certificates of deposit, commercial
paper and other money market instruments. Any prohibition or reporting
obligation relating to a security shall also apply to any option, warrant
or right to purchase or sell such security and to any security convertible
or exchangeable for such security.
3. PRE-CLEARANCE OF TRANSACTIONS
All employees shall have all purchases or sales of any security in which
they have, or by reason of such purchase acquire, any direct or indirect
beneficial ownership approved in writing by the Columbia Trading Department or a
member of the Ethics Committee prior to effecting the transaction. Members of
the Ethics Committee are attached hereto as Appendix B.
NOTE: See the definition of security in Section 2(h) and the exemptions in
Section 5 to determine whether a transaction is subject to the pre-clearance
requirement. For example, transactions in an account over which an employee does
not have direct or indirect influence or control are exempt from this
pre-clearance requirement.
4. PROHIBITED TRANSACTIONS
(a) General Restrictions:
(i) PROHIBITED PURCHASES AND SALES. No EMPLOYEE OR DISINTERESTED
DIRECTOR/TRUSTEE shall purchase or sell, directly or indirectly, any
security in which he or she has, or by reason of such transactions
acquires, any direct or indirect beneficial ownership and which to his or
her knowledge at the time of such purchase or sale (i) is being considered
for purchase or sale by Columbia or (ii) is being purchased or sold by
Columbia. In addition, all employees and disinterested directors/trustees
shall comply with the Insider Trading Policy, which prohibits any person
from purchasing or selling a security while in possession of material
non-public information or communicating such information in connection
with a transaction.
(ii) INITIAL PUBLIC OFFERINGS. No EMPLOYEE shall purchase or sell
directly or indirectly, any equity security issued in an initial public
offering without the written approval by the Columbia Trading Department
or a member of the Ethics Committee prior to the transaction. A
transaction by an ACCESS PERSON in an initial public offering will not be
approved in any circumstances.
(b) Restrictions Applicable only to Access Persons:
<PAGE>
(i) PRIVATE PLACEMENTS. No access person shall purchase any
securities issued in a private placement (as that term is generally
recognized as an exempt transaction from registration under the federal
securities laws) except pursuant to the prior written approval of the
Ethics Committee, which approval shall take into consideration, among
other factors, whether the investment opportunity should be reserved for a
Columbia Fund or Columbia advisory client and whether the opportunity is
being offered to the access person by virtue of his or her position with
Columbia. In addition, any access person who owns or has been authorized
to acquire securities in a private placement is required to disclose that
ownership if he or she plays a material role in Columbia's subsequent
investment decision regarding the same issuer of the security. In that
circumstance, Columbia's decision to purchase such securities must be
subject to an independent review by members of the Columbia Investment
Team with no personal interest in the issuer.
(ii) 7-DAY BLACKOUT PERIOD. No access PERSON shall purchase or sell,
directly or indirectly, any security in which he or she has, or by reason
of the transaction acquires, any direct or indirect beneficial ownership
within a period of seven calendar days before and after a purchase or sale
by a Columbia Fund or advisory client over which the access person
exercises investment discretion. For example, if a Columbia Fund trades a
security on day one (e.g., on Monday), the access person may not trade
until day nine (e.g., the following Tuesday). Any profits realized on
trades within the proscribed periods shall be disgorged to Columbia for
the benefit of the appropriate Columbia Fund or advisory client or,
alternatively, to a charitable organization (qualified under Section
501(c) of the Internal Revenue Code) of the access person's choice.
The black-out period restriction under this Section 4(b)(ii) should
not operate to the detriment of any Columbia Fund or advisory client.
Therefore, if an access person has executed a transaction in a security
for his or her account and within seven days thereafter desires to
purchase or sell that security for a Columbia Fund or advisory client over
which he or she exercises investment discretion, the access person shall
submit a written explanation to the Trading Desk or Ethics Committee
describing the circumstances relating to the decision to trade the
security for the Fund or client account. Based on the specific
circumstances and a determination that the access person has not otherwise
violated the Code of Ethics, including the Statement of General Principles
in Section 1, the Trading Desk or Ethics Committee may approve the trade
by the Fund or advisory client and, in that case, the prior personal
transaction by the access person shall not be considered a violation of
the seven day black-out period restriction. A written record of the
approval by the Trading Desk or the Ethics Committee, as the case may be,
shall be maintained by the Ethics Committee.
(iii) SHORT-TERM TRADING. For the purpose of preventing the unfair
use of information that may be obtained by an access person, any profit
realized by an access person from any purchase and sale, or any sale and
purchase, of any security in which
<PAGE>
he or she has, or by reason of the transaction acquires, any direct or
inirect beneficial ownership (other than an exempted security under this
Code), within any period of less than 60 days shall inure to and be
recoverable by Columbia for the benefit of a charitable organization
(qualified under Section 501(c) of the Internal Revenue Code) of his or
her choice. This prohibition shall not apply unless such access person was
the beneficial owner of the security or of an interest in the security
both at the time of the purchase and sale, or sale and purchase.
Exceptions to the short-term trading ban may be approved in advance
by the Ethics Committee where it is determined that no abuse is involved
and the equities of the situation strongly support an exception to the
ban. Circumstances that could provide the basis for an exception under
this paragraph may include for example, among other things, an involuntary
transaction that is the result of unforeseen corporate activity, the
disclosure of a previously nonpublic, material corporate, economic or
political event or activity that could cause a reasonable person in like
circumstances to sell a security even if originally purchased as a long
term investment, or the access person's economic circumstances materially
change in such a manner that enforcement of the short-term trading ban
would cause an extreme hardship on the access person.
(iv) EXEMPTION FOR LARGE CAP TRADES. The prohibitions in subsections
4(b)(ii) and (iii) shall not apply to the purchase or sale by the access
person of a security issued by a company with a market capitalization
greater than $10 billion if the number of shares in the transaction is
less than 1% of the average daily trading volume for the security for the
20-day trading period immediately prior to the transaction. This exception
to the black-out period and short-term trading prohibitions recognizes
that transactions by the access person or Columbia which involve
securities of companies with high market capitalizations and high average
daily trading volumes are not likely to materially affect the price of the
security involved.
5. EXEMPTED TRANSACTIONS
In addition to any other exemptions in this Code and except as otherwise
noted below, the prohibitions of Section 4 and the pre-clearance required by
Section 3 of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the employee has
no direct or indirect influence or control. Pre-approval of these accounts
may, at times, be required by the Ethics Committee.
For additional information see appendix A.
(b) Purchases or sales of securities that are not eligible for purchase or
sale by Columbia.
(c) Purchases or sales which are non-volitional on the part of either the
employee, or Columbia.
<PAGE>
(d) Purchases which are part of an automatic dividend reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by an issuer PRO
RATA to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
(f) Purchases and sales of financial futures or option contracts on
securities indexes traded on a national securities or commodities
exchange.
(g) Purchases and sales approved by the Ethics Committee if it is
determined after appropriate inquiry that the transaction is not
potentially harmful to a Columbia Fund or advisory client because it would
be very unlikely to affect a highly institutional market, or because it
clearly is not related economically to the securities to be purchased,
sold or held by Columbia, and that the purchase or sale does not violate
the Insider Trading and Securities Fraud Enforcement Act of 1988.
6. PROHIBITED ACTIVITIES BY EMPLOYEES AND ACCESS PERSONS
(a) GIFTS. Employees are prohibited from receiving, either directly or
indirectly, anything of value in excess of a "de minimus" amount from any
person or any employee of an entity that does or seeks to do business with
Columbia.
(b) SERVICE AS A DIRECTOR. Access persons are prohibited from serving on
the boards of directors of publicly traded companies, absent a prior
authorization from the Ethics Committee based on a determination that the
board service would not be inconsistent with the interests of Columbia or
Columbia's advisory clients. This restriction shall not apply to access
persons serving on the board of directors or as a trustee of any Columbia
Fund.
7. REPORTING
(a) DUPLICATE CONFIRMATIONS AND ACCOUNT STATEMENTS. All employees shall
cause every broker with whom he or she maintains an account to provide
duplicate confirmations to Columbia for all securities transactions by the
employee. In addition, all access persons (excluding disinterested
directors/trustees) shall cause every such broker to send all monthly,
quarterly and annual statements of their accounts to Columbia. The
quarterly statements must be provided no later than 10 days after the end
of a calendar quarter. The quarterly statements must contain with respect
to any transaction during the calendar quarter in a security beneficially
owned by the access person (1) the date of the transaction, the title, the
interest rate and maturity date (if applicable), the number of shares and
the principal amount of each security involved; (2) the nature of the
transaction (i.e., purchase, sale or any other type of acquisition or
disposition); (3) the price of the security at which the transaction was
effected; (4) the name of the broker, dealer or bank with or through which
the transaction was
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effected; and (5) the date that the report is submitted by the access
person. The Trading Department will obtain duplicate brokerage
confirmations for all purchases and sales of a security by employees
(other than disinterested directors/trustees) and shall compile summaries
of all trades entered and all transactions completed. Such reports shall
include the name of the security, date of transaction, quantity, price and
the broker-dealer through which the transaction was effected. The
obligation to provide duplicate confirmations and account statements
applies to all brokerage accounts even if a transaction is exempt from the
prohibitions under this Code.
(b) DISCLOSURE OF ALL PERSONAL HOLDINGS. Within 10 days of commencement of
employment or becoming an access person and on an annual basis thereafter
(which information must be current as of a date no more than 30 days
before the report is submitted), each access person shall provide Columbia
the following information: (1) the title, number of shares and principal
amount of each security beneficially owned by the access person; (2) the
name of any broker, dealer or bank from whom the access person maintains
an account in which any securities were beneficially owned by the access
person; and (3) the date the report is submitted by the access person.
(c) DISINTERESTED DIRECTOR/TRUSTEE. A disinterested director/trustee is
required to report a purchase or sale transaction in a security only if
the director/trustee, at the time of the transaction, knew or, in the
ordinary course of fulfilling his or her duties as a director/trustee of a
Columbia Fund, should have known that, during the 15-day period
immediately preceding or after the date of the transaction, such security
is or was purchased or sold by the Columbia Fund or is or was being
considered for purchase or sale.
(d) REVIEW OF SECURITIES TRANSACTIONS AND HOLDING REPORTS. Columbia shall
establish procedures to ensure that all securities transactions and
holdings reports submitted by access persons are reviewed by appropriate
management or compliance personnel.
8. CERTIFICATION OF COMPLIANCE
All employees and disinterested directors/trustees shall certify annually
(except that access persons shall certify on a quarterly basis) that they have
read and understood the Code and are subject thereto, have complied with the
requirements of the Code and have disclosed or reported all personal securities
transactions as required by the Code.
9. SANCTIONS
Upon discovering a violation of this Code, Columbia may impose such
sanctions as it deems appropriate, including, among other things, a letter of
censure or suspension or termination of the employment of the violator.
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10. REPORT TO THE BOARD OF DIRECTORS.
On an annual basis, the Ethics Committee shall prepare a written report to
the management of Columbia and the Boards of Directors/Trustees of the Columbia
Funds and the other Columbia companies that (1) describes any issues arising
under the Code since the last report including, but not limited to, information
about material violations of the Code and sanctions imposed in response to the
material violations; and (2) certifies that Columbia has adopted procedures
reasonably necessary to prevent violations of the Code. Columbia shall present
any material change to the Code to the Board of Directors/Trustees no later than
six months after adoption of the material change.
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APPENDIX A - BENEFICIAL OWNERSHIP
For purposes of the Code of Ethics, the term "beneficial ownership" shall
be interpreted in accordance with the definition of "beneficial owner" set forth
in Rule 16a-l(a)(2) under the Securities Exchange Act of 1934, as amended, which
states that the term "beneficial owner" means "any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares a direct or indirect pecuniary interest in" a security.
The term "pecuniary interest" is further defined to mean "the opportunity,
directly or indirectly, to profit or share in any profit derived from a
transaction in the subject securities."
The pecuniary interest standard looks beyond the record owner of
securities. As a result, the definition of beneficial ownership is extremely
broad and encompasses many situations which MIGHT not ordinarily be thought to
confer a "pecuniary interest" in or "beneficial ownership" of securities.
SECURITIES DEEMED TO BE "BENEFICIALLY OWNED"
Securities owned "beneficially" would include not only securities held by
you for your own benefit, but also securities held (regardless of whether or how
they are registered) by others FOR YOUR BENEFIT in an account over which you
have influence or control, such as, for example, securities held for you by
custodians, brokers, relatives, executors, administrators, or trustees. The term
also includes securities held for your account by pledgees, securities owned by
a partnership in which you are a general partner, and securities owned by any
corporation that you control.
Set forth below are some examples of how beneficial ownership may arise in
different contexts.
FAMILY HOLDINGS. Securities held by members of your immediate family
sharing the same household are presumed to be beneficially owned by you. Your
"immediate family" includes any child, step-child, grandchild, parent,
step-parent, grandparent, spouse, significant other, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law
(but does not include aunts and uncles, or nieces and nephews). The definition
also includes adoptive relationships. You may also be deemed to be the
beneficial owner of securities held by an immediate family member not living in
your household if the family member is economically dependent upon you.
PARTNERSHIP AND CORPORATE HOLDINGS. A general partner of a general or
limited partnership will generally be deemed to beneficially own securities held
by the partnership, as long as the partner has direct or indirect influence or
control over the management and affairs of the partnership. A limited partner
will generally not be deemed to beneficially own securities held by a limited
partnership, provided he or she does not own a controlling voting
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interest in the partnership. If a corporation is your "alter ego" or "personal
holding company", the corporation's holdings of securities are attributable to
you.
TRUSTS. Securities held by a trust of which you are a beneficiary AND over
which you have any direct or indirect influence or control would be deemed to be
beneficially owned by you. An example would be where you as settlor have the
power to revoke the trust without the consent of another person, or have or
share investment control over the trust.
ESTATES. Ordinarily, the term "beneficial ownership" would not include
securities held by executors or administrators in estates in which you are a
legatee or beneficiary unless there is a specific bequest to you of such
securities, or you are the sole legatee or beneficiary and there are other
assets in the estate sufficient to pay debts ranking ahead of such bequest.
SECURITIES DEEMED NOT TO BE "BENEFICIALLY OWNED"
For purposes of the Code of Ethics, the term "beneficial ownership"
excludes securities or securities accounts held by you for the benefit of
someone else if you do not have a pecuniary interest in such securities or
accounts. For example, securities held by a trust would not be considered
beneficially owned by you if neither you nor an immediate family member is a
beneficiary of the trust. Another example illustrating the absence of pecuniary
interest, and therefore also of beneficial ownership, would be securities held
by an immediate family member not living in the same household with you, and who
is not economically dependent upon you.
"INFLUENCE OR CONTROL"
Transactions over which you have "no direct or indirect influence or
control" are not subject to the pre-clearance requirements or prohibited
transaction rules in Sections 3 and 4 of the Code of Ethics. See Section 5(a).
To have "influence or control", you must have an ability to prompt, induce or
otherwise affect transactions in the account. Like "beneficial ownership, the
concept of influence or control encompasses a wide variety of factual
situations. An example of where influence or control exists would be where you,
as a beneficiary of a revocable trust, have significant ongoing business and
social relationships with the trustee of the trust. Examples of where influence
or control does not exist would be a true blind trust, or securities held by a
limited partnership in which your only participation is as a non-controlling
limited partner. The determining factor in each case will be whether you have
any direct or indirect influence or control over the securities account.
Employees with such blind trust or third party discretionary accounts shall have
their account agreement and/or governing documents forwarded to Ethics Committee
for review prior to trading pursuant to this exemption. The account will only be
exempt if the employee initially, and on an annual basis thereafter, certifies
that he or she maintains no control or influence over the account.
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APPENDIX B - MEMBERS OF ETHICS COMMITTEE
Thomas L. Thomsen
Alexander S. Macmillan
Jeff B. Curtis
Mark A. Wentzien
Rich S. Mettler
