<PAGE>
As filed with the Securities and Exchange Commission on March 1, 2000
Securities Act File No. 33-49290
Investment Company Act File No. 811-6726
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. /X/
Post-Effective Amendment No. 10 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 12 /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)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of beneficial interest.
<PAGE>
[Front cover page]
The Galaxy VIP Fund
Prospectus
____________, 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
<TABLE>
<S> <C>
Risk/return summary..............................................................................................1
Introduction...................................................................................................1
Money Market Fund..............................................................................................2
Equity Fund....................................................................................................5
Growth and Income Fund.........................................................................................8
Small Company Growth Fund.....................................................................................11
Columbia Real Estate Equity Fund II...........................................................................14
Asset Allocation Fund.........................................................................................17
High Quality Bond Fund........................................................................................21
Columbia High Yield Fund II...................................................................................25
Additional information about risk.............................................................................29
Fund management.................................................................................................30
How to invest in the Funds......................................................................................31
Pricing of shares.............................................................................................31
Buying and selling shares.....................................................................................31
Dividends, distributions and taxes..............................................................................32
Financial highlights............................................................................................34
</TABLE>
-i-
<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 with total assets of
approximately $____ billion at December 31, 1999.
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.
<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:
-2-
<PAGE>
- - 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.
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]
-3-
<PAGE>
<TABLE>
----------------- ---------------- ----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
----------------- ---------------- ----------------- ----------------- ---------------- -----------------
3.89% 5.38% 4.91% 4.99% 5.16% _____%
----- ----- ----- ----- ----- ------
----------------- ---------------- ----------------- ----------------- ---------------- -----------------
</TABLE>
The Fund's year-to-date return as of the quarter ended March 31, 2000 was ___%.
[Sidenote:]
Best quarter: ____% for the quarter ending _________
Worst quarter: ____% for the quarter ending _________
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
------------------------------- ----------------------- ------------------------ -------------------------
<S> <C> <C>
1 year 5 years Since inception
------------------------------- ----------------------- ------------------------ -------------------------
Money Market Fund _____% _____% _____% (2/2/93)
------------------------------- ----------------------- ------------------------ -------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
-4-
<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
-5-
<PAGE>
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.
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>
----------------- ---------------- ----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999
----------------- ---------------- ----------------- ----------------- ---------------- -----------------
3.47% 26.75% 21.49% 27.74% 23.52% _____%
----------------- ---------------- ----------------- ----------------- ---------------- -----------------
</TABLE>
The Fund's year-to-date return as of the quarter ended March 31, 2000 was ___%.
[Sidenote:]
Best quarter: _____% for the quarter ending ___________
Worst quarter: _____% for the quarter ending ___________
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.
-6-
<PAGE>
<TABLE>
<CAPTION>
------------------------- --------------------- -------------------- -------------------------------------
1 year 5 years Since inception
------------------------- --------------------- -------------------- -------------------------------------
<S> <C> <C> <C>
Equity Fund _____% _____% _____% ( 1/11/93)
------------------------- --------------------- -------------------- -------------------------------------
S&P 500 _____% _____% _____% (since 12/31/92)
------------------------- --------------------- -------------------- -------------------------------------
</TABLE>
[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.
[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.
-7-
<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.
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:
-8-
<PAGE>
- - 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.
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
- ---------------------
----%
- ---------------------
The Fund's year-to-date return as of the quarter ended March 31, 2000 was ___%.
[Sidenote:]
Best quarter: ____% for the quarter ending ____________
Worst quarter: ____% for the quarter ending ____________
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 ____% _____% (3/4/98)
- ---------------------------------------- -------------------------------------- ----------------------------
S&P 500 ____% _____% (2/28/98)
- ---------------------------------------- -------------------------------------- ----------------------------
</TABLE>
-9-
<PAGE>
[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:]
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.
-10-
<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.
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.
-11-
<PAGE>
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.
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
- ---------------------
----%
- ---------------------
The Fund's year-to-date return as of the quarter ended March 31, 2000 was ___%.
-12-
<PAGE>
[Sidenote:]
Best quarter: ____% for the quarter ending ____________
Worst quarter:____% for the quarter ending ____________
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 ____% _____% (4/17/98)
- ---------------------------------------- -------------------------------------- ----------------------------
Russell 2000 Index ____% _____% (4/30/98)
- ---------------------------------------- -------------------------------------- ----------------------------
</TABLE>
[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.
[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.
-13-
<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.
-14-
<PAGE>
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.
- - 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
-15-
<PAGE>
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
- ---------------------
----%
- ---------------------
The Fund's year-to-date return as of the quarter ended March 31, 2000 was ___%.
[Sidenote:]
Best quarter: ____% for the quarter ending ____________
Worst quarter:____% for the quarter ending ____________
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 ____% _____% (3/3/98)
- ---------------------------------------------------- -------------------------- ----------------------------
NAREIT Index ____% _____% (2/28/98)
- ---------------------------------------------------- -------------------------- ----------------------------
</TABLE>
[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.
[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.
-16-
<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.
-17-
<PAGE>
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.
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.
-18-
<PAGE>
- - 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.
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 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% ___%
- ----------------- ---------------- ------------------ ----------------- ---------------- -----------------
</TABLE>
The Fund's year-to-date return as of the quarter ended March 31, 2000 was ___%.
[Sidenote:]
Best quarter: ____% for the quarter ending __________
Worst quarter: ____% for the quarter ending __________
AVERAGE ANNUAL TOTAL RETURNS
-19-
<PAGE>
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 ____% ____% ____% (2/6/93)
- ------------------------------- ----------------------- --------------------- -------------------------------
S&P 500 ____% ____% ____% (since 1/31/93)
- ------------------------------- ----------------------- --------------------- -------------------------------
DJIA ____% ____% ____% (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.
[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.
-20-
<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.
-21-
<PAGE>
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 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
-22-
<PAGE>
long-term capital gains. Frequent trading could also mean higher brokerage
commissions and other transaction costs, which could reduce the Fund's
returns.
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>
-5.85% 22.55% 1.57% 9.36% 9.70% ___%
- ----------------- ---------------- ------------------ ----------------- ---------------- -----------------
</TABLE>
The Fund's year-to-date return as of the quarter ended March 31, 2000 was ___%.
[Sidenote:]
Best quarter: _____% for the quarter ending ___________
Worst quarter: _____% for the quarter ending ___________
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.
-23-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------- -------------- --------------- -------------------------------
1 year 5 years Since inception
- ---------------------------------------------- -------------- --------------- -------------------------------
<S> <C> <C> <C>
High Quality Bond Fund ___% ____% ____% (1/21/93)
- ---------------------------------------------- -------------- --------------- -------------------------------
Lehman Brothers Government/
Corporate Bond Index ____% ____% ____% (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.
-24-
<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.
-25-
<PAGE>
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 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.
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.
-26-
<PAGE>
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
- ---------------------
----%
- ---------------------
The Fund's year-to-date return as of the quarter ended March 31, 2000 was ___%.
[Sidenote:]
Best quarter: ____% for the quarter ending ____________
Worst quarter: ____% for the quarter ending ____________
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 ____% _____% (3/3/98)
- ---------------------------------------- -------------------------------------- ----------------------------
Lehman Brothers Aggregate Bond Index ____% _____% (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.
[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.
-27-
<PAGE>
Rippey has managed the Fund since it began operations in March 1998. He has been
with Columbia since 1981.
-28-
<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.
-29-
<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.__%
- ------------------------------------------------------- -----------------------------------------------------
Equity Fund 0.__%
- ------------------------------------------------------- -----------------------------------------------------
Growth and Income Fund 0.__%
- ------------------------------------------------------- -----------------------------------------------------
Small Company Growth Fund 0.__%
- ------------------------------------------------------- -----------------------------------------------------
Columbia Real Estate Equity Fund II 0.__%
- ------------------------------------------------------- -----------------------------------------------------
Asset Allocation Fund 0.__%
- ------------------------------------------------------- -----------------------------------------------------
High Quality Bond Fund 0.__%
- ------------------------------------------------------- -----------------------------------------------------
Columbia High Yield Fund II 0.__%
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>
-30-
<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
-31-
<PAGE>
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 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.
-32-
<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.
-33-
<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 [_____________], independent
auditors, whose report, along with the Funds' financial statements, are included
in the Funds' Annual Report and [______________] 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, [------------].
-34-
<PAGE>
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
---- ---- ---- ----
Income from Investment Operations:
Net investment income(1).......... 0.05 0.05 0.05 0.05
Net realized and unrealized gain (loss)
on investments.................. -- -- -- --
----- ---- ---- -----
Total from Investment Operations: 0.05 0.05 0.05 0.05
---- ---- ---- ----
Less Dividends:
Dividends from net investment income (0.05) (0.05) (0.05) (0.05)
Dividends from net realized
capital gains................... -- -- -- --
----- ---- ----- -----
Total Dividends:................ (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
==== ==== ==== ====
Total Return........................ 5.16% 4.99% 4.91% 5.38%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)... $16,821 $15,330 $16,295 $17,925
Ratios to average net assets:
Net investment income including
reimbursement/waiver.............. 4.95% 4.88% 4.80% 5.25%
Operating expenses including
reimbursement/waiver.............. 0.55% 0.67% 0.60% 0.63%
Operating expenses excluding
reimbursement/waiver.............. 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 $_______, $0.05,
$0.05, $0.05 and $0.05, respectively.
-35-
<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>
Net Asset Value, Beginning of Period $19.68 $15.58 $12.99 $10.40
----- ----- ----- -----
Income from Investment Operations:
Net investment income(1).......... 0.13 0.21 0.19 0.18
Net realized and unrealized gain
On investments.................. 4.25 4.10 2.59 2.59
---- ---- ---- ----
Total from Investment Operations: 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................... (4.73) -- -- --
---- ---- ----- -----
Total Dividends:................ (4.86) (0.21) (0.19) (0.18)
---- ---- ---- ----
Net increase (decrease) in net asset
Value............................. (0.48) 4.10 2.59 2.59
---- ---- ---- ----
Net Asset Value, End of Period...... $19.20 $19.68 $15.58 $12.99
===== ===== ===== =====
Total Return........................ 23.52% 27.74% 21.49% 26.76%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)... $92,620 $69,863 $46,242 $30,826
Ratios to average net assets:
Net investment income including
Reimbursement/waiver.............. 0.61% 1.20% 1.34% 1.55%
Operating expenses including
Reimbursement/waiver.............. 1.05% 1.08% 1.10% 1.21%
Operating expenses excluding
Reimbursement/waiver.............. 1.05% 1.08% 1.10% 1.24%
Portfolio Turnover Rate............. 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 $_____, $0.13,
$0.21, $0.19 and $0.18, respectively.
-36-
<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.................................... $10.00
-----
Income from Investment Operations:
Net investment income(2)........................................... 0.05
Net realized and unrealized gain on investments.................... 0.34
----
Total from Investment Operations................................. 0.39
----
Less Dividends:
Dividends from net investment income............................. (0.05)
Dividends in excess of net investment income..................... -- (3)
Dividends from net realized capital gains........................ --
----
Total Dividends................................................ (0.05)
Net increase in net asset value......................................... 0.34
----
Net Asset Value, End of Period.......................................... $10.34
=====
Total Return............................................................ 3.72%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................................. $7.637
Ratios to average net assets:
Net investment income including reimbursement/waiver............... 0.69%(5)
Operating expenses including reimbursement/waiver.................. 1.50%(5)
Operating expenses excluding reimbursement/waiver.................. 2.58%(5)
Portfolio Turnover Rate................................................. 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 $_____ and
$(0.03), respectively.
(3) Amount is less than $0.005 per share.
(4) Not Annualized.
(5) Annualized.
-37-
<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..................................... $10.00
-----
Income from Investment Operations:
Net investment (loss)(2)............................................ (0.02)
Net realized and unrealized (loss) on investments................... (1.05)
----
Total from Investment Operations.................................. (1.07)
Less Dividends:
Dividends from net investment income.............................. --
-----
Dividends in excess of net investment income...................... (0.01)
Dividends from net realized capital gains......................... --
-----
Total Dividends................................................. (0.01)
------
Net (decrease) in net asset value........................................ (1.08)
----
Net Asset Value, End of Period........................................... $8.92
=====
Total Return............................................................. (10.68)%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)................................... $1,143
Ratios to average net assets:
Net investment (loss) including reimbursement/waiver................ (0.65)%(4)
Operating expenses including reimbursement/waiver................... 1.60 %(4)
Operating expenses excluding reimbursement/waiver................... 12.86 %(4)
Portfolio Turnover Rate.................................................. 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 $______ and $(0.36),
respectively.
(3) Not Annualized.
(4) Annualized.
-38-
<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..................................... $10.00
-----
Income from Investment Operations:
Net investment income(2)............................................ 0.28
Net realized and unrealized (loss) on investments................... (1.24)
----
Total from Investment Operations.................................. (0.96)
Less Dividends:
Dividends from net investment income.............................. (0.26)
Dividends from net realized capital gains......................... --
----
Total Dividends................................................. (0.26)
----
Net (decrease) in net asset value........................................ (1.22)
----
Net Asset Value, End of Period........................................... $8.78
=====
Total Return............................................................. (9.57)%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)................................... $784
Ratios to average net assets:
Net investment income (loss) including reimbursement/waiver......... 4.62%(4)
Operating expenses including reimbursement/waiver................... 1.70%(4)
Operating expenses excluding reimbursement/waiver................... 10.49%(4)
Portfolio Turnover Rate.................................................. 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 year ended
December 31, 1999 and the period ended December 31, 1998 were $_________
and $(0.26), respectively.
(3) Not Annualized.
(4) Annualized.
-39-
<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 $14.54 $13.37 $12.38 $9.80
----- ----- ----- ----
Income from Investment Operations:
Net investment income(1)............. 0.33 0.40 0.30 0.28
Net realized and unrealized gain (loss)
on investments....................... 2.17 2.11 1.53 2.58
---- ---- ---- ----
Total from Investment Operations: 2.50 2.51 1.83 2.86
---- ---- ---- ----
Less Dividends:
Dividends from net investment income (0.39) (0.40) (0.30) (0.28)
Dividends in excess of net
investment income.................... -- (2) -- -- --
Dividends from net realized
capital gains........................ (0.22) (0.94) (0.54) --
Dividends in excess of net realized
capital gains........................ (0.06) -- -- --
---- ---- ----- --
Total Dividends:....................... (0.67) (1.34) (0.84) (0.28)
---- ---- ---- ----
Net increase (decrease) in net asset
value................................ 1.83 1.17 0.99 2.58
---- ---- ---- ----
Net Asset Value, End of Period......... $16.37 $14.54 $13.37 $12.38
====== ===== ===== =====
Total Return........................... 17.51% 19.03% 14.64% 29.42%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)...... $78,586 $42,535 $24,114 $17,246
Ratios to average net assets:
Net investment income including
Reimbursement/waiver................. 2.69% 2.90% 2.31% 2.54%
Operating expenses including
Reimbursement/waiver................. 1.07% 1.19% 1.33% 1.37%
Operating expenses excluding
Reimbursement/waiver................. 1.07% 1.25% 1.33% 1.54%
Portfolio Turnover Rate................ 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 $_____, $0.33,
$0.39, $0.30 and $0.26, respectively.
(2) Amount is less than $0.005.
-40-
<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 $10.31 $9.99 $10.37 $8.97
------ ---- ----- ----
Income from Investment Operations:
Net investment income(1)............... 0.58 0.58 0.58 0.57
Net realized and unrealized gain (loss)
on investments....................... 0.39 0.32 (0.38) 1.40
---- ---- ---- ----
Total from Investment Operations: 0.97 0.90 0.20 1.97
---- ---- ---- ----
Less Dividends:
Dividends from net investment income (0.58) (0.58) (0.58) (0.57)
Dividends from net realized
capital gains........................ -- -- -- --
----- ----- ----- -----
Total Dividends:..................... (0.58) (0.58) (0.58) (0.57)
---- ---- ---- ----
Net increase in net asset
value.................................. 0.39 0.32 (0.38) 1.40
---- ---- ----- ----
Net Asset Value, End of Period........... $10.70 $10.31 $9.99 $10.37
====== ===== ==== =====
Total Return............................. 9.70% 9.36% 1.57% 22.55%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)........ $23,289 $14,457 $11,814 $11,067
Ratios to average net assets:
Net investment income including
reimbursement/waiver................... 5.55% 5.82% 5.78% 5.86%
Operating expenses including
reimbursement/waiver................... 0.54% 0.77% 0.72% 0.80%
Operating expenses excluding
reimbursement/waiver................... 1.10% 1.44% 1.38% 1.57%
Portfolio Turnover Rate.................. 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 $______, $0.52, $0.51, $0.51 and
$0.50 , respectively.
-41-
<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..................................... $10.00
-----
Income from Investment Operations:
Net investment income(2)............................................ 0.49
Net realized and unrealized gain on investments..................... 0.45
----
Total from Investment Operations.................................. 0.94
----
Less Dividends:
Dividends from net investment income.............................. (0.49)
Dividends from net realized capital gains......................... (0.09)
----
Total Dividends................................................. (0.58)
----
Net increase in net asset value.......................................... 0.36
----
Net Asset Value, End of Period........................................... $10.36
======
Total Return............................................................. 9.61%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)................................... $2,454
Ratios to average net assets:
Net investment income including reimbursement/waiver................ 6.18%(4)
Operating expenses including reimbursement/waiver................... 1.60%(4)
Operating expenses excluding reimbursement/waiver................... 4.25%(4)
Portfolio Turnover Rate.................................................. 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 $_______ and $0.28,
respectively.
(3) Not Annualized.
(4) Annualized.
-42-
<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.
[Fleet assigned code]
<PAGE>
THE GALAXY VIP FUND
STATEMENT OF ADDITIONAL INFORMATION
________________, 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 ___________, 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 [______________________________], The Galaxy VIP Fund's independent
auditors, are [___________________] into this Statement of Additional
Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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............................ 40
ADDITIONAL INFORMATION ON TAXES........................................... 40
TRUSTEES AND OFFICERS..................................................... 41
Shareholder and Trustee Liability.................................... 45
INVESTMENT ADVISERS....................................................... 46
DISTRIBUTOR............................................................... 49
ADMINISTRATOR............................................................. 49
CUSTODIAN................................................................. 51
EXPENSES.................................................................. 51
PORTFOLIO TRANSACTIONS.................................................... 52
AUDITORS.................................................................. 55
COUNSEL................................................................... 56
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
</TABLE>
-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
<PAGE>
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
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information in its evaluation of unrated short-term securities. See Appendix A
to this Statement of Additional Information for a description of the rating
categories of S&P, Moody's, Fitch IBCA and certain other Rating Agencies.
The Fund will maintain a dollar-weighted average portfolio maturity of 90
days or less in an effort to maintain a stable net asset value per share of
$1.00. The value of the Fund's portfolio securities will generally vary
inversely with changes in prevailing interest rates.
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 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 GNMA, the FNMA, and the Federal Home Loan Mortgage
Corporation. 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 the Government National Mortgage Association ("GNMA") (also known
as "Ginnie Maes") are guaranteed as to the timely payment of principal and
interest by GNMA, whose guarantee is backed by the full faith and credit of the
United States. Mortgage-backed securities issued by the Federal National
Mortgage Association ("FNMA") include FNMA guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes") which are guaranteed as to timely
payment of principal and interest by FNMA. They are not backed by or entitled to
the full faith and credit of the United States, but are supported by the right
of the FNMA to borrow from the Treasury. Mortgage-backed securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs"). Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Bank and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC is required to remit the
amount due on account of its guarantee of ultimate payment of principal no later
than one year after it becomes payable.
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.
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<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
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<PAGE>
contracts to the extent permitted under the Commodity Exchange Act and
the 1940 Act; (ii) the Growth and Income Fund, Small Company Growth
Fund, Columbia Real Estate Equity Fund II and Columbia High Yield Fund
II may enter into futures contracts and options on futures contracts;
and (iii) the Growth and Income Fund, Small Company Growth Fund,
Columbia Real Estate Equity Fund II and Asset Allocation Fund may
enter into forward currency contracts and foreign currency futures
contracts and related options to the extent permitted by their
respective investment objectives and policies.
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
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<PAGE>
securities issued by foreign banks, commercial paper issued by
Canadian issuers and other securities of Canadian companies in
accordance with its investment objective and policies; and (iii) the
Equity Fund may invest up to 20% of its total assets in American
Depository Receipts and European Depository Receipts.
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
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<PAGE>
acquisition cost as adjusted for amortization of premium or accretion of
discount, regardless of the impact of fluctuating interest rates on the market
value of the security. Although Galaxy VIP seeks to maintain the net asset value
per share of the Fund at $1.00, there can be no assurance that the net asset
value per share will not vary.
In order to use the amortized cost method, the Fund complies with the
various quality and maturity restrictions specified in Rule 2a-7 ("Rule 2a-7")
promulgated under the 1940 Act. 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
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<PAGE>
Columbia High Yield Fund II which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet or Columbia, as
the case may be, under the supervision of Galaxy VIP's Board of Trustees. An
option is generally valued at the last sale price or, in the absence of a last
sale price, the last offer price.
VALUATION OF THE HIGH QUALITY BOND FUND
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.
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<PAGE>
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 Four Falls Corporate Center, 6th
Floor, West Conshohocken, Pennsylvania 19428. 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
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<PAGE>
federal income taxation to the extent that such distributions accumulate in a
variable annuity contract or a variable life insurance policy.
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
Printing Corporation Corporation (book
Commercial Drive manufacturing and commercial
P.O. Box 270 printing); Director, Utica
Yorkville, NY 13495 Fire Insurance Company;
Age 66 Trustee, Savings Bank of
Utica; Director, Monitor Life
Insurance Company; Director,
Commercial Travelers Mutual
Insurance Company; Trustee,
The Galaxy Fund; Trustee,
Galaxy Fund II.
John T. O'Neill(1) President, Treasurer & Private Investor; Executive
28 Narragansett Bay Trustee Vice President and CFO,
Avenue Hasbro, Inc. (toy and game
Warwick, RI 02889 manufacturer) until December
Age 55 1999; Trustee, The Galaxy
Fund; Trustee, Galaxy Fund II.
</TABLE>
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<PAGE>
<TABLE>
<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
Saint Mary's College College of Minnesota;
Winona, MN 55987 Director, Bright Day Travel,
Age 59 Inc.; Trustee, Religious
Communities Trust; of
Minnesota Trustee, The 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
Age 74 Funds; 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
The Astra Ventures, Inc. Astra Projects, Incorporated
One Citizens Plaza (land development); President,
Providence, RI 02903 The Astra Ventures,
Age 58 Incorporated (previously,
Buffinton Box Company -
manufacturer of cardboard
boxes); Commissioner, Rhode
Island Investment Commission;
Trustee, The Galaxy Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice
2468 Ohio Street President and Director, Acadia
Bangor, ME 04401 Management Company (investment
Age 68 services); 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.
</TABLE>
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<PAGE>
<TABLE>
<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
One Logan Square Drinker Biddle & Reath LLP,
18th & Cherry Sreets Philadelphia, Pennsylvania.
Philadelphia, PA 19103
Age 57
Jylanne Dunne Vice President and Vice President, PFPC, Inc.,
PFPC, Inc. Assistant Treasurer 1990 to present.
4400 Computer Drive
Westborough, MA 01581-5108
Age 40
William Greilich Vice President Vice President, PFPC, Inc.,
PFPC, Inc. 1991-96; Vice President and
4400 Computer Drive Division Manager, PFPC, Inc.,
Westborough, MA 01581-5108 1996-present.
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
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<PAGE>
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.
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 $___ None $______
Dwight E. Vicks, Jr.
Chairman and Trustee $___ None $______
Donald B. Miller**
Trustee $___ None $______
</TABLE>
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<PAGE>
<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>
Rev. Louis DeThomasis
Trustee $___ None $______
John T. O'Neill
President, Treasurer
and Trustee $___ None $______
James M. Seed**
Trustee $___ None $______
</TABLE>
- -------------
* 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 $___ and
$_____ 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
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<PAGE>
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.
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 ....................... $_______ $ 24,731 $ 23,186
Equity Fund ............................. $_______ $601,685 $440,287
Growth and Income Fund .................. $_______ $ 26,269(1) *
</TABLE>
-46-
<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Small Company Growth Fund ............... $_______ $ 3,708(2) *
Columbia Real Estate Equity Fund II ..... $_______ $ 3,545(3) *
Asset Allocation Fund ................... $_______ $458,849 $235,874
High Quality Bond Fund .................. $_______ $ 26,608 $ 17,993
Columbia High Yield Fund II ............. $_______ $ 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:
-47-
<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market Fund ....................... $_______ $41,219 $38,641
Equity Fund ............................. $_______ $ 0 $ 0
Growth and Income Fund .................. $_______ $ 0(1) *
Small Company Growth Fund ............... $_______ $ 0(2) *
Columbia Real Estate Equity Fund II ..... $_______ $ 0(3) *
Asset Allocation Fund ................... $_______ $ 0 $ 0
High Quality Bond Fund .................. $_______ $70,943 $47,982
Columbia High Yield Fund II ............. $_______ $ 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 $ 1,144
Equity Fund ............................... $_______ $ 0 $ 0
Growth and Income Fun ..................... $_______ $37,806(1) *
Small Company Growth Fund ................. $_______ $55,990(2) *
Columbia Real Estate Equity Fund II ....... $_______ $41,560(3) *
Asset Allocation Fund ..................... $_______ $ 0 $16,327
High Quality Bond Fund .................... $_______ $ 0 $ 2,163
Columbia High Yield Fund II ............... $_______ $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
-48-
<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 Four Falls Corporate Center, 6th Floor, West
Conshohocken, Pennsylvania 19428. 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
Bank Corp.
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
-49-
<PAGE>
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 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 _____% 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 ....................... $_______ $ 29,160 $ 37,694
Equity Fund ............................. $_______ $121,817 $ 74,956
Growth and Income Fund .................. $_______ $ 42,389(1) *
Small Company Growth Fund .............. $_______ $ 42,417(2) *
Columbia Real Estate Equity Fund II ..... $_______ $ 30,477(3) *
Asset Allocation Fund ................... $_______ $113,830 $ 78,328
High Quality Bond Fund .................. $_______ $ 31,725 $ 38,071
Columbia High Yield Fund II ............. $_______ $ 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 ........................ $_______ $29,900 $ 30,000
Equity Fund .............................. $_______ $ -- $ --
Growth and Income Fund ................... $_______ $ --(1) *
Small Company Growth Fund ................ $_______ $ --(2) *
Columbia Real Estate Equity Fund II ...... $_______ $ --(3) *
Asset Allocation Fund .................... $_______ $ -- $ --
</TABLE>
-50-
<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
High Quality Bond Fund ................... $_______ $29,900 $ 30,000
Columbia High Yield Fund II .............. $_______ $ --(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.
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.
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
-51-
<PAGE>
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 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
-52-
<PAGE>
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 $_______
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 $_______
</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
Equity Fund ............................ $_______ $116,241 $ 7,285
Growth and Income Fund ................. $_______ $ 17,058(1) *
Small Company Growth Fund .............. $_______ $ 1,423(2) *
Columbia Real Estate Equity Fund II .... $_______ $ 1,696(3) *
Asset Allocation Fund .................. $_______ $ 28,923 $ 19,552
High Quality Bond Fund ................. $_______ $ 0 $ 0
Columbia High Yield Fund II ............ $_______ $ 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 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.
-53-
<PAGE>
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 tables below disclose (i) the aggregate amount of commissions
paid to Quick & Reilly by the Funds during the period ended December 31, 1998
and the year ended December 31, 1999, (ii) the percentage of each Fund's
aggregate brokerage commissions for the period ended December 31, 1998 and the
year ended December 31, 1999 that was paid to Quick & Reilly, and (iii) the
percentage of each Fund's aggregate dollar amount of transactions that involved
payment of commissions that was effected through Quick & Reilly during the
period ended December 31, 1998 and the year ended December 31, 1999.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1998
------------------------------
% OF
% OF AGGREGATE
AGGREGATE AGGREGATE COMMISSION
FUND AMOUNT COMMISSIONS TRANSACTIONS
- ---- ------ ----------- ------------
<S> <C> <C> <C>
Equity .....................................
Growth and Income(1) .......................
Small Company Growth(2) ....................
Columbia Real Estate Equity II(3) ..........
Asset Allocation ...........................
</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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------
% OF
% OF AGGREGATE
AGGREGATE AGGREGATE COMMISSION
FUND AMOUNT COMMISSIONS TRANSACTIONS
- ---- ------ ----------- ------------
<S> <C> <C> <C>
Equity ..............................
Growth and Income(1) ................
Small Company Growth(2) .............
Columbia Real Estate Equity II(3) ...
Asset Allocation ....................
</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 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
-54-
<PAGE>
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 [to be provided by PFPC].
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
[_______________], 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 [____________________________] this Statement of Additional Information for
the fiscal year ended December 31, 1999 have been audited by
[________________________]. 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 [________________________],
Galaxy VIP's former auditors.
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<PAGE>
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.
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 total return assume
that dividend and capital gains distributions made by a Fund during the period
are reinvested in Fund shares.
-56-
<PAGE>
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 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
-57-
<PAGE>
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 ____% and
the effective yield was ____%.
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 )(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 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
-58-
<PAGE>
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 ____%, ____%, ____%,
____%,_____%, _____% and ____%, 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](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:
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,
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<PAGE>
(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) ....................................... _______%
Growth and Income Fund(2) ............................ _______%
Small Company Growth Fund(3) ......................... _______%
Columbia Real Estate Equity Fund II(4) ............... _______%
Asset Allocation Fund(5) ............................. _______%
High Quality Bond Fund(6) ............................ _______%
Columbia High Yield Fund II(4) ....................... _______%
</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 ...................................... _____% _____%
Growth and Income Fund ........................... _____% N/A
Small Company Growth Fund ........................ _____% N/A
Columbia Real Estate Equity Fund II .............. _____% N/A
Asset Allocation Fund ............................ _____% _____%
High Quality Bond Fund ........................... _____% _____%
Columbia High Yield Fund II ...................... _____% 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, 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
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<PAGE>
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 ________, 2000, more than 25% of the issued and outstanding shares of
each Fund was owned by [_________________________________________] and held in
Separate Accounts pursuant to variable annuity contracts. As of ________, 2000,
[__________________] owned more than 25% of the issued and outstanding shares of
the Columbia Real Estate Equity Fund II and more than 5% of 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
[____________________________] 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 [____________________], whose
report thereon also appears in such Annual Report and is [____________________].
The Financial Statements in such Annual Report have been
[______________________________] in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
-61-
<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
A-3
<PAGE>
of principal and interest is strong, the relative degree of safety is not as
high as for issues rated "TBW-1."
"TBW-3" - This designation represents 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
A-5
<PAGE>
returns as a result of noncredit risks. Examples of such obligations are
securities with principal or 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)
A-6
<PAGE>
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 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
A-8
<PAGE>
their outstanding obligations, while entities rated "D" have a poor prospect for
repaying all obligations.
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
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and interest. "BB" indicates the lowest degree of speculation and "CC" the
highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's 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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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.
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(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. 8 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 known 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. 8 as filed with the Commission on
February 26, 1999.
(4) Amendment No. 3 dated September 10, 1998 to Administration
Agreement between Registrant and PFPC Inc. (formerly known as
-2-
<PAGE>
First Data Investors Services Group Inc.) is incorporated
herein by reference to Exhibit (h) (4) to Registrant's
Post-Effective Amendment No. 8 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.).
(6) Proposed Sales Agreement between Registrant and American
Skandia Life Assurance Corporation is incorporated herein by
reference to Exhibit (9)(c) to Registrant's Post-Effective
Amendment No. 7 as filed with the Commission on April 30,
1998.
(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. 8 as filed with the
Commission on February 26, 1999.
(8) Credit Agreement among The Galaxy Fund, Registrant, Galaxy
Fund II, Various Banks, Deutsche Bank Securities, Inc. and
Deutsche Bank AG, New York Branch dated December 29, 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 Independent Accountants to be filed by Amendment.
(k) None.
(l) (1) Purchase Agreement dated January 8, 1993 between Registrant
and Fleet Investment Advisors Inc. is incorporated herein by
reference to Exhibit (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-
<PAGE>
(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.
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:
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
-4-
<PAGE>
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.
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.
-5-
<PAGE>
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 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 Trust, Hilliard-Lyons Government Fund,
Inc., Hilliard-Lyons Growth Fund, Inc., Hilliard-Lyons
Research Trust, The Blackrock Funds, Inc. (Distributed By
Blackrock Distributors, Inc. a wholly owned subsidiary of
Provident Distributors, Inc.), Northern Funds Trust
(Distributed By Northern Funds Distributors, LLC a Wholly
Owned Subsidiary Of Provident Distributors, Inc.), The
Offitbank Investment Fund, Inc. (Distributed By Offit Funds
Distributor, Inc. a Wholly Owned Subsidiary of Provident
Distributors, Inc.), The Offitbank Variable Insurance Fund,
Inc. (Distributed By Offit Funds Distributor, Inc. a Wholly
owned subsidiary of Provident Distributors, Inc.).
-6-
<PAGE>
(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. 8-46564).
(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).
(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., Four Falls Corporate Center, 6th
Floor, West Conshohocken, Pennsylvania 19428-2961 (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.
-7-
<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
has duly caused this Post-Effective Amendment No. 10 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 1st
day of March, 2000.
THE GALAXY VIP FUND
Registrant
/s/ John T. O'Neill
-----------------------------
John T. O'Neill
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 10 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 March 1, 2000
- -------------------
John T. O'Neill and Treasurer
*Dwight E. Vicks, Jr. Chairman of the Board March 1, 2000
- ---------------------
Dwight E. Vicks, Jr. of Trustees
*Donald B. Miller Trustee March 1, 2000
- -----------------
Donald B. Miller
*Louis DeThomasis Trustee March 1, 2000
- -----------------
Louis DeThomasis
*Bradford S. Wellman Trustee March 1, 2000
- --------------------
Bradford S. Wellman
*James M. Seed Trustee March 1, 2000
- --------------------
James M. Seed
</TABLE>
/s/ John T. O'Neill
- ---------------------
*By: John T. O'Neill
Attorney-in-Fact
<PAGE>
THE GALAXY VIP FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent with full power of substitution
and resubstitution, for him and in his name, place and stead, in his capacity
as trustee or officer, or both, to execute any and all amendments to the
Trust's Registration Statement on Form N-1A pursuant to the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
(the "Acts"), and all instruments necessary or incidental in connection
therewith pursuant to said Acts and any rules, regulations, or requirements
of the Securities and Exchange Commission in respect thereof, and to file the
same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name
and on behalf of the undersigned in any and all capacities, every act
whatsoever requisite or necessary to be done, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys, or either of them, may lawfully do or cause to be
done by virtue hereof.
Dated: June 11, 1992. /s/ Dwight E. Vicks, Jr.
--------------------------
Dwight E. Vicks, Jr.
<PAGE>
THE GALAXY VIP FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent with full power of substitution
and resubstitution, for him and in his name, place and stead, in his capacity
as trustee or officer, or both, to execute any and all amendments to the
Trust's Registration Statement on Form N-1A pursuant to the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
(the "Acts"), and all instruments necessary or incidental in connection
therewith pursuant to said Acts and any rules, regulations, or requirements
of the Securities and Exchange Commission in respect thereof, and to file the
same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name
and on behalf of the undersigned in any and all capacities, every act
whatsoever requisite or necessary to be done, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys, or either of them, may lawfully do or cause to be
done by virtue hereof.
Dated: June 11, 1992. /s/ Donald B. Miller
---------------------
Donald B. Miller
<PAGE>
THE GALAXY VIP FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent with full power of substitution
and resubstitution, for him and in his name, place and stead, in his capacity
as trustee or officer, or both, to execute any and all amendments to the
Trust's Registration Statement on Form N-1A pursuant to the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
(the "Acts"), and all instruments necessary or incidental in connection
therewith pursuant to said Acts and any rules, regulations, or requirements
of the Securities and Exchange Commission in respect thereof, and to file the
same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name
and on behalf of the undersigned in any and all capacities, every act
whatsoever requisite or necessary to be done, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys, or either of them, may lawfully do or cause to be
done by virtue hereof.
Dated: June 11, 1992. /s/ Brother Louis DeThomasis
----------------------------
Brother Louis DeThomasis
<PAGE>
THE GALAXY VIP FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent with full power of substitution
and resubstitution, for him and in his name, place and stead, in his capacity
as trustee or officer, or both, to execute any and all amendments to the
Trust's Registration Statement on Form N-1A pursuant to the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
(the "Acts"), and all instruments necessary or incidental in connection
therewith pursuant to said Acts and any rules, regulations, or requirements
of the Securities and Exchange Commission in respect thereof, and to file the
same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name
and on behalf of the undersigned in any and all capacities, every act
whatsoever requisite or necessary to be done, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys, or either of them, may lawfully do or cause to be
done by virtue hereof.
Dated: June 11, 1992. /s/ Bradford S. Wellman
-----------------------
Bradford S. Wellman
<PAGE>
THE GALAXY VIP FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent with full power of substitution
and resubstitution, for him and in his name, place and stead, in his capacity
as trustee or officer, or both, to execute any and all amendments to the
Trust's Registration Statement on Form N-1A pursuant to the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
(the "Acts"), and all instruments necessary or incidental in connection
therewith pursuant to said Acts and any rules, regulations, or requirements
of the Securities and Exchange Commission in respect thereof, and to file the
same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name
and on behalf of the undersigned in any and all capacities, every act
whatsoever requisite or necessary to be done, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys, or either of them, may lawfully do or cause to be
done by virtue hereof.
Dated: June 11, 1992. /s/ James M. Seed
--------------------
James M. Seed
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
(e) Distribution Agreement dated as of December 1,
1999 between Registrant and Provident
Distributors, Inc.
(h) (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.).
(h) (8) Credit Agreement among The Galaxy Fund,
Registrant, Galaxy Fund II, Various Banks,
Deutsche Bank Securities, Inc. and Deutsche
Bank AG, New York Branch dated December
29, 1999.
(j) (1) Consent of Drinker Biddle & Reath LLP.
<PAGE>
Exhibit (e)
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 1st day of December, 1999 (the
"Agreement") by and between The Galaxy VIP Fund (the "Company"), a Massachusetts
business trust, and Provident Distributors, Inc.( the "Distributor"), a Delaware
corporation.
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and is currently offering units of beneficial interest (such units of all
classes and series are hereinafter called the "Shares"), representing interests
in investment portfolios of the Company identified on Schedule A hereto (the
"Funds") which are registered with the Securities and Exchange Commission (the
"SEC") pursuant to the Company's Registration Statement on Form N-1A (the
"Registration Statement"): and
WHEREAS, the Company desires to retain the Distributor as distributor for
the Funds to provide for the sale and distribution of the Shares of the Funds
identified on Schedule A and for such additional classes or series as the
Company may issue, and the Distributor is prepared to provide such services
commencing on the date fist written above.
NOW THEREFORE, in consideration of the premises and mutual convenants set
forth herein and intending to be legally bound hereby the parties hereto agree
as follows:
1. SERVICE AS DISTRIBUTOR
1.1 The Distributor will act as the Company's disclosed agent for the
distribution of the Shares covered by the Registration Statement then in
effect under the Securities Act of 1933, as amended (the "1933 Act"). The
Distributor will have no liability for payment for the purchase of Shares
sold pursuant to this Agreement or with respect to redemptions or
repurchases of Shares.
1.2 The Distributor agrees to use efforts deemed appropriate by the
Distributor to solicit orders for the sale of the Shares and will
undertake such advertising and promotion as it believes reasonable in
connection with such solicitation. The Distributor shall, at its own
expense, finance appropriate activities which it deems reasonable which
are primarily intended to result in the sale of Shares, including, but not
limited to, advertising, compensation of underwriters, dealers and sales
personnel, the printing and mailing of Prospectuses to other than current
shareholders, and the printing and mailing of sales literature.
1.3 The Company understands that the Distributor is now, and may in the future
be, the distributor of the shares of several investment companies or
series (collectively, the "Investment Entities"), including Investment
Entities having investment objectives similar to those of the Funds. The
Company further understands that investors and potential investors in the
Funds may invest in shares of such other Investment Entities. The Company
agrees that the Distributor's duties to such Investment Entities shall not
be deemed in conflict with its duties to the Company under this Section
1.3.
1.4 The Distributor may enter into selling agreements with selected dealers or
other institutions with respect to the offering of Shares to the public.
Each selling agreement
<PAGE>
will provide that (a) all payments for purchases of Shares will be sent
directly from the dealer or such other institution to the Company or its
agent and (b) if payment is not made with respect to purchases of Shares
at the customary or required time for settlement of the transaction, the
Distributor will have the right to cancel the sale of Shares ordered by
the dealer or such other institution, in which case the dealer or such
other institution will be responsible for any loss suffered by any Fund or
the Distributor resulting from such cancellation. The Distributor may also
act as disclosed agent for a Fund and sell Shares of that Fund to
individual investors, such transactions to be specifically approved by an
officer of the Company.
1.5 The Distributor will send a confirmation to each purchaser of Shares under
this Agreement. Such confirmations will comply with all applicable Federal
and state laws and rules and regulations of authorized regulatory bodies
and will clearly state that the Distributor is acting as agent in the
transaction and that all remittances, registration instructions and
certifications for redemption should be sent directly to the Funds'
transfer agent. Such confirmations will also set forth the mailing address
and delivery address of the Fund.
1.6 The Distributor shall not utilize any materials in connection with the
sale or offering of Shares except the Company's then current Prospectuses
and Statements of Additional Information and such other materials as the
Company shall provide or approve.
1.7 All activities by the Distributor and its agents and employees, as
distributor of the Shares, shall comply with all applicable laws, rules
and regulations, including, without limitation, all rules and regulations
made or adopted pursuant to the 1940 Act by the SEC or the National
Association of Securities Dealers.
1.8 The Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the Company and its custodian.
1.9 Whenever in their judgment such action is warranted by unusual market,
economic or political conditions or abnormal circumstances of any kind,
officers of the Company may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem it advisable
to accept such orders and make such sales, and the Company shall notify
the Distributor promptly of any such determination.
1.10 The Company agrees to pay all costs and expenses in connection with the
registration of Shares under the 1933 Act and all expenses in connection
with maintaining facilities for the issue and transfer of Shares and for
supplying information, prices and other data to be furnished by the
Company hereunder, and all expenses in connection with the preparation and
printing of the Company's Prospectuses and Statements of Additional
Information for regulatory purposes and for distribution to existing
shareholders.
1.11 The Company agrees at its own expense to execute any and all documents and
to furnish any and all information and otherwise to take all actions that
may be reasonably necessary in connection with the qualification of the
Shares for sale in such states as the Distributor may designate. The
Company shall notify the Distributor in writing of the states in which the
Shares are to be sold and shall notify the Distributor in writing of any
changes to the information contained in the previous notification.
2
<PAGE>
1.12 The Company shall furnish from time to time, for use in connection with
the sale of the Shares, such information with respect to the Company
and the Shares as the Distributor may reasonably request; and the
Company warrants that the statements contained in any such information
shall fairly show or represent what they purport to show or represent.
The Company shall also furnish the Distributor upon request with: (a)
audited annual statements and unaudited semi-annual statements of the
Fund's books and accounts prepared by the Company, (b) quarterly
earnings statements of the Funds prepared by the Company, (c) a monthly
itemized list of the securities in the Funds, (d) monthly balance
sheets as soon as practicable after the end of each month, and (e) from
time to time such additional information regarding the Fund's financial
condition as the Distributor may reasonably request.
1.13 The Company represents to the Distributor that all Registration
Statements and Prospectuses filed by the Company with the SEC under the
1933 Act with respect to the Shares have been prepared in conformity
with the requirements of the 1933 Act and the rules and regulations of
the SEC thereunder. As used in this Agreement, the terms "Registration
Statement" and "Prospectus" shall mean any Registration Statement and
any Prospectus (including any Statement of Additional Information
incorporated therein by reference) relating to the Company filed with
the SEC and any amendments or supplements thereto at any time filed
with the SEC. The Company represents and warrants to the Distributor
that any Registration Statement and Prospectus, when such Registration
Statement becomes effective, will contain statements required to be
stated therein in conformity with the 1933 Act and the rules and
regulations of the SEC; that all statements of fact contained in any
such Registration Statement and Prospectus will be true and correct
when such Registration Statement becomes effective; and that no
Registration Statement or Prospectus when such Registration Statement
becomes effective will include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser
of the Shares. The Distributor may but shall not be obligated to
propose from time to time such amendment or amendments to any
Registration Statement and such supplement or supplements to any
Prospectus as, in the light of future developments, may, in the opinion
of the Distributor's counsel, be necessary or advisable. The
Distributor shall promptly notify the Company of any advice given to it
by its counsel regarding the necessity or advisability of amending or
supplementing such Registration Statement or Prospectus. If the Company
shall not propose such amendment or amendments and/or supplement or
supplements within fifteen days after receipt by the Company of a
written request from the Distributor to do so, the Distributor may, at
its option, terminate this Agreement. The Company shall not file any
amendment to any Registration Statement or supplement to any Prospectus
without giving the Distributor reasonable notice thereof in advance;
provided; however, that nothing contained in this Agreement shall in
any way limit the Company's right to file at any time such amendments
to any Registration Statement and/or supplements to any Prospectus, of
whatever character, as the Company may deem advisable, such right being
in all respects absolute and unconditional.
1.14 The Company authorizes the Distributor (and dealers pursuant to any
agreements described in Section 1.4 above) to use any Prospectus in the
form furnished by the Company from time to time in connection with the
sale of the Shares. The Company
3
<PAGE>
agrees to indemnify, defend and hold the Distributor, its several
officer and directors, and any person who controls the Distributor
within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands
or liabilities and any reasonable counsel fees incurred in connection
therewith) which the Distributor, its officers and directors, or any
such controlling person, may incur under the 1933 Act, or under common
law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any
Registration Statement or any Prospectus or arising out of or based
upon any omission, or alleged omission, to state a material fact
required to be stated in any Registration Statement or any Prospectus
or necessary to make the statements in either thereof not misleading;
provided, however, that the Company's agreement to indemnify the
Distributor, its officers or directors, and any such controlling
person, shall not be deemed to cover any claims, demands, liabilities
or expenses arising out of any representations or statements contained
in any Registration Statement or in any Prospectus that were furnished
in writing to the Company or its counsel by the Distributor expressly
for use in the answers to the Registration Statement or in the
corresponding statements made in the Prospectus, or arising out of or
based upon any omission or alleged omission to state a material fact in
connection with such information furnished in writing by the
Distributor to the Company or its counsel and required to be stated in
such answers or necessary to make such answers not misleading; and
further provided that the Company's agreement to indemnify the
Distributor and the Company's representations and warranties
hereinbefore set forth in Section 1.13 shall not be deemed to cover any
liability to the Company or its shareholders to which the Distributor
would otherwise be subject by reason of willful misfeasance, bad faith,
or negligence in the performance of its duties, or by reason of the
Distributor's reckless disregard of its duties and obligations under
this Agreement. The Company's indemnification agreement contained in
this Section 1.14 and the Company's representations and warranties in
this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the
Distributor, its officers and directors, or any controlling person, and
shall survive delivery of any Shares. The Company agrees promptly to
notify the Distributor of the commencement of any litigation or
proceedings against the Company or any of its officers or trustees in
connection with the issue and sale of any Shares. This agreement to
indemnify will inure exclusively to the Distributor's benefit, to the
benefit of its several officers and directors and their respective
estates, and to the benefit of its controlling persons and their
successors.
1.15 The Distributor agrees to indemnify, defend and hold the Company, its
several officers and trustees, and any person who controls the Company
within the meaning of Section 15 of the 1933 act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims,
demands, or liabilities and any reasonable counsel fees incurred in
connection therewith) which the Company, its officers or trustees, or
any such controlling person, may incur under the 1933 Act, or under
common law or otherwise, but only to the extent that such liability or
expense incurred by the Company, its officers or trustees, or such
controlling person, resulting from such claims or demands, shall arise
out of or be based upon any untrue, or alleged untrue, statement of a
material fact contained in information furnished in writing by the
Distributor to the Company or its counsel expressly for use in the
answers to any of the items of the Registration Statement or in the
corresponding
4
<PAGE>
statements made in the Prospectus, or shall arise out of or be based
upon any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by the
Distributor to the Company or its counsel and required to be stated in
such answers or necessary to make such information not misleading. The
Distributor's indemnification agreement contained in this Section 1.15
and representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of the Company or its officers and trustees, and
shall survive the delivery of any Shares. The Distributor agrees
promptly to notify the Company of the commencement of any litigation or
proceedings against the Distributor or any of its officers, directors
or controlling persons in connection with the issuance and sale of any
of the Shares.
1.16 (a) In any case in which one party hereto (the "Indemnifying Party")
may be asked to indemnify or hold the other party hereto (the
"Indemnified Party") harmless, the Indemnified Party will notify the
Indemnifying Party in writing promptly after identifying any situation
which it believes presents or appears likely to present a claim for
indemnification (an "Indemnification Claim") against the Indemnifying
Party, although the failure to do so shall not relieve the Indemnifying
Party from any liability which it may otherwise have to the Indemnified
Party, and the Indemnified Party shall keep the Indemnifying Party
advised with respect to all developments concerning such situation. The
Indemnifying Party shall be entitled to participate at its own expense
in the defense, or if it so elects, to assume the defense of, any
Indemnification Claim which may be the subject of this indemnification,
and, in the event that the Indemnifying Party so elects, such defense
shall be conducted by counsel or good standing chosen by the
Indemnifying Party and approved by the Indemnified Party, which
approval shall not be unreasonably withheld. In the event the
Indemnifying Party elects to assume the defense of any such
Indemnification Claim and retain such counsel, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by
the Indemnified Party. The Indemnified Party will not confess any
Indemnification Claim or make any compromise in any case in which the
Indemnifying Party will be asked to provide indemnification, except
with the Indemnifying Party's prior written consent.
(b) In the event that the Company is the Indemnifying Party and the
Indemnifying Party does not elect to assume the defense of any such
Indemnification Claim, or in case the Distributor reasonably does not
approve of counsel chosen by the Company, the Company will reimburse
the Distributor, its officers, directors and employees, or the
controlling person or persons named as defendant or defendants in such
Indemnification Claim, for the fees and expenses of any counsel
retained by the Distributor or them.
(c) The obligations of the parties hereto under Section 1.14 through
1.16 shall survive the termination of this Agreement.
1.17 No Shares shall be offered by either the Distributor or the Company
under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Company
if and so long as effectiveness of the Registration Statement then in
effect or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current
Prospectus as required by Section 5(b)(2) of the 1933 Act is not on
file with the SEC; provided, however, that nothing contained in this
Section 1.17 shall in any way restrict or have any
5
<PAGE>
application to or bearing upon the Company's obligation to redeem
Shares tendered for redemption by any shareholder in accordance with
the provisions of the Company's Registration Statement or Declaration
of Trust.
1.18 The company agrees to advise the Distributor as soon as reasonably
practical by a notice in writing delivered to the Distributor:
(a) of any request by the SEC for amendments to the Registration
Statement or Prospectus then in effect or for additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or
Prospectus then in effect or the initiation by service of process on
the Company of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement of a
material fact made in the Registration Statement or Prospectus then in
effect or that requires the making of a change in such Registration
Statement or Prospectus in order to make the statements therein not
misleading; and
(d) of all actions of the SEC with respect to any amendments to any
Registration Statement or Prospectus which may from time to time be
filed with the SEC.
For purposes of this Section 1.18, informal requests by or acts of the
staff of the SEC shall not be deemed actions of or requests by the SEC.
2. TERM
2.1 This Agreement shall become effective immediately upon the consummation
of the acquisition of First Data Investor Services Group, Inc. by a
subsidiary of PNC Bank Corp., which the parties anticipate to occur on
or about December 1, 1999, and, unless sooner terminated as provided
herein, shall continue for an initial one-year term and thereafter
shall continue automatically for successive one-year terms, provided
such continuance is specifically approved at least annually by (i) the
Company's Board of Trustees or (ii) by a vote of a majority (as defined
in the 1940 Act and Rule 18f-2 thereunder) of the outstanding voting
securities of the Company, provided that in either event the
continuance is also approved by a majority of the Trustees who are not
parties to this Agreement and who are not interested persons (as
defined in the 1940 Act) of any party to this Agreement, by vote cast
in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable without penalty, on at least
sixty days' written notice, by the Company's Board of Trustees, by vote
of a majority (as defined in the 1940 Act and Rule 18f-2 thereunder) of
the outstanding voting securities of the Company, or by the
Distributor. This Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act and the rules
thereunder).
2.2 In the event a termination notice is given by the Company and provided
that the Distributor is not in default under this Agreement at the time
of such termination notice, all reasonable expenses associated with
movement of records and materials and conversion thereof to a successor
distributor will be borne by the Company.
6
<PAGE>
3. LIMITATION OF LIABILITY
3.1 The Distributor shall not be liable to the Company for any error of
judgment or mistake of law or for any loss suffered by the Company in
connection with the performance of its obligations and duties under
this Agreement, except a loss resulting from the Distributor's willful
misfeasance, bad faith or negligence in the performance of such
obligations and duties, or by reason of its reckless disregard thereof.
3.2 Each party shall have the duty to mitigate damages for which the other
party may become responsible.
3.3 NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO
EVENT SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR
DIRECTORS, TRUSTEES, OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE
LIABLE TO THE OTHER PARTY FOR CONSEQUENTIAL DAMAGES, PROVIDED, HOWEVER,
THAT NOTHING CONTAINED IN THIS SECTION 3.3 SHALL BE CONSTRUED SO AS TO
LIMIT THE RIGHT OF ANY SHAREHOLDER OF THE COMPANY, WHETHER SUING ON
HIS, HER OR ITS OWN BEHALF OR DERIVATIVELY THROUGH THE COMPANY, TO
CONSEQUENTIAL DAMAGES.
4. MODIFICATIONS AND WAIVERS
No change, termination, modification, or waiver of any term or
condition of the Agreement shall be valid unless in writing signed by
each party. No such writing shall be effective as against the Company
unless said writing is executed by the President of the Company. No
such writing shall be effective as against the Distributor unless said
writing is executed by a Senior Vice President, Executive Vice
President or President of the Distributor. A party's waiver of a breach
of any term or condition in the Agreement shall not be deemed a waiver
of any subsequent breach of the same or another term or condition.
5. NO PRESUMPTION AGAINST DRAFTER
The Distributor and the Company have jointly participated in the
negotiation and drafting of this Agreement. The Agreement shall be
construed as if drafted jointly by the Company and the Distributor, and
no presumptions arise favoring any party by virtue of the authorship of
any provision of this Agreement.
6. PUBLICITY
Neither the Distributor nor the Company shall release or publish news
releases, public announcements, advertising or other publicity relating
to this Agreement or to the transactions contemplated by it without
prior review and written approval of the other party; provided,
however, that either party may make such disclosures as are required by
legal, accounting or regulatory requirements after making reasonable
efforts in the circumstances to consult in advance with the other party.
7
<PAGE>
7. SEVERABILITY
The parties intend every provision of this Agreement to be severable.
If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or
invalidity shall not affect the validity of the remainder of this
Agreement. In such case, the parties shall in good faith modify or
substitute such provision consistent with the original intent of the
parties. Without limiting the generality of this paragraph, if a court
determines that any remedy stated in this Agreement has failed of its
essential purpose, then all other provisions of this Agreement shall
remain fully effective.
8. FORCE MAJEURE
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or
delay is caused, directly or indirectly, by circumstances beyond such
party's reasonable control. In any such event, the non-performing party
shall be excused from any further performance and observance of the
obligations so affected only for so long as such circumstances prevail
and such party continues to use commercially reasonable efforts to
recommence performance or observance as soon as practicable.
10. MISCELLANEOUS
10.1 Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Company or the Distributor shall be
sufficiently given if addressed to the party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.
To the Company:
John T. O'Neill, President
The Galaxy VIP Fund
c/o Hasbro, Inc.
200 Narragansett Park Drive
Pawtucket, Rhode Island 02862
with a copy to:
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
8
<PAGE>
To the Distributor:
Provident Distributors, Inc.
Four Falls Corporate Center, 6th Floor
West Conshohocken, Pennsylvania 19428-2961
Attention: Philip Rinnander
10.2 The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, and the applicable provisions of the 1940 Act shall
govern the interpretation, validity, and enforcement of this
Agreement. To the extent the provisions of Massachusetts law or the
provisions hereof conflict with the 1940 Act, the 1940 Act shall
control. All actions arising from or related to this Agreement shall
be brought in the state and federal courts sitting in the City of
Boston, and the Distributor and the Company hereby submit themselves
to the exclusive jurisdiction of those courts.
10.3 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and which collectively shall
be deemed to constitute only one instrument.
10.4 The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
10.5 This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and is not intended
to confer upon any other person any rights or remedies hereunder.
11. CONFIDENTIALITY
11.1 The parties agree that the Proprietary Information (defined below) and
the contents of this Agreement (collectively "Confidential
Information") are confidential information of the parties and their
respective licensers. The Company and the Distributor shall exercise
at least the same degree of care, but not less than reasonable care,
to safeguard the confidentiality of the Confidential Information of
the other as it would to protect its own Confidential Information. The
Company and the Distributor may use the Confidential Information only
to exercise their respective rights or perform their respective duties
under this Agreement. Except as otherwise required by law and except
as disclosed in the Company's Registration Statement and filed as an
exhibit thereto, the Company and the Distributor shall not duplicate,
sell or disclose to others the Confidential Information of the other,
in whole or in part, without the prior written permission of the other
party. The Company and the Distributor may, however, disclose
Confidential Information to their respective employees who have a need
to know the Confidential Information to perform work for the other,
provided that the Company and the Distributor shall use reasonable
efforts to ensure that the Confidential Information is not duplicated
or disclosed by their respective employees in breach of this
Agreement. The Company and the Distributor may also disclose the
Confidential Information to independent contractors, auditors and
professional advisors, provided they first agree in writing to be
bound by confidentiality obligations substantially similar to this
Section 11. Notwithstanding the previous sentence, in no event shall
either the Company or the
9
<PAGE>
Distributor disclose the Confidential Information to any competitor of
the other without specific, prior written consent.
11.2 Proprietary Information means:
(a) any data or information that is competitively sensitive material,
and not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance,
operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating
to the past, present or future business activities of the Company or
the Distributor, their respective subsidiaries and affiliated
companies and the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Company or
the Distributor a competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation, reports,
data, specifications, computer software, source code, object code,
flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
11.3 Confidential Information includes, without limitation, all documents,
inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment,
prototypes and models, and any other tangible manifestation of the
foregoing of either party which now exist or come into the control or
possession of the other.
11.4 Notwithstanding the foregoing, it is hereby understood and agreed by
the parties hereto that any marketing strategies, financing plans,
customer profiles, sales estimates, business plans or similar items
prepared or developed by the Distributor for the benefit of the
Company shall be considered the Proprietary Information of the Company
and nothing in this Agreement shall be construed to prevent or
prohibit the Company from disclosing such Proprietary Information to a
successor distributor.
12. OBLIGATIONS OF THE TRUST
The names "The Galaxy VIP Fund" and "Trustees of The Galaxy VIP Fund"
refer respectively to the Trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under a
Declaration of Trust dated May 27, 1992 which is hereby referred to
and a copy of which is on file at the office of the State Secretary of
the Commonwealth of Massachusetts and at the principal office of the
Company. The obligations of "The Galaxy VIP Fund" entered into in the
name or on behalf thereof by any of the Trustees, representatives or
agents are made not individually, but in such capacities, and are not
binding upon any of the Trustees, Shareholders, or representatives of
the Company personally, but bind only the Trust Property, and all
persons dealing with any class of Shares of the Company must look
solely to the Trust Property belonging to such class for the
enforcement of any claims against the Company.
10
<PAGE>
13. ENTIRE AGREEMENT
This Agreement, including the Schedule hereto, constitutes the entire
agreement between the parties with respect to the subject matter hereof
and supersedes all prior and contemporaneous proposals, agreements,
contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed all as of the day and year first above written.
THE GALAXY VIP FUND
By: /s/ John T. O'Neill
------------------------
Name: John T. O'Neill
----------------------
Title: President
---------------------
PROVIDENT DISTRIBUTORS, INC.
By: /s/ Philip H. Rinnander
------------------------
Name: Philip H. Rinnander
----------------------
Title: President
---------------------
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<PAGE>
SCHEDULE A
NAME OF FUNDS
Money Market Fund
Equity Fund
Asset Allocation Fund
High Quality Bond Fund
Growth & Income Fund
Small Company Growth Fund
Columbia Real Estate Equity Fund II
Columbia High Yield Fund II
A-1
<PAGE>
Exhibit (h)(5)
AMENDMENT NO. 4 TO ADMINISTRATION AGREEMENT
This Amendment No. 4, dated as of December 1, 1999, is entered
into between PFPC INC. (formerly known as First Data Investor Services Group,
Inc.), a Massachusetts corporation ("PFPC"), and THE GALAXY VIP FUND, a
Massachusetts business trust (the "Company").
WHEREAS, PFPC and the Company have entered into an
Administration Agreement dated as of June 1, 1997, as subsequently amended (as
so amended, the "Administration Agreement"), pursuant to which the Company
appointed PFPC to act as Administrator for the Company's portfolios; and
WHEREAS, Section 9 of the Administration Agreement provides
that no change, termination, modification, or waiver of any term or condition of
the Administration Agreement shall be valid unless in writing signed by each
party;
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Schedule D of the Agreement is amended by adding the
following:
SALES SUPPORT SERVICES
-- Sales literature review and recommendations for
compliance with NASD and SEC rules and regulations.
-- Preparation of training materials for use by
personnel of the Company or the Adviser.
-- Preparation of ongoing compliance updates.
-- Coordination of registration of the Fund with
National Securities Clearing Corp. ("NSCC") and
filing required Fund/SERV reports with NSCC.
-- Provision of advice and counsel to the Company with
respect to regulatory matters, including monitoring
regulatory and legislative developments that may
affect the Company.
-- Assistance in the preparation of quarterly Board
materials with regard to sales and other
distribution-related data reasonably requested by the
Board.
2. Except to the extent amended hereby, the Administration
Agreement shall remain unchanged and in full force and effect and is hereby
ratified and confirmed in all respects as amended hereby.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Amendment No. 4 as of the day and year first above written.
PFPC INC.
By: /s/ Jylanne M. Dunne
-------------------------------
Name: Jylanne M. Dunne
Title: Senior Vice President
THE GALAXY VIP FUND
By: /s/ John T. O'Neill
-------------------------------
Name: John T. O'Neill
Title: President
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<PAGE>
Exhibit (h)(8)
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
AMONG
THE GALAXY FUND,
THE GALAXY VIP FUND,
GALAXY FUND II,
VARIOUS BANKS,
DEUTSCHE BANK SECURITIES INC.
as Arranger and Syndication Agent
AND
DEUTSCHE BANK AG, NEW YORK BRANCH,
as Administrative Agent
--------------------------------
DATED AS OF DECEMBER 29, 1999
--------------------------------
$150,000,000
- --------------------------------------------------------------------------------
<PAGE>
CREDIT AGREEMENT, dated as of December 29, 1999, among The
Galaxy Fund, The Galaxy VIP Fund, and Galaxy Fund II (each a "Fund" and,
collectively, the "Funds") on behalf of the separate mutual fund portfolios
listed from time to time on Schedule I hereto under the name of the Fund of
which such portfolio is a portfolio thereof (each such portfolio a "Borrower"
and, collectively, the "Borrowers"), the Banks party hereto from time to time,
Deutsche Bank Securities Inc., as Arranger and Syndication Agent and Deutsche
Bank AG, New York Branch, as Administrative Agent (all capitalized terms used
herein and defined in Section 10 are used herein as therein defined).
W I T N E S S E T H:
WHEREAS, subject to and upon the terms and conditions herein
set forth, the Banks are willing to make available to the Borrowers the credit
facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. AMOUNT AND TERMS OF CREDIT.
1.01 THE COMMITMENTS. (a) Subject to and upon the terms and
conditions set forth herein, each Bank severally agrees, at any time and from
time to time on and after the Effective Date and prior to the Expiry Date, upon
the request of a Borrower, to make loans (each a "Revolving Loan" and,
collectively, the "Revolving Loans") to such Borrower, which Loans (i) shall, at
the option of such Borrower, be Base Rate Loans, IBOR Loans or LIBOR Loans,
provided that except as otherwise specifically provided in Section 1.10(b), all
Loans comprising the same Borrowing shall at all times be of the same Type, (ii)
may be repaid and reborrowed in accordance with the provisions hereof, (iii)
shall not exceed for any Bank at any time outstanding, when added to such Bank's
Percentage of all then outstanding Swingline Loans, that aggregate principal
amount which equals the Commitment of such Bank at such time and (iv) shall not
exceed in the aggregate for any Borrower at any time that amount which, when
added to all Swingline Loans made by such Borrower which remain outstanding,
equals such Borrower's Borrowing Base at such time.
(b) Subject to and upon the terms and conditions set forth
herein, the Swingline Bank may, in its sole discretion, agree to make, at any
time and from time to time on and after the Effective Date and prior to the
Swingline Expiry Date, a revolving loan or revolving loans (each a "Swingline
Loan" and, collectively, the "Swingline Loans") to a Borrower, which Swingline
Loans (i) shall, at the option of the respective Borrower, be made and
maintained as Base Rate Loans or IBOR Loans, provided that notwithstanding
anything to the contrary in Section 1.09 or elsewhere in this Agreement, only
Interest Periods of one day shall be available in the case of Swingline Loans
maintained as IBOR Loans, (ii) may be repaid and reborrowed in accordance with
the provisions hereof, (iii) shall not exceed in aggregate principal amount at
any time outstanding, when combined with the aggregate principal amount of all
Revolving Loans then outstanding at such time, an amount equal to the Total
Commitment at such time (after
<PAGE>
giving effect to any reductions to the Total Commitment on such date), (iv)
shall not exceed for any Borrower in aggregate principal amount at any time
outstanding, when combined with the aggregate principal amount of all Revolving
Loans then outstanding to such Borrower at such time, such Borrower's Borrowing
Base at such time and (v) shall not exceed in aggregate principal amount at any
time outstanding the Maximum Swingline Amount. Notwithstanding anything to the
contrary contained in this Section 1.01(b), the Swingline Bank shall not make
any Swingline Loan to any Borrower after it has received written notice from
such Borrower or the Required Banks stating that a Default or an Event of
Default exists and is continuing with respect to such Borrower until such time
as the Swingline Bank shall have received written notice (i) of rescission of
all such notices from the party or parties originally delivering such notice,
(ii) of the waiver of such Default or Event of Default by the Required Banks or
(iii) that the Agents in good faith believe that such Default or Event of
Default no longer exists.
(c) On any Business Day and in any case within five Business
Days of the making of any such Swingline Loan (provided that any failure to give
such notice within such five Business Day period shall not effect the obligation
of the respective Borrower or any other Bank to accept such notice and fund the
Revolving Loan or Revolving Loans referred to below), the Swingline Bank may, in
its sole discretion, give notice to the Banks that its outstanding Swingline
Loans shall be funded with one or more Borrowings of Revolving Loans (provided
that such notice shall be deemed to have been automatically given upon the
occurrence of a Default or an Event of Default under Section 9.05 or upon the
exercise of any of the remedies provided in the last paragraph of Section 9), in
which case one or more Borrowings of Revolving Loans constituting Base Rate
Loans (each such Borrowing, a "Mandatory Borrowing") shall be made on the
immediately succeeding Business Day from all Banks with a Commitment (without
giving effect to any reductions thereto pursuant to the last paragraph of
Section 9) PRO RATA based on each such Bank's Percentage (determined before
giving effect to any termination of the Commitments pursuant to the last
paragraph of Section 9) and the proceeds thereof shall be remitted to the
Swingline Bank and applied by the Swingline Bank to repay the Swingline Bank for
such outstanding Swingline Loans. Each such Bank hereby irrevocably agrees to
make Revolving Loans upon one Business Day's notice pursuant to each Mandatory
Borrowing in the amount and in the manner specified in the preceding sentence
and on the date specified in writing by the Swingline Bank notwithstanding (i)
that the amount of the Mandatory Borrowing may not comply with the minimum
borrowing amount otherwise required hereunder, (ii) any failure to satisfy any
conditions specified in Section 5, (iii) any Default or Event of Default
existing on such date, (iv) the date of such Mandatory Borrowing and (v) the
amount of the Total Commitment at such time. In the event that any Mandatory
Borrowing cannot for any reason be made on the date otherwise required above
(including, without limitation, as a result of the commencement of a proceeding
under the Bankruptcy Code with respect to any Borrower), then each such Bank
hereby agrees that it shall forthwith purchase (as of the date the Mandatory
Borrowing would otherwise have occurred, but adjusted for any payments received
by the Swingline Bank from the respective Borrower on or after such date and
prior to such purchase) from the Swingline Bank such participations in the
outstanding Swingline Loans as shall be necessary to cause such Banks to share
in such Swingline Loans ratably based upon their respective Percentages
(determined before giving effect to any termination of the Commitments pursuant
to the last paragraph of Section 9), provided that (x) all interest payable on
the
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<PAGE>
Swingline Loans shall be for the account of the Swingline Bank until the date as
of which the respective participation is required to be purchased and, to the
extent attributable to the purchased participation, shall be payable to the
participant from and after such date and (y) at the time any purchase of
participations pursuant to this sentence is actually made, the purchasing Bank
shall be required to pay the Swingline Bank interest on the principal amount of
the participation purchased for each day from and including the day upon which
the Mandatory Borrowing would otherwise have occurred to but excluding the date
of payment for such participation, at the overnight Federal Funds Rate for the
first three days and at the rate otherwise applicable to Revolving Loans
maintained as Base Rate Loans hereunder for each day thereafter.
1.02 MINIMUM AMOUNT OF EACH BORROWING. The aggregate principal
amount of each Borrowing of (i) Revolving Loans shall not be less than $250,000
and, if greater, shall be in an integral multiple of $100,000 (provided that any
Borrowing which is less than $500,000 shall not be permitted to be maintained
as, or converted into, a LIBOR Loan) and (ii) Swingline Loans shall not be less
than $100,000 and, if greater, shall be in an integral multiple of $100,000.
More than one Borrowing may occur on the same date, but at no time shall there
be outstanding more than five Borrowings of Fixed Rate Loans for the account of
any one Borrower.
1.03 NOTICE OF BORROWING. Whenever a Borrower desires to make
a Borrowing hereunder (excluding Mandatory Borrowings), it shall give the
Administrative Agent at its Notice Office prior notice of each desired Base Rate
Loan or IBOR Loan (which must be given prior to 12:00 Noon (New York time) (or
3:00 P.M. (New York time) in the case of Swingline Loans) if such notice is
given on the day such Borrowing is desired) and at least three Business Days'
prior notice of each desired LIBOR Loan, provided that any such notice shall be
deemed to have been given on a certain day only if given before 12:00 Noon (New
York time) (or, in the case of Swingline Loans 3:00 P.M. (New York time)) on
such day. Each such notice (each a "Notice of Borrowing") shall be given by the
respective Borrower, in the form of Exhibit A and executed by an authorized
signatory for such Borrower, appropriately completed to specify the principal
amount of the Revolving Loan to be made pursuant to such Borrowing, the date of
such Borrowing (which shall be a Business Day), the Borrower on behalf of which
such Revolving Loan is being requested, the Asset Coverage Ratio, together with
the calculations necessary to compute the Asset Coverage Ratio, of such Borrower
as of the close of business on the latest Business Day preceding the date of
such Notice of Borrowing after giving PRO FORMA effect to such Borrowing,
whether the Loan being made pursuant to such Borrowing is to be initially
maintained as a Base Rate Loan, IBOR Loan or, if such Loan is a Revolving Loan,
LIBOR Loan and, if a Revolving Loan to be maintained as a Fixed Rate Loan, the
initial Interest Period to be applicable thereto, provided that a Borrower may
provide telephonic notice to the Administrative Agent of its intent to make a
Borrowing, which telephonic notice shall be deemed effective if given within the
time required above in this Section 1.03 and promptly followed by a Notice of
Borrowing, which Notice of Borrowing shall be received by the Administrative
Agent on the day of such telephonic notice and prior to any disbursement of
funds in connection with such Borrowing. Any telephonic notice given pursuant to
the immediately preceding sentence shall be deemed to be a representation and
warranty by the Borrower giving such notice that all of the facts required to be
set forth in a Notice of Borrowing are true as of the time of the giving of such
notice. The Administrative Agent shall promptly give each Bank notice of such
proposed
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Borrowing, of such Bank's proportionate share thereof and of the other matters
required by the immediately preceding sentence to be specified in the Notice of
Borrowing.
1.04 DISBURSEMENT OF FUNDS. Except as otherwise specifically
provided in the immediately succeeding sentence, no later than 2:00 P.M. (New
York time) on the date specified in each Notice of Borrowing, each Bank will
make available its PRO RATA portion of each such Borrowing requested to be made
on such date, in Dollars and in immediately available funds at the Payment
Office of the Administrative Agent, and the Administrative Agent will make the
aggregate of the amounts so made available by the Banks available to the
appropriate Borrower at the Payment Office or, if specified in the Notice of
Borrowing, such Borrower's account with its Custodian in accordance with the
wiring instructions provided in the Notice of Borrowing. Unless the
Administrative Agent shall have been notified by any Bank prior to the date of
Borrowing that such Bank does not intend to make available to the Administrative
Agent such Bank's portion of any Borrowing to be made on such date, the
Administrative Agent may assume that such Bank has made such amount available to
the Administrative Agent on such date of Borrowing and the Administrative Agent
may, in reliance upon such assumption, make available to the respective Borrower
a corresponding amount. If such corresponding amount is not in fact made
available to the Administrative Agent by such Bank, the Administrative Agent
shall be entitled to recover such corresponding amount on demand from such Bank.
If such Bank does not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent shall promptly
notify the respective Borrower or Borrowers, and such Borrower shall immediately
pay (from the assets of such Borrower or Borrowers) such corresponding amount to
the Administrative Agent. The Administrative Agent shall also be entitled to
recover on demand from such Bank or the respective Borrower, as the case may be,
interest on such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Administrative Agent to such
Borrower or Borrowers until the date such corresponding amount is recovered by
the Administrative Agent, at a rate per annum equal to (i) if recovered from
such Bank, at the overnight Federal Funds Rate and (ii) if recovered from the
respective Borrower, the rate of interest applicable to the respective
Borrowing, as determined pursuant to Section 1.08. Nothing in this Section 1.04
shall be deemed to relieve any Bank from its obligation to make Loans hereunder
or to prejudice any rights which any Borrower may have against any Bank as a
result of any failure by such Bank to make Loans hereunder.
1.05 LEDGER. Each Bank will note on its internal records the
amount of each Revolving Loan made by it (and the Swingline Bank shall note the
amount of each Swingline Loan made by it), the Borrower to whom such Loan was
made, and each payment in respect thereof, and will, prior to any transfer of
any of its interest therein, note the outstanding principal amount of Loans
(broken down by Borrower) to be so transferred. Failure to make any such
notation (or any error in such notation) shall not affect the Obligations of the
respective Borrowers in respect of such Loans.
1.06 CONVERSIONS. The Borrowers shall have the option to
convert, on any Business Day occurring on or after the Effective Date, all or a
portion equal to at least $250,000 (or at least $500,000 with respect to LIBOR
Loans and, in any event, if greater, in an integral
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multiple of $100,000) of the outstanding principal amount of a Borrowing of one
or more Types of Revolving Loans made to a particular Borrower into a Borrowing
of another Type of Revolving Loan to such Borrower, provided that (i) except as
otherwise provided in Section 1.10(b), Fixed Rate Loans may be converted into
Base Rate Loans only on the last day of an Interest Period applicable to the
Loans being converted and no such partial conversion of LIBOR Loans shall reduce
the outstanding principal amount of such LIBOR Loans made pursuant to a single
Borrowing to less than $500,000, (ii) Base Rate Loans may only be converted into
Fixed Rate Loans if no Default or Event of Default is in existence on the date
of the conversion and (iii) no conversion pursuant to this Section 1.06 shall
result in a greater number of Borrowings of Fixed Rate Loans than is permitted
under Section 1.02. Each such conversion shall be effected by the respective
Borrower giving the Administrative Agent at its Notice Office prior to 12:00
Noon (New York time) at least three Business Days' prior notice (each a "Notice
of Conversion") specifying the Revolving Loans to be so converted, the
Borrowing(s) pursuant to which such Revolving Loans were made and, if to be
converted into Fixed Rate Loans, the Interest Period to be initially applicable
thereto. The Administrative Agent shall give each Bank prompt notice of any such
proposed conversion.
1.07 PRO RATA BORROWINGS. All Borrowings of Revolving Loans
under this Agreement shall be incurred from the Banks PRO RATA on the basis of
their respective Commitments. It is understood that no Bank shall be responsible
for any default by any other Bank of its obligation to make respective Loans
hereunder and that each Bank shall be obligated to make the respective Revolving
Loans provided to be made by it hereunder, regardless of the failure of any
other Bank to make its Revolving Loans hereunder.
1.08 INTEREST. (a) Each Borrower to which a Base Rate Loan is
made agrees to pay interest in respect of the unpaid principal amount of such
Base Rate Loan made to such Borrower from the date the proceeds thereof are made
available to such Borrower until the maturity thereof (whether by acceleration
or otherwise) at a rate per annum which shall be equal to the sum of the
Applicable Margin plus the Base Rate in effect from time to time.
(b) Each Borrower to which a LIBOR Loan is made agrees to pay
interest in respect of the unpaid principal amount of such LIBOR Loan made to
such Borrower from the date the proceeds thereof are made available to such
Borrower until the maturity thereof (whether by acceleration or otherwise) at a
rate per annum which shall, during each Interest Period applicable thereto, be
equal to the sum of the Applicable Margin plus the LIBOR for such Interest
Period.
(c) Each Borrower to which an IBOR Loan is made agrees to pay
interest in respect of the unpaid principal amount of such IBOR Loan made to
such Borrower from the date the proceeds thereof are made available to such
Borrower until the maturity thereof (whether by acceleration or otherwise) at a
rate per annum which shall, during each Interest Period applicable thereto, be
equal to the sum of the Applicable Margin plus the IBOR for such Interest
Period.
(d) Overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan and any other overdue amount payable
hereunder shall, in each case, bear
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interest at a rate per annum equal to the greater of (i) 2% per annum in excess
of the rate otherwise applicable to Revolving Loans maintained as Base Rate
Loans from time to time and (ii) the rate which is 2% in excess of the rate then
borne by such Loans, in each case with such interest to be payable on demand.
(e) Accrued (and theretofore unpaid) interest shall be payable
(i) in respect of each Base Rate Loan, monthly in arrears on the first Business
Day of each month, (ii) in respect of each Fixed Rate Loan, on the last day of
each Interest Period applicable thereto and (iii) in respect of each Loan, on
any repayment or prepayment (on the amount repaid or prepaid), at maturity
(whether by acceleration or otherwise) and, after such maturity, on demand.
(f) Upon each Interest Determination Date, the Administrative
Agent shall determine the Fixed Rate for each Interest Period applicable to
Fixed Rate Loans and shall promptly notify the respective Borrower and the Banks
thereof. Each such determination shall, absent manifest error, be final and
conclusive and binding on all parties hereto.
1.09 INTEREST PERIODS. At the time it gives any Notice of
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, any Fixed Rate Loan (in the case of the initial Interest Period applicable
thereto) or on the third Business Day prior to the expiration of an Interest
Period applicable to any such LIBOR Loan or one Business Day prior to the
expiration of an Interest Period applicable to any such IBOR Loan (in the case
of any subsequent Interest Period), the relevant Borrower shall have the right
to elect, by giving the Administrative Agent notice thereof, the interest period
(each an "Interest Period") applicable to such Fixed Rate Loan, which Interest
Period shall be (x) in the case of a LIBOR Loan, a one month period, and (y) in
the case of an IBOR Loan, a period of up to thirty days, at the option of such
Borrower, provided that: (i) all Fixed Rate Loans comprising a Borrowing shall
at all times have the same Interest Period; (ii) the initial Interest Period for
any Fixed Rate Loan shall commence on the date of Borrowing of such Revolving
Loan (including the date of any conversion thereof into a Revolving Loan of a
different Type) and each Interest Period occurring thereafter in respect of such
Revolving Loan shall commence on the day on which the next preceding Interest
Period applicable thereto expires; (iii) if any Interest Period relating to a
LIBOR Loan begins on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of such calendar month; (iv) if any Interest
Period would otherwise expire on a day which is not a Business Day, such
Interest Period shall expire on the next succeeding Business Day, provided that
if any Interest Period for a LIBOR Loan would otherwise expire on a day which is
not a Business Day but is a day of the month after which no further Business Day
occurs in such month, such Interest Period shall expire on the next preceding
Business Day; (v) no Interest Period shall extend beyond the Expiry Date; and
(vi) no Interest Period may extend beyond the date upon which the Loans to such
Borrower are required to be repaid pursuant to Section 3.02(c). If, upon the
expiration of any Interest Period applicable to a Borrowing of Fixed Rate Loans,
the respective Borrower has failed to elect, or is not permitted to elect, a new
Interest Period to be applicable to such Fixed Rate Loans as provided in this
Section 1.09, such Borrower shall be deemed to have elected to convert such
Fixed Rate Loans into Base Rate Loans effective as of the expiration date of
such current Interest Period.
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1.10 INCREASED COSTS; ILLEGALITY; ETC. (a) In the event that
any Bank shall have determined (which determination shall, absent manifest
error, be final and conclusive and binding upon all parties hereto but, with
respect to clause (i) below, may be made only by the Administrative Agent):
(i) on any Interest Determination Date that, by reason of any
changes arising after the date of this Agreement affecting the London
interbank Eurodollar market or the domestic interbank Eurodollar
market, adequate and fair means do not exist for ascertaining the
applicable interest rate on the basis provided for in the definition of
LIBOR or IBOR; or
(ii) at any time, that such Bank shall incur increased costs
or reductions in the amounts received or receivable hereunder with
respect to any Fixed Rate Loan because of (x) any change since the date
of this Agreement in any applicable law or governmental rule,
regulation, order, guideline or request (whether or not having the
force of law) or in the interpretation or administration thereof and
including the introduction of any new law or governmental rule,
regulation, order, guideline or request, such as, for example, but not
limited to (A) a change in the basis of taxation of payment to any Bank
of the principal of or interest on the Loans or any other amounts
payable hereunder (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of such Bank,
pursuant to the laws of the jurisdiction in which it is organized or in
which its principal office or applicable lending office is located or
any subdivision thereof or therein) or (B) a change in official reserve
requirements, but, in all events, excluding reserves required under
Regulation D to the extent included in the computation of the LIBOR or
IBOR and/or (y) other circumstances since the date of this Agreement
affecting such Bank, the London interbank Eurodollar market or the
domestic interbank Eurodollar market or the position of such Bank in
either such market; or
(iii) at any time, that the making or continuance of any Fixed
Rate Loan has been made (x) unlawful by any law or governmental rule,
regulation or order, (y) impossible by compliance by any Bank in good
faith with any governmental request (whether or not having force of
law) or (z) impracticable as a result of a contingency occurring after
the date of this Agreement which materially and adversely affects the
London interbank Eurodollar market or the domestic interbank Eurodollar
market;
then, and in any such event, such Bank (or the Administrative Agent, in the case
of clause (i) above) shall promptly give notice (by telephone confirmed in
writing) to the affected Borrower or Borrowers and, except in the case of clause
(i) above, to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Banks) not
later than 11:00 A.M. (New York time) on the date such Borrowing was to occur.
Thereafter (x) in the case of clause (i) above, LIBOR Rate Loans and/or IBOR
Rate Loans, as the case may be, shall no longer be available until such time as
the Administrative Agent notifies the Borrowers and the Banks that the
circumstances giving rise to such notice by the Administrative Agent no longer
exist, and any Notice of Borrowing or Notice of Conversion given by any of the
Borrowers with respect to any affected Fixed Rate Loans which have not yet
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been incurred (including by way of conversion) shall be deemed rescinded, (y) in
the case of clause (ii) above, the respective Borrowers shall pay to such Bank,
promptly upon its written demand therefor, such additional amounts (in the form
of an increased rate of, or a different method of calculating, interest or
otherwise as such Bank in its sole discretion shall determine) as shall be
required to compensate such Bank for such increased costs or reductions in
amounts received or receivable hereunder (a written notice as to the additional
amounts owed to such Bank, showing the basis for the calculation thereof,
submitted to the affected Borrowers by such Bank shall, absent manifest error,
be final and conclusive and binding on all the parties hereto) and (z) in the
case of clause (iii) above, the respective Borrowers shall take one of the
actions specified in Section 1.10(b) as promptly as possible and, in any event,
within the time period required by law.
(b) At any time that any Fixed Rate Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the respective Borrower
may (and in the case of a Fixed Rate Loan affected by the circumstances
described in Section 1.10(a)(iii) shall) either (x) if the affected Fixed Rate
Loan is then being made initially or pursuant to a conversion, cancel the
respective Borrowing by giving the Administrative Agent telephonic notice
(confirmed in writing) on the same date that such Borrower was notified by the
affected Bank or the Administrative Agent pursuant to Section 1.10(a)(ii) or
(iii) or (y) if the affected Fixed Rate Loan is then outstanding, upon at least
three Business Days' written notice to the Administrative Agent, require the
affected Bank to convert such Fixed Rate Loan into a Base Rate Loan, provided
that, if more than one Bank is affected at any time, all affected Banks must be
treated the same pursuant to this Section 1.10(b).
(c) If at any time after the date of this Agreement any Bank
determines that the introduction of or any change in any applicable law or
governmental rule, regulation, order, guideline, directive or request (whether
or not having the force of law) concerning capital adequacy, or any change in
interpretation or administration thereof by any governmental authority, central
bank or comparable agency, will have the effect of increasing the amount of
capital required or expected to be maintained by such Bank or any corporation
controlling such Bank based on the existence of such Bank's portion of the Total
Commitment or its obligations hereunder, then the Borrowers shall pay to such
Bank, promptly upon its written demand therefor, such additional amounts as
shall be required to compensate such Bank or such other corporation for the
increased cost to such Bank or such other corporation or the reduction in the
rate of return to such Bank or such other corporation as a result of such
increase of capital. In determining such additional amounts, each Bank will act
reasonably and in good faith and will use averaging and attribution methods
which are reasonable, provided that such Bank's determination of compensation
owing under this Section 1.10(c) shall, absent manifest error, be final and
conclusive and binding on all the parties hereto. Each Bank, upon determining
that any additional amounts will be payable pursuant to this Section 1.10(c),
will give prompt written notice thereof to the affected Borrowers, which notice
shall show the basis for calculation of such additional amounts, provided,
however, that failure to give any such notice shall not release or diminish any
obligation of the Borrowers to pay additional amounts pursuant to this Section
1.10(c) upon receipt of such notice.
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1.11 COMPENSATION. Each Borrower agrees that it shall
compensate each Bank, upon its written request (which request shall set forth
the basis for requesting such compensation), for all reasonable losses, expenses
and liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Bank to fund its Fixed Rate Loans) which such Bank may sustain
in respect of Loans made to such Borrower or a Notice of Borrowing or Notice of
Conversion delivered by such Borrower: (i) if for any reason (other than a
default by such Bank or the Administrative Agent) a Borrowing by such Borrower
of, or conversion from or into, Fixed Rate Loans does not occur on a date
specified therefor in a Notice of Borrowing or Notice of Conversion (whether or
not withdrawn by such Borrower or deemed withdrawn pursuant to Section 1.10(a)
or otherwise); (ii) if any repayment (including any repayment made pursuant to
Section 3.02 or a result of an acceleration of the Revolving Loans of such
Borrower pursuant to Section 9) or conversion of any of such Borrower's Fixed
Rate Loans occurs on a date which is not the last day of an Interest Period with
respect thereto; (iii) if any prepayment of a Fixed Rate Loan of such Borrower
is not made on any date specified in a notice of prepayment given by such
Borrower; or (iv) as a consequence of (a) any other default by such Borrower to
repay any Loan when required by the terms of this Agreement or (b) any election
made by such Borrower pursuant to Section 1.10(b).
1.12 REPLACEMENT OF BANKS. (x) If any Bank defaults in its
obligations to make Loans (a "Defaulting Bank") or (y) upon the occurrence of
any event giving rise to the operation of Section 1.10(a)(ii) and (iii), Section
1.10(c) or Section 3.04(a) with respect to any Bank which results in such Bank
charging to the Borrower increased costs materially in excess of those being
generally charged by the other Banks, the Borrower shall have the right, if no
Default or Event of Default will exist immediately after giving effect to the
respective replacement, to replace such Bank (the "Replaced Bank") with one or
more other Eligible Transferees, none of whom shall constitute a Defaulting Bank
at the time of such replacement (collectively, the "Replacement Bank")
reasonably acceptable to the Administrative Agent, provided that (i) at the time
of any replacement pursuant to this Section 1.12, the Replacement Bank shall
enter into one or more Assignment and Assumption Agreements pursuant to Section
12.04(b) pursuant to which the Replacement Bank shall acquire all of the
Commitments and outstanding Loans of the Replaced Bank and, in connection
therewith, shall pay to the Replaced Bank in respect thereof an amount equal to
the sum of (A) an amount equal to the principal of, and all accrued interest on,
all outstanding Loans together with all then unpaid interest with respect
thereof at such time and (B) an amount equal to all accrued, but theretofore
unpaid, Fees owing to the Replaced Bank pursuant to Section 2.01, and (ii) all
obligations of the Borrowers owing to the Replaced Bank (other than those
specifically described in clause (i) above in respect of which the assignment
purchase price has been, or is concurrently being, paid) shall be paid in full
to such Replaced Bank concurrently with such replacement. Upon the execution of
the respective Assignment and Assumption Agreements and the payment of amounts
referred to in clauses (i) and (ii) above, the Replacement Bank shall become a
Bank hereunder and the Replaced Bank shall cease to constitute a Bank hereunder,
except with respect to indemnification provisions under this Agreement which
shall survive as to such Replaced Bank.
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1.13 EXTENSION OF EXPIRY DATE. Not less than 60 days and not
more than 90 days prior to the Expiry Date then in effect, the Borrowers may
make a written request (the "Extension Request") to the Administrative Agent at
its Notice Office, which request the Administrative Agent shall promptly
transmit to each of the Banks, that the Expiry Date then in effect be extended
to the date which occurs 364 days after the Requested Extension Effective Date
specified by the Borrowers in the Extension Request. Each Extension Request
shall specify a date (the "Requested Extension Effective Date"), which shall be
a Business Day not earlier than 40 days after the giving of the respective
notice and not later than the Expiry Date then in effect, on which such
extension of the Expiry Date, if granted by the Banks, shall occur. Each
Extension Request shall also be accompanied by a certificate of an authorized
officer of the Borrowers stating that no Default or Event of Default has
occurred and is continuing. Each Bank, acting in its sole discretion and with no
obligation to grant any extension pursuant to this Section 1.13, shall, by
written notice to the Borrowers and the Administrative Agent, such notice to be
given within 30 days of its receipt of the relevant Extension Request, advise
the Borrowers and the Administrative Agent whether such Bank agrees to such
extension, provided that:
(a) (i) any Bank that fails to so notify the Borrowers and the
Administrative Agent shall be deemed to have elected not to grant such extension
as to itself and (ii) any extension of the Expiry Date pursuant to this Section
1.13 shall be effective on the Requested Extension Expiry Date only to those
Banks (the "Extending Banks") (and their respective Commitments) which have
consented to such extension pursuant to such Extension Request. The Expiry Date
for each Bank which does not consent to such extension pursuant to such
Extension Request (each a "Non-Extending Bank") shall be the Expiry Date as in
effect immediately before giving effect to such Extension Request. No Bank shall
be under any obligation whatsoever to consent to an Extension Request and may
refuse to extend the Expiry Date as to itself in its sole and absolute
discretion. The Administrative Agent shall notify the Borrowers and each Bank of
the effectiveness of any such extension.
(b) The Commitment of each Non-Extending Bank shall terminate
permanently and irrevocably on the Expiry Date in effect for such Bank before
giving effect to any extension of such Expiry Date pursuant to an Extension
Request to which such Bank has not consented, and the Borrower shall pay to each
Non-Extending Bank an amount equal to all Obligations then owing to such
Non-Extending Bank and such Non-Extending Bank shall thereafter cease to be a
"Bank" hereunder (except with respect to its rights under Sections 2.01, 3.04
and 12.01 and any provision of this Agreement which by its terms survives the
termination of this Agreement and its obligations under Section 12.16); PROVIDED
that, the Borrowers may at their option (i) allocate all or any portion of the
Commitment of any Non-Extending Bank to any Extending Bank or Extending Banks
which agree in their sole and absolute discretion to accept such allocation
and/or (ii) permit any Eligible Transferee acceptable to the Agents that is not
a party to this Agreement, to assume all or a portion of such Non-Extending
Bank's Commitment, in each case pursuant to one or more Assignment and
Assumption Agreements to be executed and effected in accordance with Section
12.04(b). Upon (A) the execution of such Assignment and Assumption Agreement (or
on such date specified in such Assignment and Assumption Agreement, which date
shall not be later than the Expiry Date as in effect for such Non-Extending
Bank), (B) the payment to such Non-Extending Banks of all amounts of principal,
interest, fees and other
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amounts payable to such Non-Extending Banks hereunder and (C) the delivery of
each such Assignment and Assumption Agreement to the Administrative Agent, (i)
the entire Commitment of such Non-Extending Banks shall terminate and such
Non-Extending Banks shall cease to be a "Bank" and shall cease to have any
rights or obligations hereunder (other than (x) its rights under Sections 2.01,
3.04 and 12.01 and any provision of this Agreement which by its terms survives
the termination of this Agreement and (y) its obligations under Section 12.16)
and (ii) each Extending Bank and/or new Bank which is being allocated a portion
of such Non-Extending Bank(s) commitment(s) shall succeed to such rights and
obligations of the Non-Extending Bank to the extent of the Commitment or Loans
of the Non-Extending Bank allocated to such Extending Bank and/or new Bank
(except that the Expiry Date applicable to such commitments assigned to such
Extending Bank and/or new Bank shall be the Expiry Date applicable to Extending
Banks pursuant to Section 1.13(a)(ii) above); PROVIDED, HOWEVER, that the
Commitment of each Non-Extending Bank shall in any event terminate on the Expiry
Date applicable to such Non-Extending Bank. Notwithstanding anything to the
contrary contained in this Agreement, Schedule II shall be deemed amended
without the consent of any Bank (other than a new Bank to the extent provided
herein) to reflect the new Commitments of each Extending Bank and/or new Bank
pursuant to this Section 3.03(b).
1.14 ADDITION OF NEW BORROWERS. Any Fund may from time to time
request in writing (each such request, an "Additional Borrower Request") that a
separate affiliated mutual fund portfolio which is a portfolio of such Fund be
included hereunder as an additional Borrower subject to the terms and conditions
of this Agreement (any such separate mutual fund portfolio, an "Additional
Borrower"). Such Additional Borrower Request shall be delivered to each of the
Banks and the Administrative Agent and shall include (a) a certification by an
authorized officer of such Fund that (i) the representations, warranties and
agreements of the Borrowers contained in Section 6 are true and correct as if
made on the date of such certification and on the date such Additional Borrower
becomes a Borrower hereunder and (ii) no Default or Event of Default has
occurred and is continuing or will occur as a result of such Additional Borrower
becoming a Borrower hereunder and (b) true and correct copies of the most recent
audited and unaudited financial statements of such Additional Borrower. Upon
receipt of an Additional Borrower Request each Bank shall in its sole discretion
determine whether it shall consent to such request, any such consent to be in
writing and delivered to the Administrative Agent. Failure by any Bank to
deliver such a consent within 30 days after receipt of such request shall be
deemed a refusal to consent on the part of such Bank. To the extent the
Administrative Agent receives written consents from all Banks with respect to a
particular Additional Borrower Request, the Administrative Agent shall notify
the Borrowers thereof, and such Additional Borrower shall become a Borrower
hereunder (at which time Schedule I hereto shall be deemed to be amended to
include such new Borrower) upon delivery to the Agents of (x) certified copies
of documents relating to such Additional Borrower of the type referred to in
Section 4.05 and (y) an executed counterpart hereof and/or an assumption
agreement in form satisfactory to the Administrative Agent.
1.15 REMOVAL OF BORROWERS. Any Fund may, from time to time
upon written notice to the Administrative Agent, elect to remove a Borrower
which is a portfolio of such Fund as a Borrower hereunder, provided that at such
time such removed Borrower has no Loans or
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other Obligations outstanding under this Agreement. Upon the effectiveness of
such removal, such removed Borrower shall cease to be a Borrower for all
purposes of this Agreement, except that all indemnification provisions of this
Agreement shall survive as to such removed Borrower.
SECTION 2. FEES; REDUCTIONS OF COMMITMENT.
2.01 FEES. (a) Each Borrower agrees to pay to the
Administrative Agent, for PRO RATA distribution to each Bank, its PRO RATA share
(as calculated in accordance with the last sentence of this Section 2.01(a)) of
a commitment fee (the "Commitment Fee") for the period from the Effective Date
to and including the Expiry Date (or such earlier date as the Total Commitment
shall have been terminated), computed at a rate equal to 0.10% per annum on the
daily average Total Unutilized Commitment. Accrued Commitment Fees shall be due
and payable quarterly in arrears on the fifteenth day of the month following
such quarter end (unless such day is not a Business Day, in which case such
accrued Commitment Fees shall be payable on the latest preceding Business Day)
and on the Expiry Date, or such earlier date upon which the Total Commitment is
terminated, with the allocation of such obligation among the Borrowers to be PRO
RATA according to the relevant asset size of the respective Borrowers or, upon
prior written notice to the Administrative Agent, based on such other method
acceptable to the Administrative Agent as the Investment Advisor shall determine
in compliance with the Investment Company Act.
(b) Each Borrower agrees to pay to the Agents, for the Agents'
own account, its PRO RATA share according to the relevant asset size of the
respective Borrowers (or, upon prior written notice to the Administrative Agent,
such other method of allocation acceptable to the Administrative Agent as the
Investment Advisor shall determine in compliance with the Investment Company
Act) of such other fees as have been agreed to in writing by the Borrowers and
the Agents.
2.02 VOLUNTARY TERMINATION OF UNUTILIZED COMMITMENTS;
TERMINATION OF COMMITMENTS. Upon at least three Business Days' prior notice to
the Administrative Agent at its Notice Office (which notice the Administrative
Agent shall promptly transmit to each of the Banks), the Borrowers shall have
the right, at any time or from time to time, without premium or penalty, to
terminate the Total Unutilized Commitment, in whole or in part, in integral
multiples of $1,000,000 in the case of partial reductions to the Total
Unutilized Commitment, provided that each such reduction shall apply
proportionately to permanently reduce the Commitment of each Bank.
SECTION 3. PREPAYMENTS; PAYMENTS; TAXES.
3.01 VOLUNTARY PREPAYMENTS. Each Borrower shall have the right
to prepay any Loan or Loans made to such Borrower, without premium or penalty,
in whole or in part at any time and from time to time on the following terms and
conditions: (i) such Borrower shall give the Administrative Agent prior to 11:00
A.M. (New York time) at its Notice Office (x) at least one Business Day's prior
written notice (or telephonic notice promptly confirmed in writing) of its
intent to prepay Base Rate Loans or IBOR Loans and (y) at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
of its intent to prepay LIBOR
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Loans, the amount of such prepayment and the Types of Loans to be prepaid, and,
in the case of Fixed Rate Loans, the Borrowing or Borrowings pursuant to which
made, which notice the Administrative Agent shall promptly transmit to each of
the Banks; (ii) each prepayment shall be in an aggregate principal amount of at
least $100,000, provided that if any partial prepayment of Fixed Rate Loans made
pursuant to any Borrowing shall reduce the outstanding Fixed Rate Loans made
pursuant to such Borrowing to an amount less than $500,000, then such Borrowing
may not be continued as a Borrowing of Fixed Rate Loans and any election of an
Interest Period with respect thereto shall have no force or effect; (iii)
prepayments of Fixed Rate Loans made pursuant to this Section 3.01 may only be
made on the last day of an Interest Period applicable thereto; and (iv) each
prepayment in respect of Loans made pursuant to a Borrowing shall be applied PRO
RATA among such Loans.
3.02 MANDATORY REPAYMENTS. (a) On any day on which the
aggregate outstanding principal amount of Loans exceeds the Total Commitment as
then in effect, the Borrowers shall prepay principal of Loans made to the
Borrowers in an aggregate amount equal to such excess, provided that, in the
event that such repayment is required as a result of a partial reduction in the
Total Commitment, (x) the allocation of such required prepayment of Loans of the
Borrowers shall be determined by the Borrowers or (y) in the absence of a
determination by the Borrowers, the Administrative Agent shall allocate such
mandatory repayments to outstanding Loans in its discretion, with an eye toward,
but no obligation to, minimize breakage costs owing pursuant to Section 1.11.
(b) On any day on which the aggregate outstanding principal
amount of Loans made to any Borrower exceeds the Borrowing Base of such Borrower
as then in effect, such Borrower shall prepay principal of such Loans equal to
such excess.
(c) On any day upon which any Borrower has had any Loans in
any principal amount outstanding for more than 45 consecutive days, such
Borrower shall repay on such day all then outstanding Loans made to such
Borrower, together with accrued interest thereon.
(d) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, all then outstanding Revolving Loans shall be
repaid in full on the Expiry Date, and all then outstanding Swingline Loans
shall be repaid on the Swingline Expiry Date.
3.03 METHOD AND PLACE OF PAYMENT. Except as otherwise
specifically provided herein, all payments under this Agreement shall be made
(or a federal reserve wire number delivered) to the Administrative Agent for the
account of the Bank or Banks entitled thereto not later than 12:00 Noon (New
York time) on the date when due and shall be made in Dollars in immediately
available funds at the Payment Office of the Administrative Agent. Whenever any
payment to be made hereunder shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest shall be
payable at the applicable rate during such extension.
3.04 NET PAYMENTS. (a) All payments made by the Borrowers
hereunder will be made without setoff, counterclaim or other defense. Except as
provided in Section 3.04(b), all such payments will be made free and clear of,
and without deduction or withholding for, any
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present or future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature now or hereafter imposed by any jurisdiction or by
any political subdivision or taxing authority thereof or therein with respect to
such payments (but excluding, except as provided in the second succeeding
sentence, taxes imposed on or measured by the net income or profits of a Bank
pursuant to the laws of the jurisdiction in which it is organized or the
jurisdiction in which the principal office or applicable lending office of such
Bank is located or any subdivision thereof or therein, or any interest,
penalties or similar liabilities with respect thereto (all such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges being
referred to collectively as "Taxes"). If any Taxes are so levied or imposed,
each Borrower agrees to pay the full amount of such Taxes levied in respect of
the payments of such Borrower, and such additional amounts as may be necessary
so that every payment of all amounts due from such Borrower under this
Agreement, after withholding or deduction for or on account of any Taxes, will
not be less than the amount provided for herein. If any amounts are payable in
respect of Taxes pursuant to the preceding sentence, then the applicable
Borrower agrees to reimburse each Bank, upon the written request of such Bank,
for taxes imposed on or measured by the net income or profits of such Bank
pursuant to the laws of the jurisdiction in which such Bank is organized or in
which the principal office or applicable lending office of such Bank is located
or under the laws of any political subdivision or taxing authority of any such
jurisdiction and for any withholding of taxes such Bank shall determine are
payable by, or withheld from, such Bank in respect of such amounts so paid to or
on behalf of such Bank pursuant to the preceding sentence and in respect of any
amounts paid to or on behalf of such Bank pursuant to this sentence. Each
Borrower will furnish to the Administrative Agent, within 45 days after the date
the payment of any Taxes is due pursuant to applicable law, certified copies of
tax receipts evidencing such payment by such Borrower. Each Borrower agrees to
indemnify and hold harmless each Bank, and reimburse each Bank upon its written
request, for the amount of any Taxes so levied or imposed and paid by such Bank
in respect of payments made, or required to be made, by such Borrower.
(b) Each Bank that is not a United States person (as such term
is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes agrees to deliver to the Borrowers and the Administrative Agent, on or
prior to the Effective Date, or in case of Bank that is an assignee or
transferee of an interest under this Agreement pursuant to Section 1.12 or 12.04
(unless the respective Bank was already a Bank hereunder immediately prior to
such assignment or transfer), upon the date of such assignment or transfer to
such Bank (i) two accurate and complete original signed copies of Internal
Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption
under an income tax treaty) (or successor forms) certifying to such Bank's
entitlement as of such date to a complete exemption from United States
withholding tax with respect to payments to be made under this Agreement or (ii)
if the Bank is not a "bank" within the meaning of Section 881(c)(3)(A) of the
Code and cannot deliver either Internal Revenue Service Form W-8ECI or Form
W-8BEN (with respect to a complete exemption under an income tax treaty)
pursuant to clause (i) above, (x) a certificate substantially in the form of
Exhibit F (any such certificate, a "Section 3.04(b)(ii) Certificate") and (y)
two accurate and complete original signed copies of Internal Revenue Service
Form W-8BEN (with respect to the portfolio interest exemption)(or successor
form) certifying to such Bank's entitlement to a complete exemption from United
States withholding tax with respect to
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payments of interest to be made under this Agreement. In addition, each Bank
agrees that from time to time after the Effective Date, when a lapse in time or
change in circumstances renders the previous certification obsolete or
inaccurate in any material respect, it will deliver to the Borrowers and the
Administrative Agent two new accurate and complete original signed copies of
Internal Revenue Service Form W-8ECI, Form W-8BEN (with respect to the benefits
of any income tax treaty), or Form W-8BEN (with respect to the portfolio
interest exemption) and a Section 3.04(b)(ii) Certificate, as the case may be,
and such other forms as may be required in order to confirm or establish the
entitlement of such Bank to a continued exemption from or reduction in United
States withholding tax with respect to payments under this Agreement, or it
shall immediately notify the Borrowers and the Administrative Agent of its
inability to deliver any such Form or Certificate, in which case such Bank shall
not be required to deliver any such Form or Certificate pursuant to this Section
3.04(b). Notwithstanding anything to the contrary contained in Section 3.04(a),
but subject to the immediately succeeding sentence, (x) the Borrowers shall be
entitled, to the extent they are required to do so by law, to deduct or withhold
income or similar taxes imposed by the United States (or any political
subdivision or taxing authority thereof or therein) from interest, fees or other
amounts payable hereunder for the account of any Bank which is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) for
U.S. Federal income tax purposes to the extent that such Bank has not provided
to such Borrower U.S. Internal Revenue Service Forms that establish a complete
exemption from such deduction or withholding and (y) such Borrower shall not be
obligated pursuant to Section 3.04(a) hereof to gross-up payments to be made to
a Bank in respect of income or similar taxes imposed by the United States if (I)
such Bank has not provided to such Borrower the Internal Revenue Service Forms
required to be provided to such Borrower pursuant to this Section 3.04(b) or
(II) in the case of a payment, other than interest, to a Bank described in
clause (ii) above, to the extent that such Forms do not establish a complete
exemption from withholding of such taxes. Notwithstanding anything to the
contrary contained in the preceding sentence or elsewhere in this Section 3.04
and except as set forth in Section 12.04(b), each Borrower agrees to pay any
additional amounts and to indemnify each Bank in the manner set forth in Section
3.04(a) (without regard to the identity of the jurisdiction requiring the
deduction or withholding) in respect of any amounts deducted or withheld by it
as described in the immediately preceding sentence as a result of any changes
that are effective after the Effective Date in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the interpretation
thereof, relating to the deducting or withholding of income or similar Taxes.
(c) Except to the extent that the Borrowers make payments
pursuant to subsections (a) or (b) of this Section 3.04, the Borrowers will
indemnify each Bank and the Administrative Agent against, and reimburse each
upon demand for, the full amount of Taxes (including, without limitation, any
Taxes imposed by any jurisdiction on amounts payable under this Section 3.04)
incurred or paid by such Bank or the Administrative Agent (as the case may be)
or any of their respective affiliates and any liability (including penalties,
interest and expenses) arising therefrom and or with respect thereto, whether or
not such Taxes were correctly or legally asserted. Each Bank agrees, within a
reasonable time after receiving a written request from the Borrowers, to provide
the Borrowers and the Administrative Agent with such certificates as are
reasonably required, and to take such other actions as are reasonably necessary,
to claim such exemptions as such Bank may be entitled to claim in respect of all
or a portion of
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any Taxes which are otherwise required to be paid or deducted or withheld
pursuant to this Section 3.04 in respect of any payments under this Agreement.
If the Borrowers are compelled to make the additional payments required by
subsections (a) and (b) of this Section 3.04, or this subsection (c), the
Borrowers may be entitled to remove the Bank with respect to which such payment
is made in accordance with Section 1.12.
(d) Each Bank agrees that, upon the occurrence of any event
giving rise to the operation of Section 3.04 with respect to such Bank, it will,
if requested by the Borrower, use reasonable efforts (subject to overall policy
considerations of such Bank) to designate another lending office for any Loans
affected by such event, PROVIDED that such designation is made on such terms
that such Bank and its lending office suffer no material economic, legal or
regulatory disadvantage, with the object of avoiding the consequence of the
event giving rise to the operation of Section 3.04. Nothing in this Section
3.04(d) shall affect or postpone any of the obligations of the Borrowers or the
right of any Bank provided in Section 3.04. If such additional amounts cannot be
eliminated by such actions, the Borrowers may have the right to replace the
affected Bank hereunder in accordance with Section 1.12.
SECTION 4. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE. The
obligation of each Bank to make Loans hereunder and the occurrence of the
Effective Date are subject to the satisfaction of each of the following
conditions:
4.01 EXECUTION OF AGREEMENT. On or prior to the Effective
Date, this Agreement shall have been executed and delivered as provided in
Section 12.10.
4.02 OFFICERS' CERTIFICATES. On the Effective Date, the
Administrative Agent shall have received certificates dated the Effective Date
signed on behalf of each of the Borrowers by any authorized officer of any Funds
of which such Borrowers are portfolios and attested to by the Secretary or any
Assistant Secretary of such Fund, in the form of Exhibit B with appropriate
insertions, together with copies of the Declaration of Trust or Agreement and
Declaration of Trust, as the case may be, and Code of Regulations or By-Laws, as
the case may be, of such Fund and the resolutions of the Funds of which the
Borrowers referred to in such certificates are portfolios, and the foregoing
shall be in form acceptable to the Administrative Agent.
4.03 OPINION OF COUNSEL. On the Effective Date, the
Administrative Agent shall have received from Drinker Biddle & Reath LLP,
counsel to the Funds, an opinion addressed to the Agents and each of the Banks
and dated the Effective Date covering the matters set forth in Exhibit C and
such other matters incident to the transactions contemplated herein as the
Administrative Agent may request.
4.04 PROCEEDINGS; ETC. On the Effective Date, all corporate
and legal proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Credit Documents shall
be satisfactory in form and substance to the Administrative Agent and the
Required Banks, and the Administrative Agent shall have received all information
and copies of all documents and papers, including records of corporate
proceedings, governmental approvals, good standing certificates and bring-down
telegrams, if any, which the Administrative Agent reasonably may have requested
in connection therewith,
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such documents and papers where appropriate to be certified by proper corporate
or governmental authorities.
4.05 MATERIAL AGREEMENTS. On the Effective Date, there shall
have been delivered to the Administrative Agent true and correct copies,
certified as true and complete by an authorized officer of the Funds, of the
Registration Statement, the Prospectuses, the Investment Advisory Agreements,
the Custody Agreements and all other material agreements to which any of the
Funds or Borrowers is a party or subject to, and all of the foregoing
instruments shall be in form and substance satisfactory to the Administrative
Agent and shall be in full force and effect on the Effective Date.
4.06 ADVERSE CHANGE; ETC. (a) On the Effective Date, nothing
shall have occurred (and the Banks shall not have become aware of any facts or
conditions not previously known), including any change in government (domestic
or foreign) statutes, regulations, rules or policies, which the Administrative
Agent shall determine has, or could reasonably be expected to have, a material
adverse effect on the rights or remedies of the Agents or the Banks, or on the
ability of any Borrower to perform its obligations to the Agents and the Banks
under any Credit Document or which has, or could reasonably be expected to have,
a Material Adverse Effect.
(b) On or prior to the Effective Date, all necessary
governmental (domestic and foreign) and third party approvals in connection with
the transactions contemplated by the Credit Documents and otherwise referred to
therein shall have been obtained and remain in effect, and all applicable
waiting periods shall have expired without any action being taken by any
competent authority which restrains, prevents or imposes materially adverse
conditions upon the consummation of the transactions contemplated by the Credit
Documents and otherwise referred to therein. Additionally, there shall not exist
any judgment, order, injunction or other restraint issued or filed or a hearing
seeking injunctive relief or other restraint pending or notified prohibiting or
imposing materially adverse conditions upon the consummation of the transactions
contemplated by the Credit Documents or the making of any Loans.
4.07 LITIGATION. On the Effective Date, no litigation by any
entity (private or governmental) shall be pending or threatened with respect to
this Agreement or any documentation executed in connection herewith or the
transactions contemplated hereby, or which the Administrative Agent shall
determine could reasonably be expected to have a Material Adverse Effect.
4.08 FEES, ETC. On the Effective Date, the Borrowers shall
have paid to the Agents and the Banks all costs, fees and expenses (including,
without limitation, outside legal fees and expenses) payable to the Agents and
the Banks to the extent then due.
4.09 FORM FR U-1. On the Effective Date, the Administrative
Agent shall have received from the Borrowers a Form FR U-1 certificate in the
form of Exhibit E hereto, dated as of the Effective Date.
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SECTION 5. CONDITIONS PRECEDENT TO ALL LOANS. No Loan (other
than a Mandatory Borrowing which shall be made as provided in Section 1.01(c))
shall be made to any Borrower hereunder unless the following conditions are
satisfied:
5.01 NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time
of each such Loan and also after giving effect thereto (i) there shall exist no
Default or Event of Default with respect to the Borrower receiving such Loan,
(ii) the respective Borrower shall be in full compliance with the Investment
Company Act (including, without limitation, Section 18 thereof), except such
noncompliance as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect and (iii) all representations and
warranties by or with respect to such Borrower contained herein shall be true
and correct in all material respects with the same effect as though such
representations and warranties had been made on the date of the making of such
Loan (it being understood and agreed that any representation or warranty which
by its terms is made as of a specified date shall be required to be true and
correct in all material respects only as of such specified date).
5.02 NOTICE OF BORROWING. Prior to the making of each Loan,
the Administrative Agent shall have received a Notice of Borrowing meeting the
requirements of Section 1.03.
The acceptance of the proceeds of each Loan shall constitute a representation
and warranty by the respective Borrower receiving such proceeds to the Banks
that all the conditions specified in Section 4 and in Sections 5.01 and 5.02 and
applicable to such Loan are satisfied as of that time. All of the certificates,
legal opinions and other documents and papers referred to in Section 4 and in
Section 5, unless otherwise specified, shall have been delivered to the
Administrative Agent at its Notice Office and shall be in form and substance
satisfactory to the Administrative Agent.
SECTION 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In
order to induce the Banks to enter into this Agreement and to make the Loans,
each of the Borrowers makes the following representations, warranties and
agreements as to itself, all of which shall survive the execution and delivery
of this Agreement and the making of the Loans, with the incurrence of each Loan
on or after the Effective Date being deemed to constitute a representation and
warranty that the matters specified in this Section 6 are true and correct in
all material respects on and as of the Effective Date and on the date of each
such Loan:
6.01 CORPORATE STATUS. Each Borrower (i) is a portfolio of one
of the Funds, each of which is a business trust which is duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts, (ii) has the power and authority to own its property and assets
and to transact the business in which it is engaged and presently proposes to
engage and (iii) is duly qualified and is authorized to do business and is in
good standing in each jurisdiction where the ownership, leasing or operation of
its property or the conduct of its business requires such qualifications except
for failures to be so qualified which, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
6.02 POWER AND AUTHORITY. Each Borrower has the power and
authority to execute, deliver and perform the terms and provisions of each of
the Credit Documents and has taken all necessary action (or such action has been
taken on its behalf) to authorize the execution,
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delivery and performance by it of each of the Credit Documents. Each Borrower
(or the Fund of which it is a series) has duly executed and delivered each of
the Credit Documents, and each of the Credit Documents constitutes its legal,
valid and binding obligation enforceable against it in accordance with its
terms, except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law).
6.03 NO VIOLATION. Neither the execution, delivery or
performance (including the incurrence of Loans hereunder) by any Borrower of any
of the Credit Documents, nor compliance by any such Borrower with the terms and
provisions thereof, (i) will contravene any provision of any material law,
statute, rule or regulation (including, without limitation, the Investment
Company Act) or any order, writ, injunction or decree of any court or
governmental instrumentality applicable to such Borrower, (ii) will conflict
with or result in any breach of any of the terms, covenants, conditions or
provisions of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any Lien upon any of the
property or assets of any Borrower pursuant to the terms of any indenture,
mortgage, deed of trust, credit agreement or loan agreement, or any other
material agreement, contract or instrument to which such Borrower is a party or
by which it or any of its property or assets is bound or to which it may be
subject or (iii) will violate or conflict with the Investment Practices,
Prospectus, statement of additional information or any provision of the
Agreement and Declaration of Trust or Declaration of Trust, as the case may be,
or Code of Regulations or By-Laws, as the case may be, of such Borrower.
6.04 GOVERNMENTAL APPROVALS. No order, consent, approval,
license, authorization or validation of, or filing, recording or registration
with (except as have been obtained or made prior to the Effective Date and which
remain in full force and effect), or exemption by, any governmental or public
body or authority, or any subdivision thereof, is required to authorize, or is
required in connection with, (i) the execution, delivery or performance by any
Borrower of any Credit Document to which it is a party or (ii) the legality,
validity, binding effect or enforceability of any such Credit Document.
6.05 FINANCIAL STATEMENTS; FINANCIAL CONDITION; UNDISCLOSED
LIABILITIES; ETC. (a) The financial statements, together with the notes and
schedules thereto, of each Borrower furnished to the Banks prior to the
Effective Date (or, if such Borrower became a party to this Agreement after the
Effective Date in accordance with Section 1.14, prior to the date such Borrower
first became a party hereto) present fairly the financial condition of each
respective Borrower at the respective dates of such statements and the results
of the operations of each respective Borrower for the period covered thereby.
All such financial statements have been prepared in accordance with generally
accepted accounting principles and practices consistently applied. As of the
Effective Date, since the respective dates of such financial statements, there
has been no material adverse change in the business, operations, property,
assets, liabilities, condition (financial or otherwise) or prospects of any
Borrower, the Fund of which such Borrower is a portfolio, or, to the best
knowledge of any Borrower, all of the Borrowers taken as
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a whole that would materially and adversely affect the ability of any Borrower
to perform its obligations hereunder.
(b) Except as fully disclosed in the financial statements
delivered pursuant to Section 6.05(a) and open trading and shareholder
redemption obligations incurred in the ordinary course of business, there were
as of the Effective Date no liabilities or obligations with respect to any
Borrower of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether or not due) which, either individually or in the
aggregate, would be material to any Borrower. As of the Effective Date (or, if
such Borrower becomes a party to this Agreement after the Effective Date in
accordance with Section 1.14, the date such Borrower first becomes a party
hereto), except for open trading and shareholder redemption obligations incurred
in the ordinary course of business, no Borrower knows of any basis for the
assertion against it or any other Borrower of any liability or obligation of any
nature whatsoever that is not fully disclosed in the financial statements
delivered pursuant to Section 6.05(a) which, either individually or in the
aggregate, could be material to any Borrower.
6.06 LITIGATION. There are no actions, suits or proceedings
pending or, to the best knowledge of any Borrower after due inquiry, threatened
(i) with respect to any Credit Document or (ii) that could reasonably be
expected to have a Material Adverse Effect.
6.07 TRUE AND COMPLETE DISCLOSURE. All factual information
furnished by or on behalf of the Borrowers in writing to the Banks (including,
without limitation, all information contained in the Credit Documents) for
purposes of or in connection with this Agreement, the other Credit Documents or
any transaction contemplated herein or therein is, and all other such factual
information hereafter furnished by or on behalf of such Borrower in writing to
the Administrative Agent or any of the Banks will be, true and accurate in all
material respects on the date as of which such information is dated or certified
and not incomplete by omitting to state any fact necessary to make such
information not misleading in any material respect at such time in light of the
circumstances under which such information was provided.
6.08 USE OF PROCEEDS; MARGIN REGULATIONS. (a) The proceeds of
all Loans shall be used by the Borrower receiving such proceeds to finance
temporarily until settlement the sale or purchase of portfolio securities by
such Borrower, the repurchase or redemption of shares of such Borrower, or for
other temporary or emergency purposes consistent with the such Borrower's
Investment Practices.
(b) Neither the making of any Loan nor the use of the proceeds
thereof by any Borrower will violate or be inconsistent with the provisions of
Regulations T, U or X of the Board of Governors of the Federal Reserve System or
any other applicable regulation or agreement binding upon such Borrower.
6.09 ERISA. None of the Borrowers nor any Subsidiary of any of
the Borrowers nor any ERISA Affiliate has ever maintained or contributed to (or
had an obligation to contribute to) any Plan.
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6.10 COMPLIANCE WITH STATUTES, ETC. Each Borrower is in
compliance with (i) all applicable statutes (including, without limitation, the
Investment Company Act), regulations and orders of, and all applicable
restrictions imposed by, all governmental bodies, domestic or foreign, in
respect of the conduct of its business and the ownership of its property, except
such noncompliance as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, or any adverse effect on the
legality, validity or enforceability of this Agreement or any of the other
Credit Documents and (ii) all investment policies and restrictions set forth in
such Borrower's Prospectus, Agreement and Declaration of Trust or Declaration of
Trust, as the case may be, Code of Regulations or By-Laws, as the case may be,
and Investment Practices in all material respects.
6.11 INVESTMENT COMPANY. Each Borrower is duly registered as
an open-end management investment company or is a series thereof under the
Investment Company Act, and such registration has not been revoked or rescinded
and is in full force and effect.
6.12 INVESTMENT ADVISER. The Investment Adviser is the sole
investment advisor to each of the Borrowers and is duly registered as an
investment adviser under the Investment Advisers Act, provided that, when not
prohibited by law or regulation or by any other restriction (contractual or
otherwise), and so long as no Default or Event of Default exists or would result
therefrom, upon prior written notice to the Administrative Agent, the Investment
Advisor may delegate certain of its duties to third party investment advisors
which are also duly registered under the Investment Advisors Act.
6.13 AFFILIATION WITH THE BANKS. No Borrower or any Affiliated
Person of such Borrower is an Affiliated Person of any Bank.
6.14 SENIOR STATUS. Except to the extent secured by Liens
permitted by Section 8.01, the Indebtedness of each Borrower hereunder ranks
PARI PASSU with all other senior Indebtedness of such Borrower.
6.15 TAX RETURNS AND PAYMENTS. Each Borrower has filed all
federal income tax returns and all other material tax returns, domestic and
foreign, required to be filed by it and has paid all material taxes and
assessments payable by it which have become due, except for those contested in
good faith and adequately disclosed and fully provided for on the financial
statements of the Borrowers in accordance with generally accepted accounting
principles. The Borrowers have at all times paid, or have provided adequate
reserves (in the good faith judgment of the management of the Borrowers) for the
payment of, all federal, state and foreign income taxes applicable for all prior
fiscal years and for the current fiscal year to date. There is no material
action, suit, proceeding, investigation, audit, or claim now pending or, to the
knowledge of the Borrowers, threatened by any authority regarding any taxes
relating to the Borrowers. The Borrowers have not entered into an agreement or
waiver or been requested to enter into an agreement or waiver extending any
statute of limitations relating to the payment or collection of taxes of the
Borrowers, or is aware of any circumstances that would cause the taxable years
or other taxable periods of the Borrowers not to be subject to the normally
applicable statute of limitations.
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SECTION 7. AFFIRMATIVE COVENANTS. Each Borrower covenants and
agrees that on and after the Effective Date and until the Commitments have
terminated and the Loans, together with interest, Fees and all other Obligations
incurred hereunder, are paid in full:
7.01 INFORMATION COVENANTS. The Funds will deliver, or cause
to be delivered, to each Bank:
(a) SEMI-ANNUAL AND ANNUAL FINANCIAL STATEMENTS. Within 75
days after the close of each semi-annual and annual accounting period in each
fiscal year of each Borrower, a statement of assets and liabilities and a
statement of operations as of the end of such accounting period, in each case
with respect to such Borrower and setting forth comparative figures applicable
for the related periods in the prior fiscal year, all of which shall be
certified by an officer of the Fund of which the relevant Borrower is a
portfolio, subject to normal year-end audit adjustments, together with, in the
case of annual statements, a certification by an independent certified public
accountant of recognized standing stating that its regular audit was conducted
in accordance with generally accepted audit standards.
(b) OFFICER'S CERTIFICATES. At the time of the delivery of the
financial statements provided for in Section 7.01(a), a certificate of an
officer of the Fund of which the relevant Borrower is a portfolio to the effect
that the representations and warranties by or with respect to such Borrower are
true and correct in all material respects and no Default or Event of Default has
occurred and is continuing or, if any Default or Event of Default has occurred
and is continuing, specifying the nature and extent thereof.
(c) NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any
event within three Business Days after any executive officer of the Fund of
which the relevant Borrower is a portfolio obtains knowledge thereof, notice of
(i) the occurrence of any event which constitutes a Default or an Event of
Default or (ii) any litigation or governmental investigation or proceeding
pending (A) against such Borrower which could reasonably be expected to have a
Materially Adverse Effect or (B) with respect to any Credit Document.
(d) ERISA REPORTS. As soon as possible and, in any event,
within ten (10) days after any Borrower knows or has reason to know of the
occurrence of any of the following, such Borrower will deliver to each of the
Banks a certificate of an executive officer of such Borrower setting forth the
full details as to such occurrence and the action, if any, that the Borrower or
its ERISA Affiliates are required or propose to take, together with any notices
required or proposed to be given to or filed with or by such Borrower, a Defined
Contribution Plan participant or the Defined Contribution Plan administrator
with respect thereto: (i) that any contribution required to be made with respect
to a Defined Contribution Plan has not been timely made; (ii) that such Borrower
will or may incur any liability with respect to a Defined Contribution Plan
under Section 4975 of the Code or Section 409, 502(i) or 502(l) of ERISA; or
(iii) that such Borrower may incur any material liability pursuant to any
Defined Contribution Plan.
(e) OTHER REPORTS AND FILINGS. Promptly, copies of all
financial information, proxy materials, Prospectuses, Registration Statements
and other information and reports
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(including without limitation all information, material and reports filed or
distributed pursuant to Section 30 of the Investment Company Act) which the
Borrowers shall deliver to their shareholders.
(f) OTHER INFORMATION. From time to time, such other
information or documents (financial or otherwise) with respect to a Borrower
(including, without limitation, the investments of such Borrower) as any Bank
may reasonably request in writing through the Administrative Agent.
7.02 BOOKS, RECORDS AND INSPECTIONS. Each Fund of which the
relevant Borrower is a portfolio will keep proper books of record and account
with respect to its operations in which full, true and correct entries in
conformity with generally accepted accounting principles and all requirements of
law shall be made of all dealings and transactions in relation to the business
and activities of such Borrower. Each Fund will permit officers and designated
representatives of the Administrative Agent or any Bank to visit and inspect,
under guidance of officers of such Fund, any of the properties of such Borrower,
and to examine the books of account of such Borrower and discuss the affairs,
finances and accounts of such Borrower with, and be advised as to the same by,
its respective officers, portfolio managers and independent accountants, all at
such reasonable times and intervals and (to the extent permitted in the context
of such inspection) upon reasonable notice and to such reasonable extent as the
Administrative Agent or such Bank may request; provided, that, unless a Default
or an Event of Default shall have occurred and be continuing, the Administrative
Agent shall provide such Fund with five Business Days' prior notice of such
visit and only one such visit shall be made each year.
7.03 COMPLIANCE WITH STATUTES; ETC. Each Borrower will comply
with (i) all applicable statutes (including, without limitation, the Investment
Company Act), regulations and orders of, and all applicable restrictions imposed
by, all governmental bodies (including the SEC), domestic or foreign, in respect
of the conduct of its business and the ownership of its property, except such
noncompliance as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, or any adverse effect on the
legality, validity or enforceability of this Agreement or any of the other
Credit Documents and (ii) all investment policies and restrictions set forth in
such Borrower's Prospectus, Agreement and Declaration of Trust or Declaration of
Trust, as the case may be, Code of Regulations or By-Laws, as the case may be,
and Investment Practices in all material respects.
7.04 INVESTMENT COMPANY. Each Borrower will at all times (i)
be a portfolio of a registered, open-end management investment company under the
Investment Company Act and (ii) qualify and be treated as a regulated investment
company under the Code.
7.05 COMPLIANCE WITH INVESTMENT PRACTICES. Each Borrower will
at all times comply in all material respects with the investment policies and
restrictions set forth in its respective Investment Practices.
7.06 COMPLIANCE WITH REGULATION U. Upon the request of any
Bank, each Borrower will furnish to any Bank such information as such Bank may
reasonably require to determine compliance by such Borrower with Regulation U.
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7.07 USE OF PROCEEDS. All proceeds of the Loans shall be used
as provided in Section 6.08(a).
7.08 PAYMENT OF TAXES. Each Borrower will pay and discharge
all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits, or upon any properties belonging to it, prior to the
date on which penalties attach thereto, and all lawful claims for sums that have
become due and payable which, if unpaid, might become a Lien not otherwise
permitted under Section 8.01(i); PROVIDED, that each Borrower shall not be
required to pay any such tax, assessment, charge, levy or claim which is being
contested in good faith and by proper proceedings if it has maintained adequate
reserves with respect thereto in accordance with generally accepted accounting
principles.
SECTION 8. NEGATIVE COVENANTS. Each Borrower covenants and
agrees that on and after the Effective Date and until the Commitments have
terminated and the Loans, together with interest, Fees and all other Obligations
incurred by such Borrower hereunder are paid in full:
8.01 LIENS. Such Borrower will not create, incur, assume or
suffer to exist any Lien upon or with respect to any of its property or assets
(real or personal, tangible or intangible, including portfolio securities),
whether now owned or hereafter acquired, or sell any such property or assets
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property or assets, assign any right to receive income or permit the filing
of any financing statement under the UCC or any other similar notice of Lien
under any similar recording or notice statute or execute any control agreement
with respect to any of its property or assets; provided that the provisions of
this Section 8.01 shall not prevent the creation, incurrence, assumption or
existence of the following (Liens described below are herein referred to as
"Permitted Liens"):
(i) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves have been
established in accordance with generally accepted accounting
principles;
(ii) Liens in respect of property or assets of a Borrower
imposed by law, which were incurred in the ordinary course of business
and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's, mechanics', brokers' and custodians'
liens and other similar Liens arising in the ordinary course of
business and (a) which do not in the aggregate materially detract from
the value of such Borrower's property or assets or materially impair
the use thereof in the operation of the business of such Borrower or
(b) which are being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing the forfeiture or sale
of the property or assets subject to any such Lien;
(iii) Hedging Agreements and Liens in respect thereof;
(iv) Liens incurred by a Borrower in favor of such Borrower's
Custodian;
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(v) Liens incurred by a Borrower in the ordinary course of
business in connection with portfolio investments to the extent such
Liens are permitted by the provisions of such Borrower's Prospectus;
and
(vi) Liens to secure surety and appeal bonds, provided that
such Liens do not secure assets of any Borrower with an aggregate value
greater than the lesser of (x) 1.0% of the Asset Coverage Numerator of
such Borrower and (y) $10,000,000.
8.02 CONSOLIDATION, MERGER, SALE OR PURCHASE OF ASSETS, ETC.
Such Borrower will not wind up, liquidate or dissolve its affairs or enter into
any transaction of merger or consolidation, or convey, sell, lease or otherwise
dispose of all or substantially all of its property or assets, or enter into any
sale-leaseback transactions, or purchase or otherwise acquire (in one or a
series of related transactions) all or substantially all of the property or
assets of any Person (or agree to do any of the foregoing at any future time)
without the consent of the Required Banks (which consent shall not be
unreasonably withheld), except:
(i) any Borrower may merge with or into another Borrower so
long as the surviving Borrower assumes all of the Obligations
(including, without limitation, all indemnity obligations) of such
non-surviving Borrower;
(ii) any Borrower may sell its assets and purchase
investments, in each case in the ordinary course of business as
described in such Borrower's Prospectus; and
(iii) the Funds may acquire all of the assets and assume all
of the liabilities of the Boston 1784 Funds in a tax-free
reorganization, so long as:
(a) no Default or Event of Default is in effect;
(b) no Default or Event of Default occurs as a
result of such reorganization; and
(c) no investments, assets or liabilities acquired or
assumed by any Borrower violates, amends or modifies such Borrower's
Investment Practices.
8.03 INDEBTEDNESS. Such Borrower will not contract, create,
incur, assume or suffer to exist any Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(ii) accrued expenses, deferred taxes and current trade
accounts payable, in each case incurred in the ordinary course of
business;
(iii) Indebtedness not to exceed $1,000,000 in aggregate
principal amount at any one time outstanding in favor of such
Borrower's Custodian consisting of extensions of credit from the
Custodian in the ordinary course of business;
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(iv) Indebtedness in respect of judgments or awards that have
been in force for less than the applicable period for taking an appeal
so long as judgments or awards do not constitute an Event of Default
and so long as execution is not levied thereunder or in respect of
which such Borrower (A) shall at the time in good faith be prosecuting
an appeal or proceedings for review and in respect of which a stay of
execution shall have been obtained pending such appeal or review or (B)
shall have obtained a performance bond, which performance bond shall,
except to the extent permitted by Section 8.01(vi), be unsecured, and
Indebtedness in respect of such performance bond; and
(v) Indebtedness (other than Indebtedness for borrowed money)
arising in connection with any other transaction permissible under the
Investment Company Act and such Borrower's investment objectives and
fundamental investment restrictions, including, but not limited to,
Reverse Repurchase Agreements, mortgage dollar rolls, delayed delivery
transactions (provided that the assets with respect thereto are
segregated), when-issued securities (provided that the assets with
respect thereto are segregated) and loans from other Borrowers or any
other Borrower.
Notwithstanding anything to the contrary contained in this Agreement, in no
event shall any Borrower contract, create, incur, assume or suffer to exist any
Senior Securities other than the Loans pursuant to this Agreement.
8.04 RESTRICTIONS ON ISSUANCE OF CAPITAL STOCK. Such Borrower
will not issue any preferred stock.
8.05 MODIFICATIONS OF INVESTMENT PRACTICES, GOVERNING
DOCUMENTS, AND CERTAIN OTHER AGREEMENTS. Without the consent of the Required
Lenders, such Borrower will not amend or modify, or permit the amendment or
modification of, (i) such Borrower's Investment Practices, (ii) such Borrower's
Agreement and Declaration of Trust or Declaration of Trust, as the case may be,
(including, without limitation, by the filing or modification of any certificate
of designation or similar document) or Code of Regulations or By-Laws, as the
case may be, or any agreement entered into by such Person with respect to its
capital stock (to the extent adverse to the interests of the Banks), or enter
into any new agreement with respect to such Person's capital stock (to the
extent adverse to the interests of the Banks) or (iii) the Investment Advisory
Agreement or the Custody Agreements other than any amendments or modifications
pursuant to this clause (iii) which are not in any way adverse to the interests
of the Banks.
8.06 BUSINESS. Such Borrower will not engage (directly or
indirectly) in any business other than the business in which such Borrower is
engaged on the Effective Date.
8.07 ERISA. Neither such Borrower or any Subsidiary of such
Borrower nor any ERISA Affiliate of such Borrower will maintain or contribute to
(or have an obligation to contribute to) a Plan.
8.08 AFFILIATED PERSON. Neither such Borrower nor any
Affiliated Person of such Borrower will directly or indirectly own, control or
hold with power to vote 5% or more of the
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outstanding voting securities of (or otherwise be or become an Affiliated Person
of) any Agent or any Bank.
8.09 ASSET COVERAGE RATIO. Such Borrower will not at any time
permit its Asset Coverage Ratio to be less than 3:1 or such greater ratio as
provided in such Borrower's Prospectus.
SECTION 9. EVENTS OF DEFAULT. If at any time any of the
following specified events (each an "Event of Default") shall be in effect with
respect to a Borrower:
9.01 PAYMENTS. Such Borrower shall (i) default in the payment
when due of any principal of any Loan other than payments required solely as a
result of the operation of Section 3.02(b), (ii) default, and such default shall
continue unremedied for three or more Business Days, in the repayment of
principal required solely as a result of the operation of Section 3.02(b) or
(iii) default, and such default shall continue unremedied for three or more
Business Days, in the payment when due of any interest on any Loan, or any Fees
or any other amounts owing under this Agreement or with respect to any Loan
other than as covered above in clauses (i) and (ii); or
9.02 REPRESENTATIONS; ETC. Any representation, warranty or
statement made by such Borrower herein or in any other Credit Document or in any
certificate delivered pursuant hereto or thereto shall prove to be untrue in any
material respect on the date as of which made or deemed made; or
9.03 COVENANTS. Such Borrower shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 7.01(c), 7.04, 7.05, 7.07 or Section 8 or (ii) default in the due
performance or observance by it of any other term, covenant or agreement
contained in this Agreement and such default shall continue unremedied for a
period of 30 days after written notice to such Borrower by the Administrative
Agent or any Bank; or
9.04 DEFAULT UNDER OTHER AGREEMENTS. Such Borrower shall (i)
default in any payment of any Indebtedness (other than the Obligations) having
an aggregate principal amount in excess of the lesser of (x) 3% of such
Borrower's net asset value (determined in accordance with the Investment Company
Act) and (y) $5,000,000, beyond the period of grace, if any, provided in the
instrument or agreement under which such Indebtedness was created or (ii)
default in the observance or performance of any agreement or condition relating
to any such Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition exist,
the effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to cause (determined without regard to whether
any notice is required), any such Indebtedness to become due prior to its stated
maturity;
9.05 BANKRUPTCY; ETC. Such Borrower or the Fund of which such
Borrower is a portfolio shall commence a voluntary case concerning itself under
Title 11 of the United States Code entitled "Bankruptcy", as now or hereafter in
effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case
is commenced against any such Borrower or such
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Fund, and the petition is not controverted within 10 days, or is not dismissed
within 60 days, after commencement of the case; or a custodian (as defined in
the Bankruptcy Code) is appointed for, or takes charge of, all or substantially
all of the property of such Borrower or such Fund, or such Borrower or such Fund
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to such
Borrower or such Fund, or there is commenced against such Borrower or such Fund
any such proceeding which remains undismissed for a period of 60 days, or such
Borrower or such Fund is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or such
Borrower or such Fund suffers any appointment of any custodian or the like for
it or any substantial part of its property to continue undischarged or unstayed
for a period of 60 days; or such Borrower or such Fund makes a general
assignment for the benefit of creditors; or any action is taken by such Borrower
or such Fund for the purpose of effecting any of the foregoing; or
9.06 JUDGMENTS. One or more judgments or decrees shall be
entered against such Borrower (whether or not other Borrowers are parties
thereto) involving a liability (not paid or fully covered by a reputable and
solvent insurance company) in the aggregate amount of $500,000 and such
judgments and decrees either shall be final and non-appealable or shall not be
vacated, discharged or stayed or bonded pending appeal for any period of 30
consecutive days; or
9.07 INVESTMENT ADVISER. (i) The Investment Adviser shall
cease to be such Borrower's primary investment adviser or (ii) any Investment
Advisory Agreement shall cease to be in full force and effect or the Investment
Adviser shall deny or disaffirm any material obligations to be performed by it
under any Investment Advisory Agreement or shall default in the performance of
any of its obligations thereunder; or
9.08 CUSTODY AGREEMENT. Any Custody Agreement shall cease to
be in full force and effect, or the Fund of which such Borrower is a portfolio
or the Custodian shall have given notice, pursuant to any Custody Agreement, of
the termination of such Custody Agreement, except in either case to the extent
the Banks have received prior notice of the appointment of a successor custodian
that is a bank or trust company organized under the laws of the U.S. having
assets under custody of at least $10,000,000,000 and a long-term debt rating of
not less than A from a recognized rating organization and such successor
Custodian has entered into an agreement that is in all material respects the
same as such Custody Agreement immediately prior to the termination thereof or
otherwise in form and substance satisfactory to the Administrative Agent; then,
and in any such event, and at any time thereafter, if any Event of Default shall
then be continuing, the Administrative Agent, upon the written request of the
Required Banks, shall by written notice to the Fund of which such Borrower is a
portfolio, take any or all of the following actions, without prejudice to the
rights of the Administrative Agent or any Bank to enforce its claims against
such Borrower (provided, that, if an Event of Default specified in Section 9.05
shall occur, the result which would occur upon the giving of written notice by
the Administrative Agent to such Borrower as specified in clauses (i) and (ii)
below shall occur automatically without the giving of any such notice): (i)
declare the Total Commitment with respect to such Borrower terminated,
whereupon the Total Commitment with respect to such
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Borrower shall forthwith terminate immediately and any accrued but unpaid
Commitment Fee owing by such Borrower shall forthwith become due and payable
without any other notice of any kind; and (ii) declare the principal of and any
accrued interest in respect of all Loans, and all other Obligations owing from
such Borrower hereunder to be, whereupon the same shall become, forthwith due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers.
SECTION 10. Definitions and Accounting Terms.
10.01 DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Additional Borrower" shall have the meaning provided in
Section 1.14.
"Additional Borrower Request" shall have the meaning provided
in Section 1.14.
"Administrative Agent" shall mean Deutsche Bank AG, acting
through its New York Branch, in its capacity as Administrative Agent.
"Affiliated Person" shall have the meaning provided in the
Investment Company Act.
"Agents" shall mean, collectively, the Administrative Agent
and the Arranger and the Syndication Agent.
"Agreement" shall mean this Credit Agreement, as modified,
supplemented or amended from time to time.
"Applicable Margin" shall mean (i) in the case of Loans
maintained as Base Rate Loans, 0% and (ii) in the case of Loans maintained as
Fixed Rate Loans, 0.50%.
"Arranger" shall mean Deutsche Bank Securities Inc., in its
capacity as Arranger.
"Asset Coverage Denominator" shall mean, at any time with
respect to any Borrower, the aggregate amount of Senior Securities (including in
any event all Loans hereunder) representing Indebtedness of such Borrower at
such time, determined in accordance with Section 18 of the Investment Company
Act.
"Asset Coverage Numerator" shall mean, at any time with
respect to any Borrower, the total value of the investments and other assets of
such Borrower, less all liabilities and Indebtedness of such Borrower not
represented by Senior Securities, all determined in accordance with Section 18
of the Investment Company Act, provided that for purposes of this Agreement (i)
in no event shall the total value of the investments and other assets of such
Borrower as so calculated exceed such total value as would be determined in
computing net asset value as described in the relevant Prospectus and (ii) in no
event shall the liabilities and Indebtedness (other than Senior Securities) of
such Borrower be less than the respective
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liabilities attributed to such Borrower for purposes of calculating net asset
value as described in such Borrower's Prospectus.
"Asset Coverage Ratio" shall mean, at any time with respect to
any Borrower, the ratio of the Asset Coverage Numerator for such Borrower at
such time to the Asset Coverage Denominator for such Borrower at such time.
"Assignment and Assumption Agreement" shall mean an Assignment
and Assumption Agreement substantially in the form of Exhibit D (appropriately
completed).
"Bank" shall mean each financial institution listed on
Schedule II, as well as any Person which becomes a "Bank" hereunder pursuant to
Section 12.04(b).
"Bankruptcy Code" shall have the meaning provided in Section
9.05.
"Base Rate" at any time shall mean the higher of (i) 0.50% in
excess of the Federal Funds Rate and (ii) the Prime Lending Rate.
"Base Rate Loan" shall mean each Loan designated or deemed
designated as such by the respective Borrower at the time of the incurrence
thereof or conversion thereto.
"Borrower" shall have the meaning provided in the first
paragraph of this Agreement.
"Borrowing" shall mean and include the borrowing of one Type
of Loan from all the Banks on a given date (or resulting from a conversion or
conversions on such date) having in the case of Fixed Rate Loans the same
Interest Period, provided that Base Rate Loans incurred pursuant to Section
1.10(b) shall be considered part of the related Borrowing of Fixed Rate Loans.
"Borrowing Base" shall mean, at any time for each Borrower, an
amount equal to the lesser of (i) 33 1/3% of the total current market value of
the total assets contained in such Borrower's portfolio, determined daily
according to independent pricing sources and (ii) any explicit maximum borrowing
amount then specified by such Borrower's Prospectus.
"Boston 1784 Funds" shall mean the Boston 1784 Funds a
Massachusetts business trust, and each of the following portfolios of such
trust: Tax-Free Money Market Fund, U.S. Treasury Money Market Fund, Prime Money
Market Fund, Short-Term Income Fund, Income Fund, U.S. Government Medium-Term
Income Fund, Rhode Island Tax-Exempt Income Fund, Asset Allocation Fund, Growth
and Income Fund, Growth Fund, International Equity Fund, Institutional U.S.
Treasury Money Market Fund, Institutional Prime Money Market Fund, Tax-Exempt
Medium-Term Income Fund, Connecticut Tax-Exempt Income Fund, Massachusetts
Tax-Exempt Income Fund, Florida Tax-Exempt Income Fund.
"Business Day" shall mean (i) for all purposes other than as
covered by clauses (ii) and (iii) below, any day except Saturday, Sunday and any
day which shall be in New York
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City or Boston a legal holiday or a day on which banking institutions are
authorized or required by law or other government action to close, (ii) with
respect to all notices and determinations in connection with, and payments of
principal and interest on, Fixed Rate Loans, any day which is a Business Day
described in clause (i) above and which is also a day for trading by and between
banks in the domestic or London (as the case may be) interbank Eurodollar market
and (iii) with respect to the Asset Coverage Ratio information required to be
delivered in each Notice of Borrowing, any day on which the respective
Borrower's net asset value is required to be calculated in accordance with its
Prospectus as in effect on the Effective Date.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to the Code are to the Code, as in effect at the
date of this Agreement and any subsequent provisions of the Code, amendatory
thereof, supplemental thereto or substituted therefor.
"Commitment" shall mean, for each Bank, the amount set forth
opposite such Bank's name in Schedule II directly below the column entitled
"Commitment," as same may be (i) reduced from time to time pursuant to Sections
2.02 and/or 9 or (ii) adjusted from time to time as a result of assignments to
or from such Bank pursuant to Section 12.04(b).
"Commitment Fee" shall have the meaning provided in Section
2.01(a).
"Contingent Obligation" shall mean, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, lease, dividend or other obligation ("primary obligations") of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (a) for the purchase or payment of any such primary obligation or
(b) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the holder of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Credit Documents" shall mean this Agreement and any other
documents executed and delivered in connection herewith.
"Credit Event" shall mean the making of a Loan.
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"Custodian" shall mean The Chase Manhattan Bank or any
successor Custodian appointed pursuant to the requirements of Section 9.08.
"Custody Agreements" shall mean the custody agreements listed
on Schedule IV hereto, as amended from time to time in accordance with the terms
hereof and thereof and any similar agreements with any successor Custodian to
the extent such agreements meet the requirements of Section 9.08.
"Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"Defined Contribution Plan" shall mean any pension plan as
defined in Section 3(34) of ERISA, which is maintained or contributed to by (or
to which there is an obligation to contribute) the Investment Advisor or any
Borrower.
"Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States.
"Effective Date" shall have the meaning provided in Section
12.10.
"Eligible Transferee" shall mean and include any bank (as
defined in the Investment Company Act) that is a domestic bank (including the
domestic branch of a foreign bank); provided, that no Affiliated Person of any
Borrower and no Affiliated Person of such an Affiliated Person of any Borrower
shall be an Eligible Transferee.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with any Borrower or any Subsidiary of
such Borrower would be deemed to be a "single employer" (i) within the meaning
of Section 414(b),(c), (m) or (o) of the Code or (ii) as a result of any
Borrower or any Subsidiary of such Borrower being or having been a general
partner of such person.
"Event of Default" shall have the meaning provided in Section
9.
"Expiry Date" shall mean December 27, 2000 or such date to
which the Expiry Date may be extended in accordance with Section 1.13 of this
Agreement.
"Extending Bank" shall have the meaning provided in Section
1.13.
"Extension Request" shall have the meaning provided in Section
1.13.
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"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to or referred
to in Section 2.01.
"Fixed Rate Loan" shall mean collectively IBOR Loans and LIBOR
Loans.
"Form FR U-1" shall mean a Form FR U-1 certificate
substantially in the form of Exhibit E (appropriately completed).
"Fund" shall have the meaning provided in the first paragraph
of this Agreement.
"Hedging Agreement" shall mean any financial futures
contracts, agreement to purchase and sell (or write) exchange listed or
over-the-counter put and call options on securities, fixed income indices and
securities indices, Interest Rate Protection Agreements, foreign exchange
contracts, currency swap agreements or other similar agreements or arrangements,
Repurchase Agreements, Reverse Repurchase Agreements or any other securities or
financial instruments or arrangements with a leveraging effect created in the
ordinary course of the investment process or operations of any Borrower to the
extent permitted by such Borrower's Investment Practices.
"IBOR" shall mean (i) the average of the offered quotations to
the Administrative Agent in the domestic interbank Eurodollar market for Dollar
deposits of amounts in immediately available funds comparable to the principal
amount of the IBOR Loan of the Administrative Agent for which an interest rate
is then being determined with maturities comparable to the Interest Period to be
applicable to such IBOR Loan determined as of 12:00 Noon (New York time) on the
date which is the commencement of such Interest Period, divided (and rounded
upward to the next whole multiple of 1/16 of 1%) by (ii) a percentage equal to
100% minus the then stated maximum rate of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves required by applicable law) applicable to any member bank of the
Federal Reserve system in respect of Eurocurrency funding or liabilities as
defined in Regulation D (or any successor category of liabilities under
Regulation D).
"IBOR Loan" shall mean each Loan designated as such by the
respective Borrower at the time of the incurrence thereof or conversion thereto
bearing interest at the rates provided in Section 1.08(c).
"Indebtedness" shall mean, as to any Person, without
duplication, (i) all indebtedness (including principal, interest, fees and
charges) of such Person for borrowed money
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or for the deferred purchase price of property or services, (ii) the face amount
of all letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder, (iii) all Indebtedness of the types
described in clause (i), (ii), (iv), (v), (vi), (vii) or (viii) of this
definition secured by any Lien on any property owned by such Person, whether or
not such Indebtedness has been assumed by such Person, (iv) the aggregate amount
required to be capitalized under leases under which such Person is the lessee,
(v) all obligations of such person to pay a specified purchase price for goods
or services, whether or not delivered or accepted, I.E., take-or-pay and similar
obligations, (vi) all Contingent Obligations of such Person, (vii) borrowings of
securities by such Person and (viii) all obligations under any Hedging Agreement
or under any similar type of agreement.
"Interest Determination Date" shall mean, (i) with respect to
any LIBOR Loan, the second Business Day prior to the commencement of any
Interest Period relating to such LIBOR Loan and (ii) with respect to any IBOR
Loan, the Business Day which is the first day of any Interest Period relating to
such IBOR Loan.
"Interest Period" shall have the meaning provided in Section
1.09.
"Interest Rate Protection Agreement" shall mean any interest
rate swap agreement, interest rate cap agreement, interest collar agreement,
interest rate hedging agreement or other similar agreement or arrangement.
"Investment Adviser" shall mean Fleet Investment Advisors Inc.
or an affiliate thereof and Oechsle International Advisors, LLC.
"Investment Advisers Act" shall mean the Investment Advisers
Act of 1940, as amended, including the rules and regulations promulgated
thereunder.
"Investment Advisory Agreement" shall mean the Investment
Advisory Agreements, listed on Schedule V hereto.
"Investment Company Act" shall mean the Investment Company Act
of 1940, as amended, including the rules and regulations promulgated thereunder.
"Investment Practices" shall mean the investment objectives
and fundamental investment policies and restrictions of a respective Borrower as
set forth in such Borrower's Prospectus.
"LIBOR" shall mean with respect to each Interest Period for a
LIBOR Loan, (i) the offered rate (rounded upward to the nearest 1/16 of one
percent) for deposits of Dollars for a period equivalent to such Interest Period
at or about 11:00 A.M. (London time) on the second Business Day before the first
day of such Interest Period that is displayed on Telerate page 3750 (British
Bankers' Association Interest Settlement Rates) (or such other page as may
replace such page 3750 on such system or on any other system of the information
vendor for the time being designated by the British Bankers' Association to
calculate the BBA Interest Settlement Rate (as defined in the British Bankers'
Association's Recommended Terms and Conditions ("BBAIRS"
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terms) dated August 1985)), provided that if on such date no such rate is so
displayed, the Eurodollar Rate for such period shall be the rate quoted to the
Administrative Agent as the offered rate for deposits of Dollars in an amount
approximately equal to the amount in relation to which LIBOR is to be determined
for a period equivalent to such period by prime banks in the London interbank
market at or about 11:00 A.M. (London time) on the second Banking Day before the
first day of such period, divided (and rounded upward to the next whole multiple
of 1/16 of 1%) by (ii) a percentage equal to 100% minus the then stated maximum
rate of all reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves required by applicable law)
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency funding or liabilities as defined in Regulation D (or any successor
category of liabilities under Regulation D).
"LIBOR Loan" shall mean each Loan designated as such by the
respective Borrower at the time of the making thereof or conversion thereto
bearing interest at the rates provided in Section 1.08(b).
"Lien" shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing or similar statement or notice filed under
the UCC or any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Loan" shall mean each Revolving Loan and each Swingline Loan.
"Mandatory Borrowing" shall have the meaning provided in
Section 1.01(c).
"Margin Stock" shall have the meaning provided in Regulations
T, U and X.
"Material Adverse Effect" shall mean an event or occurrence
that could, individually or in the aggregate (taken with the context of the
circumstances) reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the relevant Borrower or Borrowers taken as a whole.
"Maximum Swingline Amount" shall mean $25,000,000.
"Non-Extending Bank" shall have the meaning provided in
Section 1.13.
"Notice of Borrowing" shall have the meaning provided in
Section 1.03.
"Notice of Conversion" shall have the meaning provided in
Section 1.06.
"Notice Office" shall mean the office of the Administrative
Agent located at 31 West 52nd Street, New York, New York 10019, Attention: Lynn
Sweeney, or such other office as the Administrative Agent may hereafter
designate in writing as such to the other parties hereto.
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"Obligations" shall mean all amounts owing to the Agents or
any Bank pursuant to the terms of this Agreement or any other Credit Document.
"Payment Office" shall mean the office of the Administrative
Agent located at 31 West 52nd Street, New York, New York 10019, Attention: Lynn
Sweeney, or such other office as the Administrative Agent may hereafter
designate in writing as such to the other parties hereto.
"Percentage" of any Bank at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Commitment of such
Bank at such time and the denominator of which is the Total Commitment at such
time; provided that if a Percentage of any Bank is to be determined after the
Total Commitment has been terminated, then the Percentage of such Bank shall be
determined immediately prior (and without giving effect) to such termination.
"Person" shall mean any individual, partnership, limited
liability company, joint venture, firm, corporation, association, trust or other
enterprise or any government or political subdivision or any agency, department
or instrumentality thereof.
"Plan" shall mean any "employee benefit plan" as defined in
Section 3(3) of ERISA subject to Title I of ERISA or any "plan" subject to
Section 4975 of the Code.
"Prime Lending Rate" shall mean the rate which the
Administrative Agent announces from time to time as its prime lending rate, the
Prime Lending Rate to change when and as such prime lending rate changes. The
Prime Lending Rate is a reference rate and does not necessarily represent the
lowest or best rate actually charged to any customer. The Administrative Agent
may make commercial loans or other loans at rates of interest at, above or below
the Prime Lending Rate.
"Prospectus" shall mean each Borrower's prospectus, in each
case together with any Statement of Additional Information incorporated therein
and as supplemented, amended or modified from time to time in accordance with
the provisions of this Agreement.
"Registration Statement" shall mean the Registration Statement
as currently in effect of each Fund delivered to the Banks pursuant to Section
4.05.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation T" shall mean Regulation T of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
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"Regulation X" shall mean Regulation X of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
"Repurchase Agreement" shall mean any agreement to purchase an
asset presently and then to sell such asset to any other Person in the future.
"Requested Extension Effective Date" shall have the meaning
provided in Section 1.13.
"Required Banks" shall mean Banks, the sum of whose
outstanding Commitments (or after the termination thereof, the total outstanding
Loans) at such time exceeds 50% of the Total Commitment (or after the
termination thereof, the total outstanding Loans).
"Reverse Repurchase Agreement" shall mean any agreement to
sell an asset presently and then to repurchase such asset in the future.
"Revolving Loan" shall have the meaning set forth in Section
1.01.
"Senior Securities" shall have the meaning ascribed to such
term in Section 18 of the Investment Company Act.
"Subsidiary" shall mean, as to any Person, (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture, limited liability company or other entity in which such Person and/or
one or more Subsidiaries of such Person has more than a 50% equity interest at
the time.
"Swingline Bank" shall mean Deutsche Bank AG, New York Branch.
"Swingline Expiry Date" shall mean the date which is five
Business Days prior to the Expiry Date.
"Swingline Loan" shall have the meaning provided in Section
1.01(b).
"Syndication Agent" shall mean Deutsche Bank Securities Inc.,
in its capacity as Syndication Agent.
"Taxes" shall have the meaning provided in Section 3.04(a).
"Total Commitment" shall mean, at any time, the sum of the
Commitments of each of the Banks.
"Total Unutilized Commitment" shall mean, at any time, an
amount equal to the remainder of (i) the Total Commitment at such time less (ii)
the aggregate principal amount of
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Loans then outstanding, provided that, for purposes of calculating the
Commitment Fee pursuant to Section 2.01(a), "Total Unutilized Commitment" shall
mean an amount equal to the remainder of (i) the Total Commitment at such time
less (ii) the aggregate principal amount of Revolving Loans then outstanding.
"Type" shall mean the type of Loan determined with regard to
the interest option applicable thereto, I.E., whether a Base Rate Loan or a
Fixed Rate Loan.
"UCC" shall mean the Uniform Commercial Code as from time to
time in effect in the relevant jurisdiction.
"United States" and "U.S." shall each mean the United States
of America.
10.02 ASSUMPTIONS REGARDING STRUCTURE; MASSACHUSETTS BUSINESS
TRUSTS. (a) For the sake of clarity and construction, the parties hereto hereby
set forth their acknowledgment and agreement that each Borrower is an investment
portfolio of a Fund and is not a separately existing legal entity entitled to
enter into contractual agreements or to execute instruments and, for these
reasons, any such Fund is executing this Agreement and each respective Note on
behalf of its investment portfolios, as Borrowers, and that such investment
portfolios will utilize the Loans thus made on their behalf. Notwithstanding
anything to the contrary in this Agreement, each Borrower shall be liable
hereunder only for the Loans made to such Borrower hereunder and interest
thereon and for the fees and expenses associated therewith and as otherwise set
forth herein, and in no event shall any Borrower or its assets be held liable
for the Loans made to any other Borrower hereunder or interest thereon or for
the fees and expenses associated therewith.
(b) Each of the Funds is a Massachusetts business trust and
all persons dealing with any Fund must look solely to the property of such Fund
for the enforcement of any claim against such Fund because neither the trustees,
officers, agents nor shareholders of such Fund assume any personal liability for
obligations entered into on behalf of such Fund. The obligations of each
Borrower hereunder shall be several (and neither joint or joint and several) and
the obligations of each Borrower hereunder shall be payable solely from the
revenues and assets of such Borrower and not the assets or revenues of any other
Borrower.
SECTION 11. THE AGENTS.
11.01 APPOINTMENT. The Banks hereby designate Deutsche Bank
Securities Inc. as Arranger and Syndication Agent and Deutsche Bank AG, New York
Branch, as Administrative Agent to act as specified herein and in the other
Credit Documents. Each Bank hereby irrevocably authorizes the Agents to take
such action on its behalf under the provisions of this Agreement, the other
Credit Documents and any other instruments and agreements referred to herein or
therein and to exercise such powers and to perform such duties hereunder and
thereunder as are specifically delegated to or required of the Agents by the
terms hereof and thereof and such other powers as are reasonably incidental
thereto. The Agents may perform any of their duties hereunder by or through its
respective officers, directors, agents, employees or affiliates.
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11.02 NATURE OF DUTIES. The Agents shall not have any duties
or responsibilities except those expressly set forth in this Agreement and the
other Credit Documents. None of the Agents nor any of their respective officers,
directors, agents, employees or affiliates shall be liable for any action taken
or omitted by it or them hereunder or under any other Credit Document or in
connection herewith or therewith, unless caused by its or their gross negligence
or willful misconduct. The duties of the Agents shall be mechanical and
administrative in nature; the Agents shall not have by reason of this Agreement
or any other Credit Document a fiduciary relationship in respect of any Bank;
and nothing in this Agreement or any other Credit Document, expressed or
implied, is intended to or shall be so construed as to impose upon the Agents
any obligations in respect of this Agreement or any other Credit Document except
as expressly set forth herein or therein.
11.03 LACK OF RELIANCE ON THE AGENTS. Independently and
without reliance upon the Agents, each Bank, to the extent it deems appropriate,
has made and shall continue to make (i) its own independent investigation of the
financial condition and affairs of the Borrowers in connection with the making
and the continuance of the Loans and the taking or not taking of any action in
connection herewith and (ii) its own appraisal of the creditworthiness of the
Borrowers and, except as expressly provided in this Agreement, the Agents shall
not have any duty or responsibility, either initially or on a continuing basis,
to provide any Bank with any credit or other information with respect thereto,
whether coming into its possession before the making of any Loan or at any time
or times thereafter. The Agents shall not be responsible to any Bank for any
recitals, statements, information, representations or warranties herein or in
any document, certificate or other writing delivered in connection herewith or
for the execution, effectiveness, genuineness, validity, enforceability,
perfection, collectibility, priority or sufficiency of this Agreement or any
other Credit Document or the financial condition of any Borrower, or be required
to make any inquiry concerning either the performance or observance of any of
the terms, provisions or conditions of this Agreement or any other Credit
Document, or the financial condition of any Borrower, or the existence or
possible existence of any Default or Event of Default.
11.04 CERTAIN RIGHTS OF THE AGENTS. If any Agent shall request
instructions from the Required Banks with respect to any act or action
(including failure to act) in connection with this Agreement or any other Credit
Document, such Agent shall be entitled to refrain from such act or taking such
action unless and until such Agent shall have received instructions from the
Required Banks; and the Agents shall not incur liability to any Person by reason
of so refraining. Without limiting the foregoing, no Bank shall have any right
of action whatsoever against the Agents as a result of the Agents acting or
refraining from acting hereunder or under any other Credit Document in
accordance with the instructions of the Required Banks.
11.05 RELIANCE. The Agents shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that such Agent believed to be the proper Person and, with respect to
all legal matters pertaining to this Agreement and any other Credit Document and
its duties hereunder and thereunder, upon advice of counsel selected by the
Agents.
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11.06 INDEMNIFICATION. To the extent the Agents are not
reimbursed and indemnified by the Borrowers, the Banks will reimburse and
indemnify the Agents, in proportion to their respective Percentages, for and
against any and all liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, costs, expenses or disbursements of whatsoever kind
or nature which may be imposed on, asserted against or incurred by the Agents in
performing their respective duties hereunder or under any other Credit Document,
in any way relating to or arising out of this Agreement or any other Credit
Document; provided that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct.
11.07 THE AGENTS IN THEIR INDIVIDUAL CAPACITIES. With respect
to their respective obligations to make Loans under this Agreement, the Agents
shall have the rights and powers specified herein for a "Bank" and may exercise
the same rights and powers as though it were not performing the duties specified
herein; and the term "Banks," "Required Banks" or any similar terms shall,
unless the context clearly otherwise indicates, include the Agents in their
individual capacities. The Agents may accept deposits from, lend money to, and
generally engage in any kind of banking, trust or other business with the
Borrowers or any affiliate of a Borrower as if it were not performing the duties
specified herein, and may accept fees and other consideration from any Borrower
or any affiliate of a Borrower for services in connection with this Agreement
and otherwise without having to account for the same to the Banks.
11.08 RESIGNATION BY THE AGENTS. (a) Either Agent may resign
from the performance of all its functions and duties hereunder and/or under the
other Credit Documents at any time by giving 15 Business Days' prior written
notice to the Borrowers and the Banks. Such resignation by the Administrative
Agent shall take effect upon the appointment of a successor Administrative Agent
pursuant to Sections 11.08(b) and (c) below or as otherwise provided in this
Agreement.
(b) Upon any such notice of resignation, the Banks shall
appoint a successor Administrative Agent hereunder or thereunder who shall be a
commercial bank or trust company reasonably acceptable to the Borrowers (it
being understood and agreed that any Bank is deemed to be acceptable to the
Borrowers).
(c) If a successor Administrative Agent shall not have been so
appointed within such 15 Business Day period, the Administrative Agent, with the
consent of the Borrowers (such consent not to be unreasonably withheld), shall
then appoint a successor Administrative Agent who shall serve as Administrative
Agent hereunder or thereunder until such time, if any, as the Banks appoint a
successor Administrative Agent as provided in Section 11.08(b).
(d) Upon the resignation of the Administrative Agent pursuant
to clause (a) above, the successor Administrative Agent at such time shall
assume all of the duties and functions of the Administrative Agent.
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SECTION 12. MISCELLANEOUS.
12.01 PAYMENT OF EXPENSES, INDEMNIFICATION, ETC. The Borrowers
shall: (i) whether or not the transactions herein contemplated are consummated,
pay all out-of-pocket costs and expenses of the Agents (including, without
limitation, the reasonable fees, costs and disbursements of White & Case LLP) in
connection with the preparation, execution and delivery of this Agreement and
the other Credit Documents and the documents and instruments referred to herein
and therein and any amendment, waiver or consent relating hereto or thereto, of
the Agents in connection with their syndication efforts with respect to this
Agreement and of the Agents and each of the Banks in connection with the
enforcement of this Agreement and the other Credit Documents and the documents
and instruments referred to herein and therein (including, without limitation,
the reasonable fees and disbursements of counsel for the Agents and for each of
the Banks); (ii) pay and hold each of the Banks harmless from and against any
and all present and future stamp, excise and other similar taxes with respect to
the foregoing matters and save each of the Banks harmless from and against any
and all liabilities with respect to or resulting from any delay or omission
(other than to the extent attributable to such Bank) to pay such taxes; and
(iii) indemnify the Agents and each Bank, and each of their respective officers,
directors, employees, representatives and agents from and hold each of them
harmless against any and all liabilities, obligations (including removal or
remedial actions or any other environmental claims), losses, damages, penalties,
claims, actions, judgments, suits, costs, expenses and disbursements (including
reasonable attorneys' and consultants' fees and disbursements) incurred by,
imposed on or assessed against any of them as a result of, or arising out of, or
in any way related to, or by reason of, any investigation, litigation or other
proceeding (whether or not such Agent or any Bank is a party thereto) related to
the entering into and/or performance of this Agreement or any other Credit
Document or the use of any of the proceeds of any Loans hereunder or the
consummation of any transactions contemplated herein or in any other Credit
Document or the exercise of any of their rights or remedies provided herein or
in the other Credit Documents (but excluding any losses, liabilities, claims,
damages or expenses to the extent incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified). To the extent that the
undertaking to indemnify, pay or hold harmless any Person set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, the Borrowers shall make the maximum contribution to the payment
and satisfaction of each of the indemnified liabilities which is permissible
under applicable law. Each Borrower's obligations under this Section 12.01 are
several and not joint or joint and several, with such obligations to be
allocated to each Borrower PRO RATA based on the relative asset size of the
Borrowers or, upon prior written notice to the Agents, based on such other
method acceptable to the Agents as the Investment Advisor shall determine in
compliance with the Investment Company Act.
12.02 RIGHT OF SETOFF. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence of an Event of Default each
Bank is hereby authorized at any time or from time to time, without presentment,
demand, protest or other notice of any kind to the defaulting Borrower, the
Investment Adviser or any other Person, any such notice being hereby expressly
waived, to setoff and to appropriate and apply any and all deposits (general or
special) and any other Indebtedness
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at any time held or owing by such Bank (including, without limitation, by
branches and agencies of such Bank wherever located) to or for the credit or the
account of such defaulting Borrower against and on account of the Obligations
and liabilities of such defaulting Borrower to such Bank under this Agreement or
under any of the other Credit Documents, including, without limitation, all
interests in Obligations purchased by such Bank pursuant to Section 12.06(b),
and all other claims of any nature or description arising out of or connected
with this Agreement or any other Credit Document, irrespective of whether or not
such Bank shall have made any demand hereunder and although such Obligations,
liabilities and claims, or any of them, shall be contingent or unmatured.
12.03 NOTICES. Except as otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be in writing
(including facsimile, telegraphic, telex, telecopier or cable communication) and
mailed, faxed, telegraphed, telexed, telecopied, cabled or delivered:
if to the Borrowers, at:
c/o FLEET INVESTMENT ADVISORS INC.
75 State Street
Boston, MA 02109
Attention: Mr. James M. Dolan
Telephone: (617) 346-2325
Facsimile: (617) 346-2387
with copies to:
PFPC Inc.
4400 Computer Drive
Westborough, MA 01581
Attn: Mr. Michael Kardok
Telephone: (508) 871-4308
Facsimile: (508) 366-2388
and
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Sts.
Philadelphia, PA 19103
Attn: Ms. Mary Jo Reilly, Esq.
Telephone: (215) 988-1137
Facsimile: (215) 988-2757
if to a Bank or the Administrative Agent, at such party's address specified
opposite its name on Schedule III; if to the Administrative Agent, at its Notice
Office; or, as to the Borrowers or the
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Administrative Agents, at such other address as shall be designated by such
party in a written notice to the other parties hereto and, as to any Bank or the
Administrative Agent, at such other address as shall be designated by such party
in a written notice to the Borrowers and the Administrative Agent. All such
notices and communications shall, when mailed, telegraphed, telexed, telecopied,
or cabled or sent by overnight courier, be effective when deposited in the
mails, delivered to the telegraph company, cable company or overnight courier,
as the case may be, or sent by facsimile, telex or telecopier, except that
notices and communications to the Administrative Agent shall not be effective
until received by the Administrative Agent.
12.04 BENEFIT OF AGREEMENT. (a) This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided, however, that no
Borrower may assign or transfer any of its rights, obligations or interest
hereunder or under any other Credit Document (it being understood that any
merger, consolidation, sale or purchase permitted by Section 8.02 shall not be
considered an assignment) without the prior written consent of each of the Banks
and, provided further, that although any Bank may transfer, assign or grant
participations in its rights as provided hereunder, such Bank shall remain a
"Bank" for all purposes hereunder (and may not transfer or assign all or any
portion of its Commitment hereunder except as provided in Section 12.04(b)) and
the transferee, assignee or participant, as the case may be, shall not
constitute a "Bank" hereunder and, provided further, that no Bank shall transfer
or grant any participation under which the participant shall have rights to
approve any amendment to or waiver of any terms of this Agreement or any other
Credit Document except to the extent such amendment or waiver would extend the
final scheduled maturity of any Loan in which such participant is participating,
or reduce the rate or extend the time of payment of interest or Fees thereon
(except in connection with a waiver of applicability of any post-default
increase in interest rates) or reduce the principal amount thereof, or increase
the amount of the participant's participation over the amount thereof then in
effect (it being understood that a waiver of any Default or Event of Default or
of a mandatory reduction in the Total Commitment shall not constitute a change
in the terms of such participation, and that an increase in the Total Commitment
or Loan shall be permitted without the consent of any participant if the
participant's participation is not increased as a result thereof). In the case
of any such participation, the participant shall not have any rights under this
Agreement or any of the other Credit Documents (the participant's rights against
such Bank in respect of such participation to be those set forth in the
agreement executed by such Bank in favor of the participant relating thereto)
and all amounts payable by the Borrowers hereunder shall be determined as if
such Bank had not sold such participation. Notwithstanding the foregoing, so
long as no Default or Event of Default exists and is continuing, without the
prior written consent of the Borrowers, no Bank may grant a participation in its
rights hereunder to any participant which owns a majority interest in a no-load
mutual fund company with assets under management of greater than
$15,000,000,000.
(b) Notwithstanding the foregoing, any Bank (or any Bank
together with one or more other Banks) may (x) assign all or a portion of its
Commitment and related outstanding Obligations hereunder to its parent company
and/or any affiliate of such Bank or to one or more Banks or (y) assign all or a
portion of such Commitment to one or more Eligible Transferees, acceptable to
the Administrative Agent, each of which assignees shall become party to this
-43-
<PAGE>
Agreement as a Bank by execution of an Assignment and Assumption Agreement,
provided that (i) at such time Schedule II shall be deemed modified to reflect
the Commitments of such new Bank and of the existing Banks, (ii) the consent of
the Administrative Agent shall be required in connection with any assignment to
an Eligible Transferee pursuant to clause (y) above, (iii) so long as no Default
or Event of Default exists and is continuing, the written consent of each
Borrower shall be required, which consent shall not be unreasonably withheld or
delayed and provided that no consent shall be required in connection with a
transfer to any Bank's Affiliates so long as such Affiliate is an Eligible
Transferee, (iv) assignments shall be in minimum amounts of $5,000,000 and (v)
the Administrative Agent shall receive, at the time of each such assignment,
from the assigning or assignor Bank, the payment of a non-refundable fee of
$3,500. To the extent of any assignment pursuant to this Section 12.04(b), the
assigning Bank shall be relieved of its obligations hereunder with respect to
its assigned Commitment. At the time of each assignment pursuant to this Section
12.04(b) to a Person which is not already a Bank hereunder and which is not a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) for U.S. Federal income tax purposes, the respective assignee Bank shall,
to the extent legally entitled to do so, provide to the Borrowers the forms
described in clause (ii) of Section 3.04(b). To the extent that an assignment of
all or any portion of a Bank's Commitment and related outstanding Obligations
pursuant to this Section 12.04(b) would, at the time of such assignment, result
in increased costs under Section 1.10, 1.11 or 3.04 from those being charged by
the respective assigning Bank prior to such assignment, then the Borrowers shall
not be obligated to pay such increased costs (although the Borrowers shall be
obligated to pay any other increased costs of the type described above resulting
from changes after the date of the respective assignment).
(c) Notwithstanding anything to the contrary contained in this
Section 12.04, in connection with any participation or assignment the respective
Bank granting the assignment or participation shall (i), in the agreement with
respect thereto, obtain a representation from the participant or assignee to the
effect that it is not an Affiliated Person of the Investment Adviser or any
Borrower, or an Affiliated Person of such an Affiliated Person of the Investment
Adviser or any Borrower and (ii) inform such Person in writing that its review
of all non-public information made available to such Person is subject to the
confidentiality provisions contained in Section 12.15 of this Agreement.
(d) Nothing in this Agreement shall prevent or prohibit any
Bank from pledging its Loans to a Federal Reserve Bank without the consent of
any Borrower in support of borrowings made by such Bank from such Federal
Reserve Bank, provided that no such pledge shall release the pledgor Bank from
its obligations hereunder.
12.05 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on
the part of the Agents or any Bank in exercising any right, power or privilege
hereunder or under any other Credit Document and no course of dealing between
the Investment Adviser and/or any Borrower and the Agent or any Bank shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights, powers and remedies herein or
in any other Credit
-44-
<PAGE>
Document, unless expressly provided otherwise, are cumulative and not exclusive
of any rights, powers or remedies which the Agents or any Bank would otherwise
have. No notice to or demand on any Borrower or the Investment Adviser shall in
any case entitle any Borrower or the Investment Adviser to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of the Agents or any Bank to any other or further action in any
circumstances without notice or demand.
12.06 PAYMENTS PRO RATA. (a) Except as otherwise provided in
this Agreement, the Administrative Agent agrees that promptly after its receipt
of each payment from or on behalf of any Borrower in respect of any Obligations
hereunder, it shall distribute such payment to the Banks (other than any Bank
that has consented in writing to waive its PRO RATA share of any such payment)
PRO RATA based upon their respective shares, if any, of the Obligations with
respect to which such payment was received.
(b) Each of the Banks agrees that if it receives any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Commitment Fee, and which is in a greater proportion (vis a vis
the amount then owed all Banks) than the amount received at the time by all
other Banks, then such Bank receiving such excess payment shall purchase for
cash without recourse or warranty from the other Banks an interest in the
Obligations of the respective Borrowers to such Banks in such amount as shall
result in a proportional participation by all the Banks in such amount; provided
that if all or any portion of such excess amount is thereafter recovered from
such Bank, such purchase shall be rescinded and the purchase price restored to
the extent of such recovery, but without interest.
12.07 CALCULATIONS; COMPUTATIONS. (a) The financial statements
to be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with generally accepted accounting principles in the United States
consistently applied throughout the periods involved (except as set forth in the
notes thereto or as otherwise disclosed in writing by the relevant Borrower to
the Banks); provided, however, that, except as otherwise specifically provided
herein, all computations determining compliance with Section 8 shall utilize
accounting principles and policies in conformity with those used to prepare the
historical financial statements delivered to the Banks pursuant to Section
6.05(a).
(b) All computations of interest and Commitment Fees hereunder
shall be made on the basis of a year of 360 days for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest or Commitment Fees are payable.
12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER
OF JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE
-45-
<PAGE>
WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICT OF LAW PROVISIONS THEREOF. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT
TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF
THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWERS
HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE
BORROWERS HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT SUCH COURTS LACK
JURISDICTION OVER SUCH PERSON, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT
BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY SUCH COURT LACKS JURISDICTION
OVER SUCH BORROWER. EACH OF THE BORROWERS FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, WITH RETURN RECEIPT REQUESTED, TO SUCH PERSON AT ITS ADDRESS
SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS
AFTER RECEIPT. EACH OF THE BORROWERS HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO
SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD
OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED UNDER THIS AGREEMENT OR UNDER ANY
OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR
INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENTS UNDER THIS
AGREEMENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY OTHER PARTY TO
THIS AGREEMENT IN ANY OTHER JURISDICTION.
(b) EACH OF THE BORROWERS HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF
THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD
OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS
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<PAGE>
AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
12.09 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Borrowers at their office for delivery or notices, the Agents and each of the
Banks.
12.10 EFFECTIVENESS. This Agreement shall become effective on
the date (the "Effective Date") on which (i) each Borrower and each of the Banks
shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered the same to the Administrative Agent at
its Notice Office or, in the case of the Banks, shall have given to the
Administrative Agent telephonic (confirmed in writing), written or telex notice
(actually received) at such office that the same has been signed and mailed to
it and (ii) each of the conditions set forth in Section 4 have been satisfied or
waived. The Administrative Agent will give each Borrower and each Bank prompt
notice of the occurrence of the Effective Date.
12.11 TABLE OF CONTENTS AND HEADINGS DESCRIPTIVE. The table of
contents and the headings of the several sections and subsections of this
Agreement are inserted for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.
12.12 AMENDMENT OR WAIVER; ETC. Neither this Agreement nor any
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by each Borrower and the Required Banks, provided that no such
change, waiver, discharge or termination shall, without the consent of each Bank
(with Obligations being directly affected in the case of following clause (i)),
(i) extend the final scheduled maturity of any Loan, or reduce the rate or
extend the time of payment of interest or Fees thereon, or reduce the principal
amount thereof, (ii) amend, modify or waive any provision of Section 1.13,
Section 1.14 or this Section 12.12, (iii) reduce the percentage specified in the
definition of Required Banks (it being understood that, with the consent of the
Required Banks, additional extensions of credit pursuant to this Agreement may
be included in the determination of the Required Banks on substantially the same
basis as the extensions of Commitments are included on the Effective Date) or
(iv) consent to the assignment or transfer by any Borrower of any of its
respective rights or obligations under this Agreement or any Credit Document;
provided further, that no such change, waiver, discharge or termination shall
(x) increase the Total Commitment of any Bank over the amount thereof then in
effect without the consent of such Bank (it being understood that waivers or
modifications of conditions precedent, covenants, Defaults or Events of Default
or of a mandatory reduction in the Total Commitment shall not constitute an
increase of the Commitment of any Bank, and that an increase in the available
portion of the Commitment of any Bank shall not constitute an increase in the
Commitment of such Bank) (y) without the consent of the Agents, amend, modify or
waive any provision of Section 11 as same applies to the Agents or any other
provision as same relates to the rights or obligations of the Agents or (z)
-47-
<PAGE>
without the consent of the Swingline Bank, alter its rights or obligations with
respect to Swingline Loans.
12.13 SURVIVAL. All indemnities set forth herein including,
without limitation, in Sections 1.10, 1.11, 3.04, 12.01 and 12.06 shall survive
the execution, delivery and termination of this Agreement and the making and
repayment of the Loans.
12.14 DOMICILE OF LOANS. Each Bank may transfer and carry its
Loans at, to or for the account of any office, Subsidiary or affiliate of such
Bank. Notwithstanding anything to the contrary contained herein, to the extent
that a transfer of Loans pursuant to this Section 12.14 would, at the time of
such transfer, result in increased costs under Section 1.10, 1.11 or 3.04 from
those being charged by the respective Bank prior to such transfer, then the
relevant Borrower shall not be obligated to pay such increased costs (although
the Borrowers shall be obligated to pay any other increased costs of the type
above resulting from changes after the date of the respective transfer).
12.15 CONFIDENTIALITY. (a) Subject to the provisions of clause
(b) of this Section 12.15, each Bank agrees that it will use its best efforts
not to disclose without the prior consent of a Borrower (other than to its
employees, auditors, advisors or counsel or to another Bank if the Bank or such
Bank's holding or parent company in its sole discretion determines that any such
party should have access to such information, provided that such Persons shall
be subject to the provisions of this Section 12.15 to the same extent as such
Bank) any information with respect to such Borrower which is now or in the
future furnished pursuant to this Agreement or any other Credit Document and
which is designated by such Borrower to the Banks in writing as confidential,
provided that any Bank may disclose such information (i) as has become generally
available to the public, (ii) as may be required or appropriate in any report,
statement or testimony submitted to any municipal, state or Federal regulatory
body having or claiming to have jurisdiction over such Bank or to the Federal
Reserve Board or the Federal Deposit Insurance Corporation or similar
organizations (whether in the United States or elsewhere) or their successors,
(iii) as may be required or appropriate in respect of any summons or subpoena
binding upon it or in connection with any litigation, (iv) in order to comply
with any law, order, regulation or ruling applicable to such Bank, (v) to any of
the Agents and (vi) to any prospective or actual transferee or participant in
connection with any contemplated transfer or participation in any of the
Commitments or any interest therein by such Bank, provided that such prospective
transferee agrees to be bound by the provisions of this Section 12.15; PROVIDED,
that any Bank that is, or in good faith believes that it is, required to divulge
confidential information under legal process or other governmental authority
shall, to the extent reasonably practicable, promptly notify the relevant
Borrower in order to give such Borrower the opportunity to seek appropriate
protection from such disclosure.
(b) Each Borrower hereby acknowledges and agrees that each
Bank may share with any of its affiliates any information related to such
Borrower (including, without limitation, any non-public customer information
regarding the creditworthiness of such Borrower, provided such Persons shall be
subject to the provisions of this Section 12.15 to the same extent as such
Bank).
-48-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
DEUTSCHE BANK AG, NEW YORK
BRANCH, as Administrative Agent
/s/Alan Krouk
By_____________________________________
Name: Alan Krouk
Title: Vice President
/s/ Clinton M. Johnson
By_____________________________________
Name: Clinton M. Johnson
Title: Managing Director
DEUTSCHE BANK SECURITIES INC.
as Arranger and Syndication Agent
/s/ Alan Krouk
By_____________________________________
Name: Alan Krouk
Title: Vice President
/s/ Clinton M. Johnson
By_____________________________________
Name: Clinton M. Johnson
Title: Managing Director
DEUTSCHE BANK AG, NEW YORK
BRANCH
/s/ Alan Krouk
By_____________________________________
Name: Alan Krouk
Title: Vice President
/s/ Clinton M. Johnson
By_____________________________________
Name: Clinton M. Johnson
Title: Managing Director
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<PAGE>
THE GALAXY FUND, on behalf of the
Borrowers listed on Schedule I-A
/s/ William Greilich
By_____________________________________
Name: William Greilich
Title: Vice President
THE GALAXY VIP FUND, on behalf of the
Borrowers listed on Schedule I-B
/s/ William Greilich
By_____________________________________
Name: William Greilich
Title: Vice President
GALAXY FUND II, on behalf of the
Borrowers listed on Schedule I-C
/s/ William Greilich
By_____________________________________
Name: William Greilich
Title: Vice President
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<PAGE>
SCHEDULE I
BORROWERS
THE GALAXY FUND
Asset Allocation Fund
Equity Value Fund
Equity Income Fund
Equity Growth Fund
International Equity Fund
Small Company Equity Fund
Growth and Income Fund
Small Cap Value Fund
Strategic Equity Fund
Intermediate Government Income Fund
High Quality Bond Fund
Short-Term Bond Fund
Corporate Bond Fund
Tax-Exempt Bond Fund
New York Municipal Bond Fund
Connecticut Municipal Bond Fund
Massachusetts Municipal Bond Fund
Rhode Island Municipal Bond Fund
New Jersey Municipal Bond Fund
GALAXY FUND II
Small Company Index Fund
Large Company Index Fund
Utility Index Fund
U.S. Treasury Index Fund
Municipal Bond Fund
<PAGE>
SCHEDULE I
Page 2
THE GALAXY VIP FUND
Asset Allocation Fund
Equity Fund
Growth and Income Fund
High Quality Bond Fund
Small Company Growth Fund
Columbia Real Estate Equity Fund II
Columbia High Yield Fund II
<PAGE>
SCHEDULE II
COMMITMENTS
<TABLE>
<CAPTION>
NAME OF BANK COMMITMENT
<S> <C>
Deutsche Bank AG, New York Branch $150,000,000
------------
TOTAL $150,000,000
------------
------------
</TABLE>
<PAGE>
SCHEDULE III
BANK ADDRESSES
Deutsche Bank AG, 31 West 52nd Street
New York Branch New York, New York 10019
Telephone No.: (212) 474-7436
Telecopier No.: (212) 474-8346
Attention: Mr. Alan Krouk
<PAGE>
SCHEDULE IV
CUSTODY AGREEMENTS
A. THE GALAXY FUND
1. Global Custody Agreement dated November 1, 1991 between The
Galaxy Fund and The Chase Manhattan Bank, N.A.
2. Amendment dated December 2, 1998 to Global Custody Agreement
between The Galaxy Fund and The Chase Manhattan Bank.
B. THE GALAXY VIP FUND
1. Global Custody Agreement dated November 13, 1992 between The
Galaxy VIP Fund and The Chase Manhattan Bank, N.A.
2. Amendment No. 1 dated March 2, 1998 to Global Custody
Agreement between The Galaxy VIP Fund and The Chase Manhattan
Bank.
3. Amendment dated December 17, 1998 to Global Custody Agreement
between The Galaxy Fund and The Chase Manhattan Bank.
C. GALAXY FUND II
1. Mutual Fund Custody Agreement dated as of June 30, 1994 among
Galaxy Fund II, The Chase Manhattan Bank, N.A. and Fleet
National Bank
<PAGE>
SCHEDULE V
INVESTMENT ADVISORY AGREEMENTS
A. THE GALAXY FUND
1. Advisory Agreement dated as of May 19, 1994 between The Galaxy
Fund and Fleet Investment Advisors, Inc.
2. Addendum No. 1 dated as of December 1, 1995 to the Advisory
Agreement between The Galaxy Fund and Fleet Investment
Advisors Inc.
3. Addendum No. 2 dated as of March 3, 1998 to the Advisory
Agreement between The Galaxy Fund and Fleet Investment
Advisors Inc.
4. Addendum No. 3 dated as of September 18, 1998 to the Advisory
Agreement between The Galaxy Fund and Fleet Investment
Advisors Inc.
5. Sub-Advisory Agreement dated as of October 8, 1998 between
Fleet Investment Advisors Inc. and Oechsle International
Advisors, LLC.
B. THE GALAXY VIP FUND
1. Advisory Agreement dated as of September 30, 1992 between The
Galaxy VIP Fund and Fleet Investment Advisors Inc.
2. Advisory Agreement dated as of February 27, 1998 between The
Galaxy VIP Fund and Columbia Management Co.
C. GALAXY FUND II
1. Advisory Agreement dated as of June 30, 1994 between Galaxy
Fund II and Fleet Investment Advisors Inc.
<PAGE>
EXHIBITS NOT INCLUDED
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. Amount and Terms of Credit.......................................1
1.01 The Commitments..............................................1
1.02 Minimum Amount of Each Borrowing.............................3
1.03 Notice of Borrowing..........................................3
1.04 Disbursement of Funds........................................4
1.05 Ledger.......................................................4
1.06 Conversions..................................................4
1.07 Pro Rata Borrowings..........................................5
1.08 Interest.....................................................5
1.09 Interest Periods.............................................6
1.10 Increased Costs; Illegality; Etc.............................7
1.11 Compensation.................................................9
1.12 Replacement of Banks.........................................9
1.13 Extension of Expiry Date....................................10
1.14 Addition of New Borrowers...................................11
1.15 Removal of Borrowers........................................11
SECTION 2. Fees; Reductions of Commitment..................................12
2.01 Fees........................................................12
2.02 Voluntary Termination of Unutilized Commitments;
Termination of Commitments..................................12
SECTION 3. Prepayments; Payments; Taxes....................................12
3.01 Voluntary Prepayments.......................................12
3.02 Mandatory Repayments........................................13
3.03 Method and Place of Payment.................................13
3.04 Net Payments................................................13
SECTION 4. Conditions Precedent to the Effective Date......................16
4.01 Execution of Agreement......................................16
4.02 Officers'Certificates.......................................16
4.03 Opinion of Counsel..........................................16
4.04 Proceedings; Etc............................................16
4.05 Material Agreements.........................................17
4.06 Adverse Change; Etc.........................................17
4.07 Litigation..................................................17
4.08 Fees, Etc...................................................17
4.09 Form FR U-1.................................................17
<PAGE>
SECTION 5. Conditions Precedent to All Loans...............................18
5.01 No Default; Representations and Warranties..................18
5.02 Notice of Borrowing.........................................18
SECTION 6. Representations, Warranties and Agreements......................18
6.01 Corporate Status............................................18
6.02 Power and Authority.........................................18
6.03 No Violation................................................19
6.04 Governmental Approvals......................................19
6.05 Financial Statements; Financial Condition;
Undisclosed Liabilities; etc................................19
6.06 Litigation..................................................20
6.07 True and Complete Disclosure................................20
6.08 Use of Proceeds; Margin Regulations.........................20
6.09 ERISA.......................................................20
6.10 Compliance with Statutes, Etc...............................21
6.11 Investment Company..........................................21
6.12 Investment Adviser..........................................21
6.13 Affiliation with the Banks..................................21
6.14 Senior Status...............................................21
6.15 Tax Returns and Payments....................................21
SECTION 7. Affirmative Covenants...........................................22
7.01 Information Covenants.......................................22
7.02 Books, Records and Inspections..............................23
7.03 Compliance with Statutes; Etc...............................23
7.04 Investment Company..........................................23
7.05 Compliance with Investment Practices........................23
7.06 Compliance with Regulation U................................23
7.07 Use of Proceeds.............................................24
7.08 Payment of Taxes............................................24
SECTION 8. Negative Covenants..............................................24
8.01 Liens.......................................................24
8.02 Consolidation, Merger, Sale or Purchase of
Assets, Etc.................................................25
8.03 Indebtedness................................................25
8.04 Restrictions on Issuance of Capital Stock...................26
8.05 Modifications of Investment Practices,
Governing Documents, and Certain Other Agreements...........26
8.06 Business....................................................26
8.07 ERISA.......................................................26
8.08 Affiliated Person...........................................26
8.09 Asset Coverage Ratio........................................27
<PAGE>
SECTION 9. Events of Default...............................................27
9.01 Payments....................................................27
9.02 Representations; Etc........................................27
9.03 Covenants...................................................27
9.04 Default Under Other Agreements..............................27
9.05 Bankruptcy; Etc.............................................27
9.06 Judgments...................................................28
9.07 Investment Adviser..........................................28
9.08 Custody Agreement...........................................28
SECTION 10. Definitions and Accounting Terms...............................29
10.01 Defined Terms..............................................29
10.02 Assumptions Regarding Structure;
Massachusetts Business Trusts..............................38
SECTION 11. The Agents.....................................................38
11.01 Appointment................................................38
11.02 Nature of Duties...........................................39
11.03 Lack of Reliance on the Agents.............................39
11.04 Certain Rights of the Agents...............................39
11.05 Reliance...................................................39
11.06 Indemnification............................................40
11.07 The Agents in their Individual Capacities..................40
11.08 Resignation by the Agents..................................40
SECTION 12. Miscellaneous..................................................41
12.01 Payment of Expenses, Indemnification, Etc..................41
12.02 Right of Setoff............................................41
12.03 Notices....................................................42
12.04 Benefit of Agreement.......................................43
12.05 No Waiver; Remedies Cumulative.............................44
12.06 Payments Pro Rata..........................................45
12.07 Calculations; Computations.................................45
12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION;
VENUE; WAIVER OF JURY TRIAL................................45
12.09 Counterparts...............................................47
12.10 Effectiveness..............................................47
12.11 Table of Contents and Headings Descriptive.................47
12.12 Amendment or Waiver; Etc...................................47
12.13 Survival...................................................48
12.14 Domicile of Loans..........................................48
12.15 Confidentiality............................................48
<PAGE>
SCHEDULES
Schedule I Borrowers
Schedule II Commitments
Schedule III Bank Addresses
Schedule IV Custody Agreements
Schedule V Investment Advisory Agreements
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Officers' Certificate
Exhibit C Form of Opinion of Drinker Biddle & Reath LLP
Exhibit D Form of Assignment and Assumption Agreement
Exhibit E Form FR U-1 certificate
Exhibit F Form of Section 3.04(b)(ii) Certificate
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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. 10
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. 10 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
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DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
March 1, 2000
