<PAGE>
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PROSPECTUS
[LOGO OF 1784 FUNDS APPEARS HERE]
1784 FUNDS (the "Trust") is a mutual fund consisting of several professionally
managed portfolios, or funds, of securities. The Trust provides a convenient
way to invest in one or more of these funds. This Prospectus relates to shares
of the following equity funds (the "Funds" or the "Equity Funds"):
1784 GROWTH AND INCOME FUND
1784 ASSET ALLOCATION FUND
1784 INTERNATIONAL EQUITY FUND
Shares of the Funds are offered primarily to individuals and institutional
investors, including accounts for which The First National Bank of Boston
("Bank of Boston"), its affiliates and correspondents, and other financial
institutions act in a fiduciary, agency or custodial capacity. Investors in
shares of the Funds are referred to hereinafter as "Shareholders." Shares of
the Funds are currently offered without any sales charges.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANK OF BOSTON OR ANY OF ITS AFFILIATES. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING RISK
TO PRINCIPAL.
This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing in the Funds.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information, dated October 2, 1995, has
been filed with the Securities and Exchange Commission (the "SEC") and is
available without charge through the Distributor, SEI Financial Services
Company, 680 East Swedesford Road, Wayne, PA 19087 or by calling
1-800-BKB-1784. The Statement of Additional Information is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
October 2, 1995
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I784 FUNDS
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EXPENSE SUMMARY
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Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of each of the Equity Funds and annual operating expenses of the
Funds, and (ii) an example illustrating the dollar cost of such expenses on a
hypothetical $1,000 investment in each of the Funds.
Shareholder Transaction Expenses
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<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of the
offering price) None
Sales Charge Imposed on Reinvested Dividends (as a percentage of the
offering price) None
Deferred Sales Charge Imposed on Redemptions (as a percentage of the of-
fering price) None
Redemption Fees(1) None
Exchange Fee None
</TABLE>
Annual Operating Expenses
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(As a percentage of average net assets)
<TABLE>
<CAPTION>
1784 Asset 1784
1784 Growth and Allocation International
Income Fund Fund Equity Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees (after fee waiver)(2) 0.60% 0.60% 1.00%
12b-1 Fee (after fee waiver)(2) None None None
Other Expenses(2) 0.34% 0.65% 0.40%
- -----------------------------------------------------------------------------
Total Operating Expenses(2) 0.94% 1.25% 1.40%
</TABLE>
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(1) If proceeds of a redemption of Fund shares are paid by wire transfer, a
wire transfer charge (presently $12.00) will be imposed.
(2) Bank of Boston, which serves as an Adviser for the Trust, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
each of the 1784 Growth and Income Fund and the 1784 Asset Allocation Fund to
not more than 1.25% of average daily net assets on an annualized basis and
total operating expenses of the 1784 International Equity Fund to not more than
1.75% of average daily net assets on an annualized basis; these limitations
would not apply to any brokerage commissions, interest expense or taxes or to
extraordinary expense items, including but not limited to litigation expenses.
Kleinwort Benson Investment Management Americas Inc., which also serves as an
Adviser for the 1784 International Equity Fund, may from time to time waive all
or a portion of its investment advisory fee. SEI Financial Services Company,
which acts as Distributor of the Trust's shares, has agreed to waive its 12b-1
fee, which is computed at an annual rate of 0.25% of each Fund's average daily
net assets. If the Distributor should terminate this waiver, after a
substantial period of time annual payment of this fee may total more than the
maximum sales charge that would have been permissible if imposed entirely as an
initial sales charge. SEI Financial Management Corporation, which acts as the
Trust's Administrator, has agreed to waive its fee from certain funds of the
Trust to assist these funds in maintaining a competitive expense ratio. Bank of
Boston contributes to the Funds in order to limit other operating expenses and
to assist the Funds in maintaining a competitive expense ratio. Fee waivers by
the Advisers, Administrator and Distributor, and contributions by the Bank of
Boston, are voluntary and may be terminated at any time. From time to time Bank
of Boston may also waive additional portions of its fees to reduce net
operating expenses to less than that shown in the table above. Certain other
parties may also agree to waive portions of their fees from time to time on a
month to month basis. The advisory fees and the total operating expenses for
the 1784 International Equity Fund set forth in the table have been restated to
reflect current fees. Additional information may be found under "The Advisers,"
"The Administrator" and "The Distributor." Absent waivers, the Bank of Boston's
investment advisory fee is calculated at an annual rate of 0.74% of average
daily net assets of each of the 1784 Growth and Income Fund and the 1784 Asset
Allocation Fund and 0.50% of average daily net assets of the 1784 International
Equity Fund. Absent waivers, if any, the investment advisory fee received by
Kleinwort Benson Investment Management Americas Inc. from the 1784
2
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I784 FUNDS
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International Equity Fund is calculated at an annual rate of 0.50% of the
average daily net assets of the 1784 International Equity Fund. Absent the
waiver of fees by the Distributor, Advisers and Administrator, and voluntary
contributions by the Bank of Boston, other expenses and estimated total
operating expenses would be as follows: 0.49% and 1.48% of average daily net
assets of the 1784 Growth and Income Fund, 1.52% and 2.51% of average daily net
assets of the 1784 Asset Allocation Fund, and 0.46% and 1.70% of average daily
net assets of the 1784 International Equity Fund, in each case on an annualized
basis. Other expenses are based on actual expenses for each Fund's fiscal year
ended May 31, 1995, and include expense items described under "General
Information -- The Trust." A person who purchases shares through a financial
institution may be charged separate fees by the financial institution.
Example
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An investor would pay the following expenses on a hypothetical $1,000
investment assuming a 5% annual total return and redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
1784 Growth and Income Fund $10 $30 $52 $115
1784 Asset Allocation Fund $13 $40 $69 $151
1784 International Equity Fund $14 $44 $77 $168
</TABLE>
Absent voluntary waivers by the Advisers, Distributor and Administrator and
contributions made by the Bank of Boston, the amounts for this example for one
year, three years, five years and ten years would be $13, $39, $68, $149 for
the 1784 Growth and Income Fund, $25, $78, $134 and $285 for the 1784 Asset
Allocation Fund and $17, $54, $91 and $202 for the 1784 International Equity
Fund. The example for each of the 1784 Growth and Income Fund and the 1784
Asset Allocation Fund is based on actual expenses for such Fund's fiscal year
ended May 31, 1995. The example for the 1784 International Equity Fund is based
on current expenses. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR RETURN, AND ACTUAL EXPENSES AND RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly
or indirectly borne by investors in the Funds. Additional information may be
found under "General Information -- The Trust," "The Advisers," "The
Administrator" and "The Distributor."
SUMMARY
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The following information is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information.
1784 Funds (the "Trust") is an open-end management investment company which
provides a convenient way to invest in one or more professionally managed funds
of securities. The following provides basic information about the 1784 Growth
and Income Fund, 1784 Asset Allocation Fund and 1784 International Equity Fund
(each, a "Fund" or an "Equity Fund," and collectively, the "Funds" or the
"Equity Funds"). Each of the Equity Funds is a diversified fund.
What Is the Investment Objective? The investment objective of the 1784 Growth
and Income Fund is long-term growth of capital with a secondary objective of
income. The investment objective of the 1784 Asset Allocation Fund is to
achieve a favorable total rate of return through current income and capital
appreciation consistent with preservation of capital, derived from investing in
fixed income and equity securities. The investment objective of the 1784
International Equity Fund is long-term growth of capital. Dividend income, if
any, is a consideration incidental to the 1784 International Equity Fund's
investment objective of increasing the long-term value of its Shareholders'
investment. Each Fund's investment objective may be changed only with the
consent of holders of a majority of that Fund's outstanding shares. There can
be no assurance that any Equity Fund will achieve its investment objective. See
"Investment Objective" and "Investment Limitations."
3
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I784 FUNDS
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What Are the Permitted Investments? The 1784 Growth and Income Fund under
normal circumstances invests at least 65% of its total assets in common stocks.
The 1784 Asset Allocation Fund under normal circumstances invests between 30%
and 70% of its total assets in equity securities, between 30% and 60% of its
total assets in intermediate and long-term fixed income securities, and between
0% and 40% of its total assets in money market instruments. The 1784
International Equity Fund under normal circumstances invests at least 65% of
its total assets in equity securities, and at least 65% of its total assets are
invested in securities of issuers organized in at least three countries other
than the United States, including developing countries. During periods of
unusual economic market conditions or for temporary defensive purposes or
liquidity, each of the Funds may invest in money market funds, and, without
limit, in cash and money market instruments.
What Are Some of the Risks? The investment policies of each of the Equity Funds
entail certain risks and considerations of which an investor should be aware.
For example, the net asset value per share of each of the Equity Funds is not
fixed and should be expected to fluctuate. Specifically, common stocks and
other equity securities will fluctuate in value; the market value of fixed
income investments will change in response to interest rate changes and other
factors; and foreign securities in which each Equity Fund is authorized to
invest may subject the Equity Funds to different risks than those attendant to
investments in securities of U.S. issuers, such as more limited information
about foreign issuers, higher brokerage costs, different accounting standards
and thinner trading markets. Foreign securities markets may also be less
liquid, more volatile and less subject to government supervision than in the
United States.
For further information, see "Investment Policies," "Certain Investment
Policies and Guidelines," "Certain Additional Risk Considerations" and
"Description of Permitted Investments and Techniques" herein and in the
Statement of Additional Information.
Who Are the Advisers? The First National Bank of Boston ("Bank of Boston")
serves as the Adviser for each of the Funds and is entitled to a fee which is
calculated daily and paid monthly at an annual rate of 0.74% of the average
daily net assets of each of the 1784 Growth and Income Fund and the 1784 Asset
Allocation Fund and 0.50% of the average daily net assets of the 1784
International Equity Fund. Kleinwort Benson Investment Management Americas Inc.
("Kleinwort Benson" and, together with Bank of Boston, the "Advisers") also
serves as an investment adviser for the 1784 International Equity Fund and is
entitled to a fee which is calculated daily and paid monthly at an annual rate
of 0.50% of the average daily net assets of the Fund. Bank of Boston has agreed
for an indefinite period of time to waive all or a portion of its fee in order
to limit the total operating expenses of the Equity Funds on an annualized
basis to not more than 1.25% of each of the 1784 Growth and Income Fund's and
the 1784 Asset Allocation Fund's average daily net assets and to not more than
1.75% of the 1784 International Equity Fund's average daily net assets. Bank of
Boston contributes to the Funds in order to limit operating expenses and to
assist the Funds in maintaining a competitive expense ratio. Fee waivers and
contributions may be terminated at any time. See "The Advisers."
Who Is the Administrator? SEI Financial Management Corporation serves as the
Administrator for the Trust under an Administration Agreement and is entitled
to a fee which is calculated daily and paid monthly at an annual rate of 0.15%
of the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Each Equity Fund's portion
of such fee is based on that Fund's average daily net assets. The Administrator
has agreed to waive a portion of its fees on a month to month basis under
certain circumstances. See "The Administrator."
Who Is the Shareholder Servicing Agent and Transfer Agent? SEI Financial
Management Corporation acts as dividend disbursing agent and shareholder
servicing agent for the Trust under the Administration Agreement and as
transfer agent for the Trust under a separate transfer
4
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I784 FUNDS
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agent agreement. See "The Shareholder Servicing and Transfer Agent."
Who Is the Distributor? SEI Financial Services Company acts as distributor of
the Trust's shares. The Trust has adopted a distribution plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan
provides for payment to the Distributor of a fee, calculated daily and paid
monthly, at an annual rate of 0.25% of each Equity Fund's average daily net
assets; the Distributor can use all or a portion of this fee to compensate
broker-dealers and other financial institutions that provide services to
Shareholders or to their customers who beneficially own shares of the Equity
Funds. The Distributor has agreed to waive its 12b-1 fee. However, distribution
fees may be imposed in the event that the Distributor determines to terminate
its waiver of such fees. The Trust may create one or more additional classes of
shares, without distribution fees, of any or all of the Funds. See "The
Distributor."
How Do I Purchase Shares? Purchases of Fund shares may be made through the
Distributor by the close of business Monday through Friday except on days when
the New York Stock Exchange or the Federal Reserve Bank of Boston is closed
("Business Days"). Shares may also be purchased through broker-dealers which
have established dealer agreements with the Distributor. Purchase orders
submitted through broker-dealers normally will be received by the Distributor
on the Business Day after they are received by the broker-dealer.
A purchase order representing an investment in an Equity Fund will be effective
as of the Business Day the order is received by the Distributor if the
Distributor receives a purchase order in good form for the shares and payment
(by wire transfer or check) for the shares before 4:00 p.m. Eastern Time ("ET")
on that day. Shares are sold at their net asset value determined as of the end
of the day the order is effective.
The minimum initial investment in an Equity Fund is $1,000; all subsequent
purchases must be at least $250. Minimum investment requirements are lower for
accounts established for automatic investment programs and under tax-deferred
retirement programs (including IRAs). See "Purchase of Shares."
Shares of each of the Equity Funds are currently being offered without any
sales charges. See "The Distributor."
How Do I Redeem Shares? Redemptions of shares of an Equity Fund may be made
through the Transfer Agent on any Business Day. Redemption orders must be
placed in good form before 4:00 p.m. ET on any Business Day to be effective on
that day. The redemption price is the net asset value per share determined as
of the end of the day the order is effective. See "Redemption of Shares."
How Are Distributions Paid? Substantially all of the net investment income
(exclusive of capital gains) of each of the 1784 Growth and Income Fund and the
1784 Asset Allocation Fund is distributed in the form of quarterly dividends.
Substantially all of the net investment income (exclusive of capital gains) of
the 1784 International Equity Fund is distributed in the form of dividends
which are paid at least annually. Shareholders of record on the record date for
the dividend distribution will be entitled to the dividends. Any capital gain
is distributed at least annually. Distributions are paid in additional shares
unless the Shareholder elects to take the payment in cash. See "Dividends and
Distributions."
How Do I Make Exchanges? Once payment for shares of an Equity Fund has been
received by the Distributor, those shares may be exchanged for shares of one or
more other portfolios of the Trust at net asset value, provided the amount of
the exchange meets the minimum investment requirements for the other portfolio
of the Trust. There are no charges for an exchange. If an exchange request in
good order is received by the Distributor by 4:00 p.m. ET on any Business Day,
the exchange usually will occur on that day; however, requests for exchange for
shares of a
5
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I784 FUNDS
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money market fund must be received earlier than 4:00 p.m. ET (in cases when
regular trading on the New York Stock Exchange closes earlier than 4:00 p.m.
ET, as early as 12:00 noon ET) for the exchange to occur on that day. A
Shareholder must obtain and should read the prospectus of the other portfolio
and consider the differences in investment objectives and policies before
making any exchange. An exchange is treated, for federal and state income tax
purposes, as a sale of the Equity Fund shares exchanged, and could result in
gain or loss to the Shareholder. See "Exchanges."
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following table provides condensed financial information about the Equity
Funds for the period from the commencement of operations (June 7, 1993 for the
1784 Growth and Income Fund, June 14, 1993 for the 1784 Asset Allocation Fund
and January 3, 1995 for the 1784 International Equity Fund) through May 31,
1995. The information should be read in conjunction with the financial
statements appearing in the Funds' Annual Report to Shareholders, which are
incorporated by reference in the Statement of Additional Information. The
financial statements and notes, as well as the table below, covering the period
through May 31, 1995, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report is included in the Funds' Annual Report.
Copies of the Annual Report may be obtained without charge from the
Distributor.
FINANCIAL HIGHLIGHTS
For the Period Ended May 31, 1995
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For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net
Asset Realized and Dividends Net Assets Ratio
Value Net Unrealized from Net Distributions Asset Value End of Expenses
Beginning Investment Gain or (Losses) Investment from Capital End Total of Period to Average
of Period Income on Investments Income Gains of Period Return (000) Net Assets
--------- ---------- ---------------- ---------- ------------- ----------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH AND
INCOME(1)
================
6/7/93-5/31/94 $10.00 0.12 0.56 (0.11) (0.00) $10.57 6.80 %* $121,717 0.35%**
6/1/94-5/31/95 $10.57 0.11 1.67 (0.10) (0.09) $12.16 17.09 % $229,200 0.94%
ASSET
ALLOCATION(2)
================
6/14/93-5/31/94 $10.00 0.19 (0.20) (0.15) (0.00) $ 9.84 (0.15)%* $ 6,928 1.25%**
6/1/94-5/31/95 $ 9.84 0.28 1.15 (0.27) (0.01) $10.99 14.84 % $ 8,622 1.25%
INTERNATIONAL
EQUITY(3)
================
1/3/95-5/31/95 $10.00 0.06 0.35 (0.00) (0.00) $10.41 4.73 %* $148,439 0.89%**
<CAPTION>
Ratio Ratio of
Ratio of Expenses Net Income
of Net to Average to Average
Income Net Assets Net Assets Portfolio
to Average (Excluding (Excluding Turnover
Net Assets Waivers) Waivers) Rate
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
GROWTH AND
INCOME(1)
================
6/7/93-5/31/94 1.23%** 1.36%** 0.22%** 31.55%
6/1/94-5/31/95 1.05% 1.23% 0.76% 38.94%
ASSET
ALLOCATION(2)
================
6/14/93-5/31/94 2.62%** 3.61%** 0.26%** 28.19%
6/1/94-5/31/95 2.88% 2.51% 1.62% 67.23%
INTERNATIONAL
EQUITY(3)
================
1/3/95-5/31/95 2.06%** 1.70%** 1.25%** 11.03%
</TABLE>
* Returns are for the period indicated and have not been annualized.
** Ratios for this period have been annualized.
(1) The Growth and Income Fund commenced operations on June 7, 1993.
(2) The Asset Allocation Fund commenced operations on June 14, 1993.
(3) The International Equity Fund commenced operations on January 3, 1995.
-------------
6
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I784 FUNDS
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THE TRUST
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1784 Funds (the "Trust") is an open-end management investment company that
currently offers units of beneficial interest ("shares") in several separate
professionally managed investment portfolios, or funds. Each share of each fund
represents an undivided, proportionate interest in that fund. This Prospectus
relates to shares of the Trust's 1784 Growth and Income Fund, 1784 Asset
Allocation Fund and 1784 International Equity Fund, each of which is a
diversified fund. The Trust's other funds include the 1784 U.S. Government
Medium-Term Income Fund, 1784 Short-Term Income Fund, 1784 Income Fund, 1784
Tax-Exempt Medium-Term Income Fund, 1784 Connecticut Tax-Exempt Income Fund,
1784 Rhode Island Tax-Exempt Income Fund, 1784 Massachusetts Tax-Exempt Income
Fund, 1784 U.S. Treasury Money Market Fund, 1784 Institutional U.S. Treasury
Money Market Fund and 1784 Tax-Free Money Market Fund. Information regarding
the Trust's other funds is contained in separate prospectuses that may be
obtained from the Trust's distributor, SEI Financial Services Company (the
"Distributor"), 680 East Swedesford Road, Wayne, Pennsylvania 19087, or by
calling 1-800-BKB-1784.
INVESTMENT OBJECTIVE
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The investment objective of the 1784 Growth and Income Fund is long-term growth
of capital with a secondary objective of income.
The investment objective of the 1784 Asset Allocation Fund is to achieve a
favorable total rate of return through current income and capital appreciation
consistent with preservation of capital, derived from investing in fixed income
and equity securities.
The investment objective of the 1784 International Equity Fund is long-term
growth of capital. Dividend income, if any, is a consideration incidental to
the Fund's investment objective of increasing the long-term value of its
Shareholders' investment.
There is no assurance that the investment objective of any Fund will be met.
The investment objective of each Fund is a fundamental policy of that Fund, and
therefore cannot be changed without the consent of holders of a majority of
that Fund's outstanding shares. See "Investment Limitations."
INVESTMENT POLICIES
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The 1784 Growth and Income Fund is a diversified fund that under normal
circumstances invests at least 65% of its total assets in common stocks of U.S.
and foreign issuers. The Fund emphasizes common stocks that in its Adviser's
opinion (1) have above average long-term growth prospects; (2) have a market
capitalization of at least $250 million; (3) have the potential for an increase
in shareholder dividend payments; (4) are issued by companies that are
financially sound; and (5) are issued by companies that have a record of growth
in both earnings and dividends. Some of the common stocks purchased by the Fund
may not meet one or more of these criteria. For purposes of this policy, common
stocks are deemed to include securities purchased in the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs")
(sometimes referred to as Continental Depositary Receipts ("CDRs")). Under
normal circumstances, not more than 35% of this Fund's total assets are
invested in warrants, convertible and non-convertible debt securities and
preferred stocks, and money market instruments.
The 1784 Growth and Income Fund may, for hedging purposes or in order to
generate additional income, write (sell) covered call options, and may, for
hedging purposes, enter into futures contracts and related options. In
addition, the Fund may make additional types of investments and engage in other
investment practices, as described in "Description of Permitted Investments and
Techniques."
For more information regarding the permitted investments and investment
practices of the 1784 Growth and Income Fund, the purposes of these investments
and investment practices and certain risks
7
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I784 FUNDS
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associated with certain of these investments and investment practices, see
"Certain Investment Policies and Guidelines," "Certain Additional Risk
Considerations," "Description of Permitted Investments and Techniques" and the
Statement of Additional Information.
The 1784 Asset Allocation Fund is a diversified fund which allocates its assets
among equity securities and fixed income securities (consisting of both
intermediate and long-term fixed income securities and money market
instruments). Under normal circumstances, between 30% and 70% of the Fund's
total assets are invested in equity securities, between 30% and 60% of its
total assets are invested in intermediate and long-term fixed income
securities, and between 0% and 40% of its total assets are invested in money
market instruments. For purposes of this policy, equity securities are defined
as: (1) common stocks; (2) warrants to purchase common stocks; (3) debt
securities convertible into common stocks; (4) convertible and non-convertible
preferred stocks; and (5) American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs") (sometimes referred to as Continental Depositary
Receipts ("CDRs")). In selecting equity securities, the Fund's Adviser
emphasizes securities which in its opinion (1) have above average long-term
growth prospects; (2) have a market capitalization of at least $250 million;
(3) have the potential for an increase in shareholder dividend payments; (4)
are issued by companies that are financially sound; and (5) are issued by
companies that have a record of growth in both earnings and dividends. Some of
the equity securities purchased by the Fund may not meet one or more of these
criteria.
The intermediate and long-term fixed income securities in which the 1784 Asset
Allocation Fund may invest include: (1) bonds, debentures or other debt
instruments rated BBB or better by Standard & Poor's Ratings Group ("S&P") or
Baa or better by Moody's Investors Service, Inc. ("Moody's") or of comparable
quality at the time of purchase as determined by the Fund's Adviser; (2) debt
obligations issued or guaranteed as to principal and interest by the U.S.
Government or any of its agencies and instrumentalities; (3) debt securities of
the government of Canada or any of its provincial and local governments, in
each case which the Fund's Adviser deems to be of comparable credit quality at
time of purchase to the corporate debt instruments in which the Fund may
invest; (4) U.S. dollar denominated debt securities issued or guaranteed by
foreign governments, their political subdivisions, agencies or
instrumentalities and debt securities of supranational entities, in each case
which the Fund's Adviser deems to be of comparable credit quality at time of
purchase to the corporate debt instruments in which the Fund may invest; (5)
mortgage-backed securities and asset-backed securities rated A or better by S&P
or Moody's or of comparable quality at the time of purchase as determined by
the Fund's Adviser; (6) receipts evidencing separately traded interest and
principal component parts of U.S. Government obligations; and (7) repurchase
agreements involving the foregoing types of securities. Securities rated BBB by
S&P or Baa by Moody's may have speculative characteristics.
The money market instruments in which the 1784 Asset Allocation Fund may invest
are described under "Certain Investment Policies and Guidelines" and
"Description of Permitted Investments and Techniques."
The 1784 Asset Allocation Fund may purchase mortgage-backed securities issued
or guaranteed as to payment of principal and interest by the U.S. Government or
any of its agencies or instrumentalities and mortgage-backed securities issued
by private issuers rated in one of the three highest rating categories and
backed by mortgage pass-through certificates issued or guaranteed by the U.S.
Government or any of its agencies and instrumentalities. The principal
governmental issuers or guarantors of mortgage-backed securities are the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), and Federal Home Loan Mortgage Corporation ("FHLMC").
Obligations of GNMA are
8
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backed by the full faith and credit of the U.S. Government while obligations of
FNMA and FHLMC are supported by the respective agency only. The Fund may
purchase mortgage-backed securities that are backed or collateralized by fixed,
adjustable or floating rate mortgages.
The 1784 Asset Allocation Fund may invest in floating or variable rate debt
obligations. The Fund is not subject to maturity restrictions. Fixed income
obligations owned by the Fund which become less than the prescribed investment
quality after purchase will be sold at a time when, in the judgment of the
Fund's Adviser, it is not in the Fund's interest to continue to hold such
securities.
The 1784 Asset Allocation Fund may, for hedging purposes or in order to
generate additional income, write (sell) covered call options, and may, for
hedging purposes, enter into futures contracts and related options. In
addition, the Fund may make additional types of investments and engage in other
investment practices, as described in "Description of Permitted Investments and
Techniques."
For more information regarding the permitted investments and investment
practices of the 1784 Asset Allocation Fund, the purposes of these investments
and investment practices and certain risks associated with certain of these
investments and investment practices, see "Certain Investment Policies and
Guidelines," "Certain Additional Risk Considerations," "Description of
Permitted Investments and Techniques" and the Statement of Additional
Information.
The 1784 International Equity Fund is a diversified fund that under normal
circumstances and as a non-fundamental policy, invests at least 65% of its
total assets in equity securities, and at least 65% of its total assets in
securities of issuers organized in at least three countries other than the
United States, including developing countries. For purposes of this policy,
equity securities are defined as including common stock, preferred stock,
securities convertible into common stock (such as convertible notes,
convertible debentures and convertible preferred stock), trust or limited
partnership interests, and rights and warrants to acquire equity securities,
and also include securities purchased directly or in the form of sponsored
American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") or
other similar securities representing common stock of foreign issuers.
Other permitted investments of the 1784 International Equity Fund, including
fixed income securities, are described below in "Certain Investment Policies
and Guidelines" and "Description of Permitted Investments and Techniques."
The 1784 International Equity Fund will emphasize equity securities that in the
Fund's Advisers' opinion (1) have above average long-term growth prospects; (2)
have a market capitalization of at least $100 million; (3) have the potential
for an increase in shareholder dividend payments; (4) are issued by companies
that are financially sound; and (5) are issued by companies that have a record
of growth in both earnings and dividends. Some of the securities purchased by
the Fund may not meet one or more of these criteria.
The 1784 International Equity Fund may, for hedging purposes or in order to
generate additional income, write (sell) covered call options, and may, for
hedging purposes, enter into futures contracts and related options. In
addition, the Fund may make additional types of investments and engage in other
investment practices, as described in "Description of Permitted Investments and
Techniques."
The 1784 International Equity Fund may, in the future, seek to achieve its
investment objective by investing all of its assets in a diversified, open-end
management investment company having the same investment objective and policies
and substantially the same investment restrictions as those applicable to the
Fund. In such event, the Fund's Advisory Agreements would
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be terminated. Such investment would be made only if the Trustees of the Trust
believe that the aggregate per share expenses of the Fund and such other
investment company will be less than or approximately equal to the expenses
which the Fund would incur if it were to continue to retain the services of
investment advisers and the assets of the Fund were to continue to be invested
directly in portfolio securities.
For more information regarding the permitted investments and investment
practices of the 1784 International Equity Fund, the purposes of these
investments and investment practices and certain risks associated with certain
of these investments and investment practices, see "Certain Investment Policies
and Guidelines," "Description of Permitted Investments and Techniques,"
"Certain Additional Risk Considerations" and the Statement of Additional
Information.
CERTAIN INVESTMENT POLICIES AND GUIDELINES
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Each Equity Fund may make any of the investments or engage in any of the
investment practices described under "Description of Permitted Investments and
Techniques." Each Equity Fund's investments normally consist primarily of
securities that are listed on recognized exchanges or actively traded in the
over-the-counter market. Each Equity Fund may also hold securities that are
neither so listed nor so traded. However, none of the Equity Funds invests more
than 15% of its net assets in illiquid securities.
The money market instruments in which the Equity Funds may invest include: (1)
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities; (2) repurchase agreements; (3)
bank obligations described under "Description of Permitted Investments and
Techniques;" (4) commercial paper, other short-term debt securities or variable
or floating rate instruments rated in one of the two highest short-term rating
categories by a "nationally recognized statistical rating organization" as
defined under Securities and Exchange Commission rules ("NRSRO") or of
comparable credit quality as determined by the Fund's Adviser or Advisers; (5)
securities issued or guaranteed as to principal and interest by foreign
governments; and (6) asset-backed securities. Other money market instruments in
which the Equity Funds may invest are described under "Description of Permitted
Investments and Techniques." For temporary defensive purposes during periods
when it is determined by the Adviser or Advisers to such Fund that market
conditions warrant, each of the Equity Funds may invest up to 100% of its
assets in money market instruments. The Funds may also invest, for temporary
defensive purposes, in money market funds. To the extent a Fund is invested in
money market instruments and/or money market funds for temporary defensive
purposes, the Fund will not be pursuing its investment objective.
In general, mortgage-backed securities are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities the yield of which reflects then-prevailing interest
rates, which may be lower. Thus, mortgage-backed securities may not be an
effective means of locking in long-term interest rates for a Fund.
Under normal circumstances the annual portfolio turnover rate for each of the
Equity Funds is not expected to exceed 100%. For the fiscal years ended May 31,
1994 and May 31, 1995, this rate was 31.6% and 38.9%, respectively, for the
1784 Growth and Income Fund and 28.2% and 67.2%, respectively, for the 1784
Asset Allocation Fund. For the fiscal period ended May 31, 1995, this rate was
11.0% for the 1784 International Equity Fund.
Investments in equity securities will fluctuate in value based on many factors,
including actual and anticipated earnings, changes in management, political and
economic developments and the potential for takeovers and acquisitions;
therefore the shares of each of the Equity Funds will fluctuate in value. In
addition, the
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market value of fixed income investments (including money market instruments)
will change in response to interest rate changes and other factors such as
perceived changes in the credit quality of or the supply and demand for such
investments. During periods of falling interest rates, the values of
outstanding fixed income securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities generally decline.
Moreover, while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject to greater
market fluctuations as a result of changes in interest rates. Changes by
recognized agencies in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal also affect the
value of these investments. Changes in the value of Fund securities will affect
the Fund's net asset value; under most circumstances, changes in the value of
Fund securities will not affect cash income derived from these securities, but
there can be no guaranty that such cash income will not be adversely affected.
Each of the Equity Funds may, from time to time, engage in securities lending;
however, loans made by a Fund of the securities it holds may not exceed 33 1/3%
of that Fund's total assets. Each of the Funds may purchase securities on a
when-issued basis. Each of the Funds may, for hedging purposes, enter into
interest rate futures contracts and related options and stock index futures
contracts and related options, and may, for hedging and other non-speculative
purposes, engage in foreign currency exchange transactions on a spot basis, by
entering into forward currency exchange contracts, or by investing in currency
futures contracts and options thereon.
CERTAIN ADDITIONAL RISK CONSIDERATIONS
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Each of the 1784 Growth and Income Fund and the 1784 Asset Allocation Fund may
invest not more than 25% of its assets in securities of foreign issuers. The
1784 International Equity Fund seeks to invest at least 65% of its total assets
in securities of issuers organized in at least three countries other than the
United States.
The Funds do not represent a complete or a balanced investment program for
investors. The 1784 International Equity Fund is designed to give investors a
way to commit a portion of their assets to portfolios of foreign securities.
Each prospective purchaser should take into account his or her investment
objectives as well as his or her other investments when considering the
purchase of shares of a Fund.
Investors in the Funds should recognize that investing in foreign securities
(including investments in ADRs, ADSs, EDRs and CDRs) involves considerations
not typically associated with investing in U.S. securities. Since a Fund may
hold securities denominated in foreign currencies and, at times, hold various
foreign currencies prior to their investment in foreign securities or their
conversion into U.S. dollars, the value and yield of the assets of the Fund, as
measured in U.S. dollars, will be affected favorably or unfavorably by changes
in exchange rates. In addition, because each Fund is required to compute and
distribute its income in U.S. dollars, a Fund may be required to liquidate
portfolio securities should the exchange rate for any currency decline after
income has been earned and translated into U.S. dollars. Similarly, if an
exchange rate declines between the time a Fund incurs expenses in U.S. dollars
and the time such expenses are paid, the amount of currency required to be
converted by the Fund to pay such expenses in U.S. dollars will be greater than
the amount which would have been required to pay such expenses when incurred. A
Fund also may be adversely affected by any restrictions on the conversion or
transfer of foreign currencies.
In addition, while the volume of transactions effected on foreign stock
exchanges continues to grow, volume in certain securities markets is
appreciably below that of U.S. securities markets. Accordingly, a Fund's
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of U.S. companies. Moreover, the
settlement periods for foreign securities, which are often longer than those
for securities of U.S. issuers, may affect portfolio liquidity. In buying and
selling securities on
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foreign exchanges, fixed commissions are normally paid that are generally
higher than the negotiated commissions charged in the United States.
In general, there is also less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than there is in
the United States. Also, it usually is more difficult to obtain complete
information about companies abroad than companies in the United States. Most
foreign companies are not subject to the same uniform accounting and financial
reporting requirements as are applicable in the United States.
Income from foreign securities bought by a Fund may, and in some cases will, be
reduced by a withholding tax at the source. In some cases, at the election of
the Fund, shareholders of the Fund (other than tax-exempt institutions) will be
entitled, subject to certain limitations, to claim credits or deductions on
their U.S. federal income tax returns for their proportionate share of foreign
income and certain other taxes paid by the Fund. See "Taxes" and "General
Information--Dividends and Distributions."
Political developments or social instability can also have an adverse impact on
the market value of investments in affected countries. It is possible that
certain countries may expropriate corporate assets, subject companies within
their borders to punitive or unduly high taxation or block the exchange or
transfer of currencies.
Furthermore, the economies of individual foreign nations may differ from the
U.S. economy, whether favorably or unfavorably, in areas such as growth of
gross national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. It may also be more difficult to
obtain and enforce a judgment against a foreign issuer. Any foreign investments
made by a Fund must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments. Although the 1784 International Equity Fund has no minimum
requirement for diversification of its portfolio securities by country, the
Fund attempts to reduce the risks associated with being invested in the economy
of any one country by investing its assets in a portfolio of securities
consisting of securities of issuers organized in at least three countries other
than the United States.
The 1784 International Equity Fund may invest its assets in companies (or
governments) of or within developed as well as developing countries throughout
the world. Each of the 1784 Growth and Income Fund and the 1784 Asset
Allocation Fund may invest not more than 5% of its assets in securities of
issuers in developing countries. Shareholders should be aware that investing in
the equity and fixed income markets of developing countries involves exposure
to economic structures that are generally less diverse and mature, and to
political systems which can be expected to have less stability, than those of
developed countries. A developing country is generally considered to be one
which is in the initial stage of its industrialization cycle with a low per
capita income. Historical experience indicates that the markets of developing
countries have been more volatile than the markets of developed countries with
more mature economies; such markets often have provided higher rates of return
and greater risks to investors. Such characteristics can be expected to
continue in the future.
Investment in securities of issuers based in developing countries entails all
of the risks of investing in securities of foreign issuers outlined in this
section but to a heightened degree. These heightened risks include (i) greater
risks of expropriation, confiscatory taxation and nationalization, and less
social, political and economic stability; (ii) the small current size of
markets for securities of issuers based in developing countries and the
currently low or non-existent volume of trading, resulting in a lack of
liquidity and in price volatility; (iii) certain national policies which may
restrict a Fund's investment opportunities, including restrictions on investing
in issuers or industries deemed sensitive to relevant national interests; and
(iv) the absence of developed legal structures governing private or foreign
investment and private property.
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Each Fund may invest in smaller, lesser-known companies which the Adviser or
Advisers to such Fund believe offer greater growth potential than larger, more
mature, better-known companies. Investing in the securities of such companies,
however, also involves greater risk and the possibility of greater portfolio
price volatility. Among the reasons for the greater price volatility of these
small companies and unseasoned stocks are the less certain growth prospects of
smaller companies, the lower degree of liquidity in the markets for such
stocks, and the greater sensitivity of small companies to changing economic
conditions. For example, these companies are associated with higher investment
risk than normally associated with larger firms due to the greater business
risks of small size and limited product lines, markets, distribution channels
and financial and managerial resources.
The operating expense ratio of the 1784 International Equity Fund is expected
to be higher than that of an investment company investing exclusively in
domestic securities since the expenses of the Fund, such as custodial costs,
valuation costs and communications costs, as well as the rate of the advisory
fees, are higher than those costs typically incurred by investment companies
investing exclusively in domestic securities.
INVESTMENT LIMITATIONS
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The investment objective of each Fund and the following investment limitations
are fundamental policies of that Fund. Fundamental policies cannot be changed
with respect to a Fund without the consent of the holders of a majority of that
Fund's outstanding shares. The term "majority of the outstanding shares" means
the vote of (i) 67% or more of the Fund's shares present at a meeting, if more
than 50% of the outstanding shares of the Fund are present or represented by
proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is
less.
A Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of the Fund would be invested in the securities of such issuer or more
than 10% of the outstanding voting securities of such issuer would be owned by
the Fund, provided that this limitation does not apply to an investment of all
of the investable assets of the 1784 International Equity Fund in a
diversified, open-end management investment company having the same investment
objective and policies and substantially the same investment restrictions as
those applicable to the Fund. This restriction applies to 75% of each Fund's
total assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities, and provided further that this limitation
does not apply to an investment of all of the investable assets of the 1784
International Equity Fund in a diversified, open-end management investment
company having the same investment objective and policies and substantially the
same investment restrictions as those applicable to the Fund. For purposes of
this limitation (i) utility companies will be divided according to their
services; for example, gas, gas transmission, electric and telephone will each
be considered a separate industry; (ii) financial service companies will be
classified according to the end users of their services; for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (iii) supranational entities will be
considered to be a separate industry.
3. Make loans, except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; (b) enter into
repurchase agreements; and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
4. Borrow, except that a Fund may borrow money from banks and may enter into
reverse repurchase
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agreements in an amount not to exceed 33 1/3% of the Fund's total assets and
then only as a temporary measure for extraordinary or emergency purposes (e.g.,
to meet Shareholder redemption requests). A Fund will not purchase any
securities for its portfolio at any time at which its borrowings equal or
exceed 5% of its total assets (taken at market value).
The foregoing percentages apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISERS
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The First National Bank of Boston ("Bank of Boston" or an "Adviser") manages
the assets of each of the 1784 Growth and Income Fund and the 1784 Asset
Allocation Fund pursuant to an Investment Advisory Agreement (the "Advisory
Agreement") with the Trust. Subject to such policies as the Board of Trustees
of the Trust may determine, Bank of Boston makes investment decisions for each
such Fund. Eugene D. Takach, Fund Manager, and Theodore E. Ober, Fund Manager,
have been the co-managers of the 1784 Growth and Income Fund since June, 1993.
Mr. Takach, who has more than 30 years of experience in investment management,
research analysis and securities trading, has been a Portfolio Manager at Bank
of Boston since 1971. Mr. Ober, who has more than seven years of investment
management experience, was a Portfolio Assistant at Bank of Boston from 1987 to
1989 and an Assistant Fund Manager from 1989 to 1992, and has been a Fund
Manager since 1992. Ronald J. Clausen, Senior Fund Manager, and Jack A. Ablin,
Senior Fund Manager, have been the co-managers of the 1784 Asset Allocation
Fund since June, 1993. Mr. Clausen, who has more than 30 years of experience in
investment management and research analysis, has been a Senior Fund Manager at
Bank of Boston since 1984. Mr. Ablin, who has more than nine years of
investment management experience, has been a Senior Fund Manager at Bank of
Boston since 1990. From 1987 to 1990, Mr. Ablin was a Fixed Income Portfolio
Manager with Constitutional Capital Management Company.
Bank of Boston and Kleinwort Benson Investment Management Americas Inc.
("Kleinwort Benson" or an "Adviser" and, together with Bank of Boston, the
"Advisers") serve as investment advisers to the 1784 International Equity Fund
pursuant to separate Investment Advisory Agreements (each an "Advisory
Agreement") with the Trust. Subject to such policies as the Board of Trustees
of the Trust may determine, Bank of Boston and Kleinwort Benson are responsible
for management of the assets of the 1784 International Equity Fund. Kleinwort
Benson furnishes a continuous investment program for the 1784 International
Equity Fund in conjunction with Bank of Boston's analysis of market
developments in South America. Fund investments are made with the agreement of
both Advisers. Kenton J. Ide, Director of Investments for The Private Bank at
Bank of Boston, has been a manager of the 1784 International Equity Fund since
the commencement of its operations. Mr. Ide, who has more than twenty years of
experience in investment management and research analysis, has been with the
Bank of Boston since early 1993. From 1983 to 1993, Mr. Ide was a Senior Vice
President with the Private Client Group of Boston Safe Deposit and Trust
Company. Juliet Cohn, senior portfolio manager at Kleinwort Benson, has also
been a manager of the 1784 International Equity Fund since the commencement of
its operations. Ms. Cohn, who has more than twelve years experience in
investment management, has been with Kleinwort Benson since 1987. Each Adviser
furnishes at its own expense all services, facilities and personnel necessary
in connection with managing the 1784 International Equity Fund's investments
and effecting securities transactions for the Fund.
For its services under the applicable Advisory Agreement, Bank of Boston
receives from each of the 1784 Growth and Income Fund and the 1784 Asset
Allocation Fund a fee accrued daily and paid monthly at an annual rate equal to
0.74% of such Fund's average daily net assets. However, Bank of Boston has
agreed for an indefinite period of time to waive all or a portion of its fees
in order to limit the total operating expenses of each of these Funds on an
annualized basis
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to not more than 1.25% of its average daily assets; this limitation would not
apply to any brokerage commissions, interest expense or taxes or to
extraordinary expense items, including but not limited to litigation expenses.
For its services under its Advisory Agreement with respect to the 1784
International Equity Fund, Bank of Boston receives from the 1784 International
Equity Fund a fee accrued daily and paid monthly at an annual rate equal to
0.50% of the Fund's average daily net assets. For its services under its
Advisory Agreement, Kleinwort Benson receives from the 1784 International
Equity Fund a fee accrued daily and paid monthly at an annual rate equal to
0.50% of the Fund's average daily net assets. The Trustees have determined that
the aggregate advisory fees payable to the Advisers are reasonable in light of
the 1784 International Equity Fund's investment policy of investing primarily
in foreign issuers. Although these advisory fees are similar to such fees
currently being paid by other investment companies which also invest primarily
in foreign issuers, they are higher than such fees currently being paid by most
investment companies in general. Bank of Boston has agreed for an indefinite
period of time to waive all or a portion of its fees in order to limit the
total operating expenses of the 1784 International Equity Fund to not more than
1.75% of the average daily net assets of the Fund on an annualized basis; this
limitation would not apply to any brokerage commissions, interest expense or
taxes or to extraordinary expense items, including but not limited to
litigation expenses. Kleinwort Benson may also agree from time to time to waive
all or a portion of its fees. Fee waivers may be terminated at any time. From
time to time Bank of Boston may also waive additional portions of its fees to
reduce net operating expenses to less than the amount specified above.
For the fiscal year ended May 31, 1995, the fees payable to Bank of Boston
under the Advisory Agreement with respect to each of the 1784 Growth and Income
Fund and the 1784 Asset Allocation Fund were as follows: for the 1784 Growth
and Income Fund, $1,393,008 (0.74% of such Fund's average daily net assets for
that period) and for the 1784 Asset Allocation Fund, $55,070, of which $31,514
was voluntarily waived (after giving effect to such waiver, 0.32% of such
Fund's average daily net assets for that period). In addition, the Bank of
Boston contributed $51,775 to the 1784 Growth and Income Fund and $28,647 to
the 1784 Asset Allocation Fund to decrease the Funds' other operating expenses
and to assist the Funds in maintaining a competitive expense ratio. For the
period from January 3, 1995 (commencement of operations) through May 31, 1995,
the fee payable under the Advisory Agreement with Bank of Boston with respect
to the 1784 International Equity Fund was $199,000, all of which was
voluntarily waived; and the fee payable under a prior advisory agreement with
Kleinwort Benson (the terms of which are identical to those of the Advisory
Agreement with respect to the 1784 International Equity Fund currently in
effect) was $199,000 (0.21% of such Fund's average daily net assets for that
period). Management's discussion of the Equity Funds' performance is included
in the Funds' Annual Report to Shareholders which investors may obtain without
charge by contacting the Distributor. The Funds may execute brokerage or other
agency transactions through an Adviser to a Fund or an affiliate.
Bank of Boston, a national banking association, is the successor to a number of
banking institutions, the first of which was chartered in 1784. All of the
capital stock of Bank of Boston (except directors' qualifying shares) is
owned by Bank of Boston Corporation, a registered bank holding company. Bank of
Boston and its affiliates are engaged in providing a wide variety of financial
services to individuals, corporate and institutional customers, governments,
and other financial institutions throughout New England, the United States and
internationally. These services include individual and community banking,
consumer finance, mortgage origination and servicing, domestic corporate and
investment banking, leasing, international banking services, commercial real
estate lending, private banking, trust services, correspondent banking, and
securities and payments processing. Bank of Boston's principal business address
is 100 Federal Street,
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Boston, MA 02110. Prior to the organization of the Trust in 1993, Bank of
Boston had not served as the investment adviser for management investment
companies. Bank of Boston also manages the other funds comprising the Trust.
Bank of Boston has been providing asset management services since 1890. Its
portfolio managers are responsible for investing in money market, equity, and
fixed income securities and they have earned national recognition and respect.
The investment management group within Bank of Boston which manages the Equity
Funds is the same group which has managed Bank of Boston's collective trust
funds with similar investment objectives. As of December 31, 1994, Bank of
Boston and its affiliates managed more than $13 billion in assets worldwide.
Kleinwort Benson, 200 Park Avenue, New York, New York 10166, is the U.S.
registered investment management subsidiary of the London based Kleinwort
Benson Group plc, a merchant banking group whose origins date back to 1792,
which in turn is a subsidiary of Dresdner Bank A.G. Kleinwort Benson has
offices in London, Hong Kong and Tokyo and may utilize the general expertise of
Kleinwort Benson Group plc and its affiliates in respect of, for example,
economic analyses and predictions and market developments and trends.
Since it commenced operations in 1980, Kleinwort Benson has managed investment
accounts, primarily for institutions in North America, comprised of equity,
fixed income and balanced portfolios. As of December 31, 1994, Kleinwort Benson
had approximately $1.014 billion of assets under management.
Bank of Boston and its affiliates, and Kleinwort Benson and its affiliates, may
have deposit, loan and other commercial banking relationships with the issuers
of securities purchased on behalf of the Funds, including outstanding loans to
such issuers which may be repaid in whole or in part with the proceeds of
securities so purchased. Bank of Boston and its affiliates, and Kleinwort
Benson and its affiliates, deal, trade and invest for their own account in
certain types of securities purchased on behalf of the Funds. Each Adviser and
its affiliates may sell such securities to and purchase them from other
investment companies sponsored by SEI Financial Services Company or its
affiliates. Each Adviser has informed the Trust that, in making its investment
decisions, it does not obtain or use material inside information in the
possession of any of its divisions or departments or in the possession of any
of its affiliates.
The Glass-Steagall Act prohibits certain financial institutions, such as Bank
of Boston, from engaging in the business of underwriting securities of open-end
investment companies, such as the Funds. Bank of Boston takes the position,
based on the advice of counsel, that the investment advisory services it
provides under the Advisory Agreements do not constitute underwriting
activities and are consistent with the requirements of the Glass-Steagall Act
and other relevant federal and state legal and regulatory precedent. State laws
on this issue may differ from applicable federal law, and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Future changes in either federal or state statutes or
regulations relating to the permissible activities of banks, as well as future
judicial or administrative decisions and interpretations of present and future
federal and state statutes and regulations, could prevent Bank of Boston from
continuing to perform such services for the Trust. If Bank of Boston were to be
prevented from acting as an Adviser, the Trust would seek alternative means for
obtaining such services.
THE ADMINISTRATOR
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SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), and the Trust are parties to an
administration agreement dated as of June 1, 1993 (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
provides the Trust with administrative services other than investment advisory
services, including all regulatory
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reporting, necessary office space, equipment, personnel, and facilities.
The Administrator is entitled to a fee which is calculated daily and paid
monthly at an annual rate of 0.15% of the Trust's first $300 million of average
daily net assets, 0.12% of the Trust's second $300 million of average daily net
assets and 0.10% of the Trust's average daily net assets over $600 million.
Each Equity Fund's portion of such fee is based on the average daily net assets
of such Fund. The Administrator has agreed to waive a portion of its fees on a
month to month basis under certain circumstances for certain of the portfolios
of the Trust.
THE SHAREHOLDER SERVICING AND TRANSFER AGENT
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SEI Financial Management Corporation acts as dividend disbursing agent and
shareholder servicing agent for the Trust. Compensation for these services is
paid under the Administration Agreement. SEI Financial Management Corporation
also acts as transfer agent (the "Transfer Agent") under a separate transfer
agency agreement. The principal business address of the Transfer Agent is 680
East Swedesford Road, Wayne, PA 19087.
THE DISTRIBUTOR
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SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") dated as of June 1, 1993, and the Trust has adopted a
distribution plan (the "Plan") dated as of June 1, 1993 pursuant to Rule 12b-1
under the Investment Company Act of 1940. As provided in the Distribution
Agreement and the Plan, the Trust will pay the Distributor a fee for its
services, calculated daily and paid monthly, at an annual rate of .25% of the
average daily net assets of each Equity Fund. The Distributor may apply all or
a portion of this fee toward: (a) compensation for its services in connection
with distribution assistance or provision of Shareholder services; or (b)
payments to financial institutions and intermediaries such as banks (including
Bank of Boston), savings and loan associations, insurance companies, and
investment counselors, broker-dealers and the Distributor's affiliates and
subsidiaries, as compensation for services, reimbursement of expenses incurred
in connection with distribution assistance or provision of Shareholder
services. The Plan is characterized as a "compensation plan" (in contrast to
"reimbursement" arrangements in which a distributor's compensation is linked
directly to the distributor's expenses) since the distribution fee will be paid
to the Distributor without regard to the distribution or Shareholder service
expenses incurred by the Distributor or the amount of payments made to
financial institutions and intermediaries. The Distributor has agreed to waive
the 12b-1 fee. This waiver may be terminated by the Distributor at any time.
The Trust may create one or more additional classes of shares of any or all of
the Equity Funds to be offered without distribution fees to certain types of
investors.
The Funds may execute brokerage or other agency transactions through the
Distributor, for which the Distributor receives compensation.
From time to time the Distributor may provide incentive compensation to
employees of banks (including Bank of Boston), broker-dealers and investment
counselors, and to its own employees, in connection with the sale of shares of
the Funds or other portfolios of the Trust. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation, including merchandise, airline vouchers, trips and vacation
packages. Such promotional incentives will be offered uniformly to all program
participants and will be predicated upon the amount of shares of the Funds and
other portfolios of the Trust sold by the participant.
PURCHASE OF SHARES
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Shares of the Funds are sold on a continuous basis and may be purchased
directly from the Trust's Distributor
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I784 FUNDS
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either by mail or by telephone. Shares may also be purchased through a broker-
dealer which has established a dealer agreement with the Distributor.
Purchases of shares of each Fund may be made Monday through Friday except on
days when the New York Stock Exchange or the Federal Reserve Bank of Boston is
closed ("Business Days"). Current holidays for the New York Stock Exchange
and/or the Federal Reserve Bank of Boston are New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Thanksgiving and Christmas. Except as provided below, the
minimum initial investment in the shares is $1,000, and all subsequent
purchases of shares must be at least $250. Minimum purchase amounts may be
waived by the Distributor in its discretion. No minimum purchase amount applies
to subsequent purchases made by reinvestment of dividends.
The purchase price for shares of a Fund is their net asset value next
determined after the Distributor receives a purchase order in good form. Net
asset value per share is determined as of the close of regular trading on the
New York Stock Exchange, 4:00 p.m. ET, on each Business Day. Purchases will be
made in full and fractional shares of a Fund calculated to three decimal
places.
A purchase order for shares of a Fund will be effective as of the Business Day
the order is received by the Distributor if the Distributor receives a purchase
order, in good form, for the shares and payment (by wire transfer or check) for
the shares before 4:00 p.m. ET on that day. Purchase orders submitted through
broker-dealers which have established dealer agreements with the Distributor
normally will be received by the Distributor on the Business Day after they are
received by the broker-dealer. In certain circumstances where the agreement
between the Distributor and the customer's broker so permits, a purchase order
for additional shares of an Equity Fund will be effective as of the Business
Day the order is received by the Distributor if the Distributor receives a
purchase order in good form for the shares before 4:00 p.m. ET on that day and
payment (by wire transfer or check) for the shares is received before 4:00 p.m.
ET within 5 Business Days thereafter.
By Mail
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Investors may purchase shares of any Fund by completing and signing an Account
Application and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to the Fund in which shares are being
purchased, e.g., "1784 Growth and Income Fund," "1784 Asset Allocation Fund" or
"1784 International Equity Fund," to SEI Financial Management Corporation (the
"Transfer Agent"), P.O. Box 1784, Wayne, PA 19087-8784. Subsequent purchases of
shares may be made at any time by mailing a check (or other negotiable bank
draft or money order) to the Transfer Agent.
Account Applications can be obtained by calling the Distributor at
1-800-BKB-1784.
By Telephone
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If a Shareholder has previously submitted an Account Application, that
Shareholder may also purchase shares by telephone by calling the Distributor
toll-free at 1-800-BKB-1784. Orders by telephone will not be executed until an
Account Application and payment have been received. In certain circumstances
where the agreement between the Distributor and the customer's broker so
permits, orders by telephone representing subsequent purchases of shares of an
Equity Fund will be executed prior to receipt of payment, but payment must be
received before 4:00 p.m. ET within 5 Business Days thereafter.
Tax-Deferred Retirement Programs
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The Funds are eligible for purchase by tax-deferred retirement programs such as
IRAs, KEOGHs, and 401(k) plans, and the minimum initial investment requirement
for an account established under such a program is $250. Bank of Boston offers
a number of tax-deferred retirement plans through which shares of
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the Funds may be purchased. All accounts in a Fund established under a tax-
deferred retirement program must elect to have all dividends reinvested in the
Fund.
Systematic Investment Plan (SIP)
- --------------------------------------------------------------------------------
A Shareholder may also arrange for periodic additional investments in an Equity
Fund through automatic deductions by Direct Deposit (if available from a
Shareholder's employer) or by Automated Clearing House ("ACH") transactions
from a checking account by completing the appropriate section of the Account
Application. The Systematic Investment Plan is subject to account minimum
initial purchase amounts and minimum maintained balance requirements. The
minimum pre-authorized investment amount is $50 per month. An Account
Application may be obtained by contacting the Distributor at 1-800-BKB-1784.
Other Information Regarding Purchases
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Shares of a Fund may also be purchased through financial institutions,
including Bank of Boston, which provide shareholder service or other assistance
to the Trust. Texas residents may only purchase shares through the Distributor.
Shares purchased by persons ("Customers") through financial institutions may be
held of record by the financial institution. Financial institutions may impose
cut-off times for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Distributor. Customers should
contact their financial institution for information as to the institution's
procedures for transmitting purchase, exchange or redemption orders to the
Distributor. The Distributor's receipt of an order may be delayed by one or
more Business Days.
Customers who desire to transfer the registration of shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change. Other Shareholders who desire to
transfer the registration of their shares should contact the Administrator.
Purchases may be made by ACH transactions, as well as by check or wire
transfer.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution.
No certificates representing shares will be issued.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such offer. Each Fund will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. These
procedures will include verification of a caller's identity by asking for his
or her name, address, telephone number, Social Security number, and account
number. If these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine are not followed, the Fund may be liable
for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
For all purchases, if payment is not made or a check received for shares does
not clear, the purchase will be cancelled and the investor could be liable for
any losses to the Fund, including losses resulting from a decline in the net
asset value of the applicable shares between the date of purchase and the date
of cancellation, and for a check return fee up to $25.00, as applicable. Shares
purchased will begin accruing dividends on the date following the date of
purchase.
The net asset value per share of each Fund is determined by dividing the total
market value of the Fund's investments and other assets, less any liabilities,
by the total outstanding shares of the Fund. Each Fund may use a pricing
service to provide market quotations. A pricing service may use a matrix system
of valuation to value fixed income securities which considers factors
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such as securities prices, yield features, ratings, and developments related to
a specific security.
REDEMPTION OF SHARES
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Shareholders may redeem their shares on any Business Day and shares may
ordinarily be redeemed by mail or telephone, with proceeds payable by check,
ACH or wire transfer. A redemption is treated, for federal and state income tax
purposes, as a sale of the Fund shares redeemed; a redemption could, therefore,
result in taxable gain or loss to the Shareholder. If proceeds are paid by wire
transfer, a wire transfer charge (presently $12.00) will be imposed.
By Mail
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A written request for redemption must be received by the Transfer Agent in good
form in order to constitute a valid request for redemption. All account holders
must sign the redemption request. Under certain circumstances, the Transfer
Agent may require that the signatures on the request be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange or by another
eligible guarantor institution. Redemption requests may be mailed to SEI
Financial Management Corporation, P.O. Box 1784, Wayne, PA 19087-8784 or 680
East Swedesford Road, Wayne, PA 19087.
By Telephone
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Shares may be redeemed by telephone if the Shareholder elects that option on
the Account Application (unless a written redemption request, with the
Shareholder's signature guaranteed, is required; see "Signature Guarantees"
below). Telephone redemption orders must be placed with the Transfer Agent
prior to 4:00 p.m. ET on any Business Day to be effective on such day. The
Shareholder may have the proceeds mailed to his or her address or wired to a
commercial bank account previously designated on the Account Application.
Telephone redemption requests may be made by calling the Transfer Agent at
1-800-BKB-1784. Shareholders may not close their account by telephone. During
periods of drastic economic or market changes or severe weather or other
emergencies, Shareholders may find it difficult to implement a telephone
redemption. If such a case should occur, another method of redemption, such as
written request sent via an overnight delivery service, should be considered.
Signature Guarantees
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If a Shareholder requests a redemption for an amount in excess of $25,000, a
redemption of any amount to be payable to anyone other than the Shareholder of
record or a redemption of any amount to be sent to any address other than the
Shareholder's address of record with the applicable Fund (or in the case of ACH
or wire transfers, other than as provided in the Shareholder's Account
Application), all account holders on the Shareholder's account must sign a
written redemption request and their signatures must be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange or by another
eligible guarantor institution. The Trust and the Transfer Agent reserve the
right to amend these requirements for the applicable Fund at any time without
notice. For questions about the proper form of redemption requests, call
1-800-BKB-1784.
Other Information Regarding Redemptions
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All redemption orders for shares of the Funds are effected at the net asset
value per share next determined after receipt, by the Transfer Agent, of a
valid request for redemption in good form, as described above. Payment to
Shareholders for shares redeemed will be made within seven days after receipt
by the Transfer Agent of the request for redemption. A redemption must involve
either shares having an aggregate value of at least $250 or all the shares in
an account. Each Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures will
include verification of a caller's identity by asking for his or her name,
address, telephone number, Social Security number, and account number. If these
or other reasonable
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procedures to confirm that instructions communicated by telephone are genuine
are not followed, the Fund may be liable for any losses to a Shareholder due to
unauthorized or fraudulent instructions. Otherwise, the investor will bear all
risk of loss relating to a purchase, redemption or exchange by telephone or a
wire transfer.
Forwarding of redemption proceeds for shares purchased, or received in exchange
for shares purchased, by check (including certified or cashier's checks) may be
delayed for 15 or more days to ensure that payment has been collected for the
purchase of such shares. The Funds intend to pay cash for all shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in Fund securities with a market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem, at net asset value, the shares of any Shareholder
if, because of redemptions of shares by or on behalf of the Shareholder (and
not solely because of market declines), the account of such Shareholder in the
Fund has a value of less than the minimum initial purchase amount (normally
$1,000). Accordingly, an investor purchasing shares of a Fund in only the
minimum investment amount may be subject to such involuntary redemption if he
or she thereafter redeems any of these shares. Before the Fund exercise its
right to redeem such shares and to send the proceeds to the Shareholder, the
Shareholder will be given notice that the value of the shares in his or her
account is less than the minimum amount and will be allowed 60 days to make an
additional investment in the Fund in an amount which will increase the value of
the account to at least the minimum amount. Accounts established under a tax-
deferred retirement program may be subject to involuntary redemption as
described above only if such account has a value of less than $250, the minimum
initial purchase amount for such accounts.
The right of any Shareholder to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or to the extent otherwise
permitted by the Investment Company Act of 1940, as amended, if an emergency
exists. See "Purchase and Redemption of Shares" in the Statement of Additional
Information for examples of when the right of redemption may be suspended.
SYSTEMATIC WITHDRAWAL PLAN
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A Shareholder may direct the shareholder servicing agent to send him or her
regular monthly, quarterly, semi-annual or annual payments, as designated on
the Account Application and based upon the value of his or her account. Each
payment under a systematic withdrawal plan must be at least $100, except in
certain limited circumstances. A withdrawal payment under the plan is treated,
for federal and state income tax purposes, as a sale of a number of Fund shares
sufficient to fund the payment; such payment could, therefore, result in
taxable gain or loss to the Shareholder.
EXCHANGES
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Some or all of the shares of an Equity Fund for which payment has been received
by the Distributor (i.e., an established account) may be exchanged at their net
asset value for shares of one or more of the other portfolios of the Trust,
including shares of another Equity Fund. Exchanges will be made only after
instructions in writing or by telephone are received for an established account
by the Distributor.
In the case of shares held of record by Bank of Boston or one of its affiliates
but beneficially owned by a Customer, to exchange such shares the Customer
should contact Bank of Boston or the affiliate, who will contact the
Distributor and effect the exchange on behalf of the Customer. If an exchange
request in good order is received by the Distributor by 4:00 p.m. ET on any
Business Day, the exchange usually will occur
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on that day; however, requests for exchange for shares of a money market fund
must be received earlier than 4:00 p.m. ET (in cases when regular trading on
the New York Stock Exchange closes earlier than 4:00 p.m. ET, as early as 12:00
noon ET) for the exchange to occur on that day. Any Shareholder or Customer who
wishes to make an exchange must have received a current prospectus of the
portfolio in which he or she wishes to invest before the exchange will be
effected. Residents of any state may only exchange shares for shares of another
portfolio of the Trust if that portfolio is registered in that state.
Each exchange must involve either shares having an aggregate value of at least
$250 or all the shares in the account, and the amount of the exchange must meet
the minimum investment requirements for the portfolio of the Trust into which
the exchange is being made.
Exchanges may be made by telephone only if that option has been elected by the
Shareholder on the Account Application. Shares may be exchanged by telephone by
calling the Distributor toll free at 1-800-BKB-1784.
No fees are currently charged to Shareholders directly in connection with
exchanges, although each of the Equity Funds reserves the right, upon not less
than 60 days' written notice, to charge Shareholders a nominal fee in
accordance with rules promulgated by the SEC. Each of the Equity Funds also
reserves the right to reject any exchange request in whole or in part. The
exchange privilege (or any aspect of it) may be changed or terminated at any
time.
An exchange is treated, for federal and state income tax purposes, as a sale of
the Equity Fund shares exchanged; an exchange could, therefore, result in
taxable gain or loss to the Shareholder.
PERFORMANCE
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From time to time, the Trust may advertise a Fund's yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. The yield of a Fund refers to the annualized
income generated by an investment in the Fund over a specified 30-day period.
The yield is calculated by assuming that the income generated by the investment
during that period is generated over one year and is shown as a percentage of
the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, net of any sales charge imposed, for designated time
periods (including but not limited to the period from which the Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all
dividend and capital gain distributions.
A Fund's performance may from time to time be compared to that of other mutual
funds tracked by mutual fund rating services, to that of broad groups of
comparable mutual funds or to that of unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs.
TAXES
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The following is a discussion of certain United States federal income tax
considerations relevant to the purchase, ownership, and disposition of shares
in the Funds. The discussion, which is based on current tax laws, regulations,
rulings and judicial decisions (all of which are subject to change at any time
by legislative, judicial or administrative action), is not intended to be
complete; therefore, prospective investors should consult their own tax
advisers as to the tax consequences to them of an investment in a Fund.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
Tax Status of the Equity Funds
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Each Fund is treated as a separate entity for federal income tax purposes, and
is not combined with the
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other Funds or the Trust's other portfolios. The Trust intends to qualify each
Fund each year as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and to make
distributions to that Fund's shareholders in accordance with the timing
requirements set out in the Code. As a result, it is expected that the Funds
will not be required to pay any federal income or excise taxes, although
foreign source income received by a Fund may be subject to foreign withholding
taxes.
Tax Treatment of Shareholders
- --------------------------------------------------------------------------------
Shareholders of the Funds normally will have to pay federal income taxes and
any state or local taxes on the dividends and capital gain distributions they
receive from the Funds, whether paid in cash or in additional shares.
Distributions from net investment income and short-term capital gains will be
taxable to Shareholders as ordinary income, while distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) will be taxable to Shareholders as long-term capital gains, regardless
of how long Shareholders have held their shares. Foreign exchange gain or loss
will generally be treated as ordinary gain or loss. A portion of the dividends
received from the Funds (but none of the Funds' capital gains distributions)
may be eligible for the dividends received deduction for corporations. Any Fund
dividend that is declared in October, November, or December of a calendar year,
payable to Shareholders of record in such a month, and that is paid the
following January will be treated as if received by the Shareholders on
December 31 of the year in which the dividend is declared.
The Trust will make annual reports to Shareholders of the federal income tax
status of all distributions from each Fund.
The exchange or redemption of Equity Fund shares is a taxable event to the
Shareholder; however, under certain circumstances, realized losses may be
disallowed and short-term capital losses may be converted into long-term
capital losses.
Income received by a Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is impossible to determine the effective rate of foreign tax in
advance since the amount of a Fund's assets to be invested in various countries
is not known. Investment by a Fund in certain "passive foreign investment
companies" may be limited in order to avoid imposition of a tax on the Fund.
If the 1784 International Equity Fund is liable for foreign taxes and if more
than 50% of the value of the Fund's total assets at the close of its taxable
year consists of stocks or securities of foreign corporations, the Fund may
make an election pursuant to which certain foreign taxes paid by it would be
treated as having been paid directly by its Shareholders. Pursuant to such
election, the amount of foreign taxes paid by the 1784 International Equity
Fund would be included in the general gross income of its Shareholders, and
Shareholders (except tax-exempt Shareholders) may, subject to certain
limitations, claim either a credit or deduction for the taxes on their federal
income tax returns. Shareholders who do not itemize deductions may (subject to
these limitations) claim a credit, but not a deduction for the taxes. Each
Shareholder will be notified after the close of the 1784 International Equity
Fund's taxable year whether the foreign taxes paid by the Fund will "pass
through" for that year and, if so, such notification will designate (a) the
Shareholder's portion of the foreign taxes paid to each such country and (b)
the portion of the Fund distributions for such year which represents income
derived from sources within each such country.
The Funds will generally withhold tax payments at the rate of 30% on dividends
and other payments that are subject to such withholding and that are made to
persons who are neither citizens nor residents of the
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U.S., although the 30% rate may be reduced to the extent provided by an
applicable tax treaty. Each Fund is also required in certain circumstances to
withhold 31% of taxable dividends and certain redemption proceeds paid to any
Shareholder (including a Shareholder who is neither a citizen nor a resident of
the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. Backup
withholding will not, however, be applied to payments that have been subject to
30% (or lower treaty rate) withholding.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust
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The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated February 5, 1993. The Declaration of Trust permits the Trust to
issue an unlimited number of shares of beneficial interest of each of the
portfolios (referred to as "series") of the Trust, each of which is a separate
fund. In addition to the Equity Funds, the Trust includes the following funds:
1784 Institutional U.S. Treasury Money Market Fund, 1784 U.S. Treasury Money
Market Fund, 1784 Tax-Free Money Market Fund, 1784 U.S. Government Medium-Term
Income Fund, 1784 Short-Term Income Fund, 1784 Income Fund, 1784 Tax-Exempt
Medium-Term Income Fund, 1784 Connecticut Tax-Exempt Income Fund, 1784 Rhode
Island Tax-Exempt Income Fund, and 1784 Massachusetts Tax-Exempt Income Fund.
All consideration received by the Trust for shares of any fund and all assets
of such fund belong to that fund and are subject to liabilities related
thereto. The Trust reserves the right to create and issue additional series of
shares, and reserves the right to create and issue shares of additional classes
of any or all series.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses and reports to Shareholders,
costs of custodian services and registering the shares of the Funds and other
series under federal and state securities laws, pricing, insurance expenses,
brokerage costs, interest charges, taxes, amortization of organization
expenses, and any extraordinary expenses including but not limited to
litigation expenses. For the fiscal year ended May 31, 1995, the total expenses
of each of the 1784 Growth and Income Fund and the 1784 Asset Allocation Fund
were as follows: for the 1784 Growth and Income Fund, $2,316,713, of which
$548,845 was voluntarily waived or reimbursed by the Bank of Boston (after
giving effect to such waiver, 0.94% of such Fund's average daily net assets for
that period); and for the 1784 Asset Allocation Fund, $177,944, of which
$84,921 was voluntarily waived or reimbursed by the Bank of Boston (after
giving effect to such waiver, 1.25% of such Fund's average daily net assets for
that period). For the period from January 3, 1995 (commencement of operations)
through May 31, 1995, the total expenses of the 1784 International Equity Fund
were $677,200, of which $321,000 was voluntarily waived or reimbursed by the
Bank of Boston (after giving effect to such waiver or reimbursement, 0.89% of
the Fund's average daily net assets for that period).
Under applicable law, Shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the risk of a
Shareholder incurring financial loss on account of such Shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations and inadequate insurance existed. The Trust believes that the
likelihood of such circumstances is remote.
Trustees of the Trust
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The management and affairs of the Trust are supervised by its Board of
Trustees. The Trustees have approved contracts under which, as described above,
certain companies provide management, administrative and Shareholder services
to the Trust.
Voting Rights
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Each share held entitles the Shareholder of record to one vote. Each fund or
class will vote separately on
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matters relating solely to that fund or class. As a Massachusetts business
trust, the Trust is not required to hold annual meetings of Shareholders but
approval will be sought for certain changes in the operation of the Trust and
for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by Shareholders at a
special meeting called upon written request of Shareholders owning at least 10%
of the outstanding shares of the Trust. In the event that such a meeting is
requested, the Trust will provide appropriate assistance and information to the
Shareholders requesting the meeting.
Reporting
- --------------------------------------------------------------------------------
The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
Shareholder Inquiries
- --------------------------------------------------------------------------------
Shareholder inquiries should be directed to SEI Financial Management
Corporation, P.O. Box 1784, Wayne, Pennsylvania 19087-8784, at 1-800-BKB-1784.
Dividends and Distributions
- --------------------------------------------------------------------------------
Substantially all of the net investment income (not including capital gains) of
the Equity Funds is distributed in the form of dividends which are paid
quarterly in the case of the 1784 Growth and Income Fund and the 1784 Asset
Allocation Fund and at least annually in the case of the 1784 International
Equity Fund. Shareholders of record will be entitled to receive the dividend.
Currently, capital gains of each Fund, if any, will be distributed at least
annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the Shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Administrator at least 15 days prior to the distribution.
Dividends and distributions of the Funds are paid on a per-share basis. The
value of each share will be reduced by the amount of the payment. If the shares
are purchased shortly before the record date for a dividend or the distribution
of capital gains, a Shareholder will pay the full price for the shares and
receive some portion of the price back as a taxable dividend or distribution.
If dividend payments are returned and unclaimed within 30 days, they will be
reinvested and the Shareholder will be deemed to have elected to receive future
dividend and capital gain distributions in additional shares.
Counsel and Independent Accountants
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Bingham, Dana & Gould, Boston, MA, serve as counsel to the Trust. Coopers &
Lybrand L.L.P., Boston, MA, serve as the independent accountants of the Trust.
Custodian
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Bank of Boston, 100 Federal Street, Boston, MA 02110, acts as Custodian of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940. Foreign securities may be held
through subcustodians approved by the Trust's Board of Trustees. Under a
separate agreement, Bank of Boston also provides certain accounting services
for the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS AND TECHNIQUES
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The following is a description of certain of the permitted investments and
investment techniques for the Funds. Not all of the Funds will normally invest
in all of the investments, nor engage in all of the investment techniques,
listed below. See "Investment Policies." Except as specifically stated below or
elsewhere in this Prospectus or in the Statement of Additional Information with
respect to certain of the Funds' permitted investments and investment
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techniques, there are no limits on the amount of assets a Fund may invest in
particular types of securities.
Common and Preferred Stock -- Common stocks are generally more volatile than
other securities. Preferred stocks share some of the characteristics of both
debt and equity and are generally preferred over common stocks with respect to
dividends and in liquidation.
Convertible Securities -- Convertible securities have characteristics similar
to both fixed income and equity securities. Because of the conversion feature,
the market value of convertible securities tends to move together with the
market value of the underlying stock. As a result, a Fund's selection of
convertible securities is based, to a great extent, on the potential for
capital appreciation that may exist in the underlying stock. The value of
convertible securities is also affected by prevailing interest rates, the
credit quality of the issuer, and any call provisions. The convertible
securities in which the Funds may invest include both debt obligations and
preferred stock.
Options -- A Fund may engage in writing call options from time to time as
deemed by the Adviser or Advisers to a Fund to be appropriate. Under a call
option, the purchaser of the option has the right to purchase, and the writer
(the Fund) the obligation to sell, the underlying security at the exercise
price during the option period. Options written on individual securities are
written solely as covered call options (such as options written on securities
owned by the Fund) and may be written in order to generate additional income or
for hedging purposes. Such options must be listed on a national securities
exchange. In order to close out an option position, the Fund may enter into a
"closing purchase transaction" -- the purchase of a call option on the same
security with the same exercise price and expiration date as any call option
which it may previously have written on any particular security. When the Fund
security is sold, the Fund effects a closing purchase transaction so as to
close out any existing call option on that security. If the Fund is unable to
effect a closing purchase transaction, it will not be able to sell the
underlying security until the option expires or the Fund delivers the
underlying security upon exercise.
A Fund may write covered call options on its securities provided the aggregate
value of such options does not exceed 10% of the Fund's net assets as of the
time such options are entered into by the Fund.
The 1784 International Equity Fund may purchase put options on its securities
provided the aggregate value of such options does not exceed 10% of the Fund's
net assets as of the time such options are entered into by the Fund. Under a
put option, the purchaser of the option has the right to sell the underlying
security at the exercise price during the option period.
There are risks associated with options transactions, including the following:
(1) the success of a hedging strategy may depend on the ability of the Adviser
or Advisers to a Fund to predict movements in the prices of individual
securities, market fluctuations and movements in interest rates; (2) there may
be an imperfect correlation between the movement in prices of securities held
by a Fund and price movements of the related options; (3) there may not be a
liquid secondary market for options; and (4) while a Fund will receive a
premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security.
American, European and Continental Depositary Receipts --American Depositary
Receipts ("ADRs") are securities, typically issued by a U.S. financial
institution, that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer. ADRs include American Depositary Shares
("ADSs") and New York Shares. European Depositary Receipts ("EDRs"), which are
sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security
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underlying the receipt and a depositary, whereas an unsponsored facility may be
established by a depositary without participation by the issuer of the
receipt's underlying security. Holdings of an unsponsored depositary receipt
generally bear all the costs of the unsponsored facility and the depositary of
an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security
or to pass voting rights through to the holders of the receipts in respect of
the deposited securities.
Securities of Foreign Issuers -- Investments in securities of foreign issuers
(including ADRs, EDRs and CDRs) are subject to special risks such as future
adverse political and economic developments, possible seizure, nationalization
or expropriation of foreign investments, less stringent disclosure
requirements, more volatile or less liquid markets, the possible establishment
of exchange controls or taxation at the source, greater fluctuation in value
due to changes in exchange rates, or the adoption of other foreign governmental
restrictions. These risks are heightened for securities of issuers in
developing countries. Such investments may also entail higher custodial fees
than domestic investments. Foreign securities issuers are often subject to
accounting treatment and engage in business practices different from those of
domestic securities issuers. Each of the 1784 Growth and Income Fund and the
1784 Asset Allocation Fund may invest up to 5% of its assets in securities of
issuers in developing countries and up to 25% of its assets in securities of
foreign issuers, including the 5% it may invest in the securities of issuers in
developing countries. As a non-fundamental policy, at least 65% of the 1784
International Equity Fund's total assets will be invested in securities of
issuers organized in at least three countries other than the United States,
including developing countries. The 1784 International Equity Fund may invest
in foreign securities that impose restrictions on transfer within the United
States or to United States persons. Although securities subject to such
transfer restrictions may be marketable abroad, they may be less liquid than
foreign securities of the same class that are not subject to such restrictions.
Foreign Currency Transactions -- A Fund may engage in currency exchange
transactions to protect against uncertainty in the level of future exchange
rates in connection with hedging and other non-speculative strategies involving
specific settlement transactions. A Fund will conduct currency exchange
transactions either on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, or through entering into forward contracts to
purchase or sell currencies. A forward currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which must
be more than two days from the date of the contract, at a price set at the time
of the contract. Transaction hedging is the purchase or sale of forward
currency with respect to specific receivables or payables of a Fund generally
arising in connection with the purchase or sales of its portfolio securities.
These contracts are entered into in the interbank market conducted directly
between currency traders (typically commercial banks or other financial
institutions) and their customers.
Each Fund has established procedures consistent with statements by the SEC and
its staff regarding the use of forward currency exchange contracts by
registered investment companies, which require the use of segregated assets or
"cover" in connection with the purchase and sale of such contracts. In those
instances in which a Fund satisfies this requirement through segregation of
assets, it will maintain, in a segregated account, cash, short-term money
market instruments or high quality debt securities, which will be marked to
market on a daily basis, in an amount equal to the value of its commitments
under forward currency exchange contracts entered into by the Fund.
It is intended that the Funds would use currency exchange transactions only for
bona fide hedging purposes and other non-speculative strategies involving
specified settlement transactions.
Currency Swaps -- The Funds may enter into currency swaps for hedging purposes
and to seek to increase total return. Currency swaps involve the exchange of
rights to make or receive payments in specified
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currencies. Since currency swaps are individually negotiated, each Fund expects
to achieve an acceptable degree of correlation between its portfolio
investments and its currency swap positions. Currency swaps usually involve the
delivery of the entire principal value of one designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Adviser or Advisers to a Fund are
incorrect in their forecasts of market values and currency exchange rates, the
investment performance of the Fund would be less favorable than it would have
been if this investment technique were not used.
Small Capitalization Companies -- The Funds may invest in smaller, lesser-known
companies which the Adviser or Advisers to the Fund believe offer growth
potential. See "Certain Additional Risk Considerations" above for a discussion
of some of the risks associated with investing in small capitalization
companies.
Securities Lending -- In order to generate additional income, a Fund may lend
the securities in which it is invested pursuant to agreements requiring that
the loan be continuously secured by cash, securities of the U.S. Government or
its agencies or instrumentalities or any combination of cash and such
securities as collateral equal at all times to 100% of the market value of the
securities lent plus accrued interest . A Fund may lend up to 33 1/3% of its
total assets. Collateral is marked to market daily. The Fund will continue to
receive interest on the securities lent while simultaneously earning interest
on the investment of cash collateral in U.S. Government securities. There may
be risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans will be made only to borrowers deemed by the Adviser or Advisers to a
Fund to be of good standing and when, in the judgment of such Adviser or
Advisers, the consideration which can be earned currently from such securities
loans justifies the attendant risk.
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933 or an exemption from
registration are referred to as "restricted securities." A Fund may invest up
to 15% of its net assets in illiquid securities, including restricted
securities; however, this limit will not apply to a restricted security if it
is determined by or under the direction of the Trust's Board of Trustees, based
on trading markets for the specific restricted security, that such security is
liquid. The liquidity of these investments could be impaired if trading does
not develop or declines. In the case of illiquid securities, the absence of a
trading market can make it difficult to ascertain a market value for these
investments. Disposing of illiquid securities may involve time-consuming
negotiation and legal expense, and it may be difficult or impossible for a Fund
to sell them promptly at an acceptable price.
U.S. Treasury Obligations -- U.S. Treasury obligations include bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS"). STRIPS are sold as zero coupon securities. These
securities are usually structured with two classes that receive different
portions of the interest and principal payments from the underlying obligation.
The yield to maturity on the interest-only class is extremely sensitive to the
rate of principal payments on the underlying obligation. The market value of
the principal-only class generally is unusually volatile in response to changes
in interest rates. See "Zero Coupon Securities" below for more information on
these securities.
U.S. Government Agencies -- Certain Federal agencies such as the Government
National Mortgage Association ("GNMA") have been established as
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instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States (e.g., GNMA) or supported by the issuing agencies' right to borrow from
the Treasury. The issues of other agencies are supported only by the credit of
the instrumentality (e.g., Federal National Mortgage Association, "FNMA").
Receipts -- A Fund may purchase interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
and brokerage firms and are created by depositing U.S. Treasury obligations
into a special account at a custodian bank. The custodian holds the interest
and principal payments for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register.
Receipts include "Treasury Receipts" ("TRs"), "Treasury Investment Growth
Receipts" ("TIGRs") and Certificates of Accrual on Treasury Securities"
("CATS"). TRs, TIGRs, and CATS are sold as zero coupon securities. See "Zero
Coupon Securities" below for more information on these securities.
Mortgage-Backed Securities -- A Fund may acquire securities representing an
interest in a pool of mortgage loans that are issued or guaranteed by a U.S.
Government agency. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, FNMA and the Federal Home Loan Mortgage Corporation. A
Fund may also invest in mortgage-backed securities issued by non-governmental
entities which consist of collateralized mortgage obligations ("CMOs") and real
estate mortgage investment conduits ("REMICs") that are rated in one of the top
three rating categories by S&P or Moody's. The mortgages backing these
securities include conventional thirty-year fixed rate mortgages, graduated
payment mortgages, and adjustable rate mortgages. The Funds will purchase only
CMOs and REMICs that are backed solely by GNMA certificates or other mortgage
pass-through certificates issued or guaranteed by the U.S. Government or its
agencies and instrumentalities. However, the guarantees do not extend to the
mortgage-backed securities' value, which is likely to vary inversely with
fluctuations in interest rates. Mortgage-backed securities are in most cases
"pass-through" instruments, through which the holder receives a share of all
interest and principal payments from the mortgages underlying the certificate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the average life or realized yield of a
particular issue of pass-through certificates. During periods of declining
interest rates, prepayment of mortgages underlying mortgage-backed securities
can be expected to accelerate. When the mortgage obligations are prepaid, the
Fund reinvests the prepaid amounts in securities, the yield of which reflects
interest rates prevailing at the time. Moreover, prepayment of mortgages which
underlie securities purchased at a premium could result in capital losses.
Zero Coupon Securities -- A zero coupon security pays no interest or principal
to its holder during its life. A zero coupon security is sold at a discount,
frequently substantial, and redeemed at face value at its maturity date. The
amount of the discount is accrued over the life of the security and constitutes
the income earned on the security for both accounting and tax purposes. The
market prices of zero coupon securities are generally more volatile than the
market prices of securities of similar maturity that pay interest periodically,
and zero coupon securities are likely to respond to a greater degree to
interest rate changes than are non-zero coupon securities with similar maturity
and credit qualities.
Bank Obligations -- A Fund may invest in bank obligations, i.e., certificates
of deposit, time deposits (including Eurodollar time deposits) and bankers'
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and
foreign branches of foreign banks, domestic savings and loan associations and
other banking institutions. A Fund may invest in such obligations, however,
only if
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the issuer (or the parent company, in the case of subsidiaries or branches) has
assets of at least $1 billion, and only if the Adviser or each of the Advisers
to such Fund deems the bank obligation to be of comparable credit quality to
the commercial paper in which the applicable Fund may invest.
Bankers' Acceptances -- A banker's acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
Certificates of Deposit -- A certificate of deposit is a negotiable interest-
bearing instrument with a specific maturity. Certificates of deposit are issued
by banks and savings and loan institutions in exchange for the deposit of funds
and normally can be traded in the secondary market prior to maturity.
Money Market Funds -- A money market fund is an investment company that limits
its investments to high quality money market instruments with a weighted
average maturity of 90 days or less. A Fund may not invest more than 5% of its
assets in any one money market fund or more than 10% of its assets in other
investment companies, including money market funds, and a Fund may not hold
more than 3% of the total outstanding voting stock of any one investment
company, including money market funds, except that the 1784 International
Equity Fund may, in the future, seek to achieve its investment objective by
investing all of its assets in a diversified, open-end management investment
company having the same investment objective and policies and substantially the
same investment restrictions as those applicable to the Fund. When a Fund
invests in a money market fund, a Shareholder bears not only his or her
proportionate share of the Fund's expenses, but also indirectly his or her
share of the expenses of the money market fund, including management fees.
Time Deposits -- A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities; therefore, a Fund will not invest more
than 15% of its net assets in such time deposits and other illiquid securities.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by the Funds may carry variable or floating rates of interest and may involve a
conditional or unconditional demand feature permitting the holder to demand
payment of principal at any time, or at specified intervals. Such obligations
may include variable amount master demand notes. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a Federal Reserve composite index. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security; none of the Equity
Funds will invest more than 15% of its net assets in illiquid securities.
The interest rate on these securities may be reset daily, weekly, quarterly, or
some other reset period and may have a floor or ceiling on interest rate
charges. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates.
Commercial Paper -- Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from one to 270 days.
Repurchase Agreements -- A repurchase agreement is an agreement by which a
person obtains a security and simultaneously commits to return the security to
the seller at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days from the date of purchase. The
custodian or its agent will hold the security as collateral for the repurchase
agreement. Collateral must be maintained at a value at least equal to 100% of
the purchase price. A Fund bears a risk of loss in the event the other party
defaults on its obligations and the Fund is delayed or
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prevented from its right to dispose of the collateral securities or if the Fund
realizes a loss on the sale of the collateral securities. The Adviser or
Advisers to a Fund will enter into repurchase agreements on behalf of a Fund
only with financial institutions deemed to present minimal risk of bankruptcy
during the term of the agreement based on guidelines established and
periodically reviewed by the Trustees. Pursuant to an exemptive order from the
SEC, each of the Funds may enter into repurchase agreements on a pooled basis
with other portfolios of the Trust.
Reverse Repurchase Agreements -- Reverse repurchase agreements involve the sale
of securities held by a Fund and the agreement by the Fund to repurchase the
securities at an agreed-upon price, date and interest payment. When a Fund
enters into reverse repurchase transactions, securities of a dollar amount
equal in value to the securities subject to the agreement will be maintained in
a segregated account with the Fund's custodian. The segregation of assets could
impair the Fund's ability to meet its current obligations or impede investment
management if a large portion of the Fund's assets are involved. Reverse
repurchase agreements are considered to be a form of borrowing.
Futures and Options on Futures -- A Fund may also enter into futures contracts
and options on futures contracts provided that the sum of the Fund's initial
margin deposits on open futures contracts plus the amount paid for premiums for
unexpired option on futures contracts does not exceed 5% of the market value of
the Fund's total assets and the outstanding obligations to purchase securities
under futures contracts do not exceed 20% of the Fund's total assets. Futures
contracts provide for the future sale by one party and purchase by another
party of a specified amount of a specified security at a specified future time
and at a specified price. An option on a futures contract gives the purchaser
the right, in exchange for a premium, to assume a position in a futures
contract at a specified exercise price during the term of the option. A Fund
will minimize the risk that it will be unable to close out a futures contract
by entering into only those futures contracts which are traded on national
futures exchanges.
It is intended that the Funds would use futures contracts and related options
only for bona fide hedging purposes, i.e., to offset unfavorable changes in the
value of securities otherwise held or expected to be acquired for investment
purposes. There are risks associated with these hedging activities, including
the following: (1) the success of a hedging strategy may depend on the ability
of the Adviser or the Advisers to the Fund to predict movements in the prices
of individual securities, fluctuations in markets, and movements in interest
rates; (2) there may be an imperfect or no correlation between the changes of
market value of the securities held by the Fund and the prices on futures and
options on futures; (3) there may not be a liquid secondary market for a
futures contract or futures option; (4) trading restrictions or limitations may
be imposed by an exchange; and (5) government regulations may restrict trading
in futures contracts and futures options.
The Funds may purchase and sell the following types of futures contracts and
options on futures contracts: (1) interest rate futures contracts and options
on interest rate futures contracts; (2) stock index futures contracts and
options on stock index futures contracts; and (3) currency futures contracts
and options on currency futures contracts.
Forward Commitments or Purchases on a When-Issued Basis -- A Fund may enter
into forward commitments or purchase securities on a when-issued basis, which
means that the price of the securities is fixed at the time of commitment and
that the delivery and payment will ordinarily take place beyond customary
settlement time. The interest rate realized on these securities is fixed as of
the purchase date and no interest accrues to the Fund before settlement. These
securities are subject to market fluctuation due to changes in market interest
rates and will have the effect of leveraging the Fund's assets; the securities
are also subject to fluctuation in value pending settlement based upon public
perception of the creditworthiness of the issuer of these securities.
Securities purchased on a when-issued or forward commitment basis may expose a
Fund to risk because such securities may experience such fluctuations in
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value prior to their actual delivery. Agreements to purchase securities on a
when-issued or forward commitment basis will only be made with the intention of
taking delivery and not for speculative purposes. A Fund may invest up to 25%
of its assets in forward commitments or commitments to purchase securities on a
when-issued basis. While awaiting delivery of securities purchased on such
bases, a Fund will establish a segregated account consisting of cash, short-
term money market instruments or high quality debt securities equal to the
amount of the commitments to purchase securities on such bases.
Warrants -- A Fund may invest up to 5% of its net assets in warrants, except
that this limitation does not apply to warrants acquired in units or attached
to securities. Included in this limitation, but not to exceed 2% of the Fund's
net assets, may be warrants not listed on the New York Stock Exchange or
American Stock Exchange. A warrant is an instrument issued by a corporation
which gives the holder the right to subscribe to a specified amount of the
corporation's capital stock at a set price for a specified period of time.
Investment Company Securities -- The 1784 International Equity Fund may
purchase shares of investment companies investing primarily in foreign
securities, including so-called "country funds" which have portfolios
consisting exclusively of securities of issuers located in one foreign country
and "region funds" which have portfolios consisting of securities of issuers
located in a particular region. The Fund also may purchase interests in foreign
investment trusts. In addition to the advisory fees and other expenses the Fund
bears directly in connection with its own operations, as a shareholder of
another investment company or trust, the Fund would bear its pro rata portion
of the other investment company's or trust's advisory fees and other expenses.
As such, the Fund's shareholders would indirectly bear the expenses of the
other investment company or trust, some or all of which would be duplicated.
The Fund may invest a maximum of up to 10% of its total assets in securities of
other investment companies so long as not more than 5% of the Fund's assets are
invested in any one investment company and not more than 3% of the total
outstanding voting stock of any one investment company is held by the Fund,
except that the Fund may, in the future, seek to achieve its investment
objective by investing all of its assets in a diversified, open-end management
company having the same investment objective and policies and substantially the
same investment restrictions as those applicable to the Fund.
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APPENDIX
DESCRIPTION OF RATINGS
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The following descriptions are summaries of certain published ratings.
Description of Commercial Paper Ratings
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The following descriptions of commercial paper ratings have been published by
Standard and Poor's Ratings Group ("S&P") and Moody's Investors Service, Inc.
("Moody's").
S&P's ratings are graded into several categories of which A is the highest.
This category is divided into sub-categories as follows:
A-1 This highest sub-category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality, respectively, on the
basis of relative repayment capacity.
Description of Corporate Bond Ratings
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Bonds rated AAA by S&P have the highest rating S&P assigns to debt obligations.
Such a rating indicates an extremely strong capacity to repay principal and pay
interest. Bonds rated AA also qualify as high-quality debt obligations.
Capacity to repay principal and pay interest is very strong, and differs from
AAA issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher rated categories.
Bonds rated BBB by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Bonds which are rated Aaa by Moody's 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 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. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than with Aaa securities.
Bonds which are rated A by Moody's 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.
Bonds which are rated Baa by Moody's are considered to be 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.
A-1
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APPENDIX
DESCRIPTION OF RATINGS
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The following descriptions are summaries of certain published ratings.
Description of Commercial Paper Ratings
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The following descriptions of commercial paper ratings have been published by
Standard and Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Service, Inc. ("Fitch") and Duff & Phelps Credit
Rating Company ("Duff").
S&P's ratings are graded into several categories of which A is the highest.
This category is divided into sub-categories as follows:
A-1 This highest sub-category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality, respectively, on the
basis of relative repayment capacity.
Commercial paper issues rated F-1+, F-1 and F-2 by Fitch are judged by Fitch to
be of "exceptionally strong" quality, "very strong" quality, and "good"quality,
respectively, on the basis of relative repayment capacity.
Duff's ratings are graded into several categories of which 1 is the highest.
This category is divided into sub-categories as follows:
Duff 1+ This rating indicates 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.
Duff 1 This rating indicates very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
Duff 1- This rating indicates a high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Duff 2 This rating indicates a 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.
Description of Corporate Bond Ratings
- --------------------------------------------------------------------------------
Bonds rated AAA by S&P have the highest rating S&P assigns to debt obligations.
Such a rating indicates an extremely strong capacity to repay principal and pay
interest. Bonds rated AA also qualify as high-quality debt obligations.
Capacity to repay principal and pay interest is very strong, and differs from
AAA issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher rated categories.
Bonds rated BBB by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
A-1
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I784 FUNDS
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Bonds which are rated Aaa by Moody's 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 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. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than with Aaa securities.
Bonds which are rated A by Moody's 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.
Bonds which are rated Baa by Moody's are considered to be 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 and great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
Bonds rated AA by Fitch are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
Bonds rated A by Fitch are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Bonds rated AAA by Duff are judged to be of the highest credit quality. The
risk factors are negligible.
Bonds rated AA by Duff are judged to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly because of economic
conditions.
Bonds rated A by Duff possess protection factors that are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
Bonds rated BBB by Duff possess below average protection factors but still
considered sufficient for prudent investments. There may be considerable
variability in risk during economic cycles.
A-2
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<PAGE>
================================================================================
PROSPECTUS
[LOGO OF 1784 FUNDS APPEARS HERE]
Investment Adviser:
THE FIRST NATIONAL BANK OF BOSTON
1784 FUNDS (the "Trust") is a mutual fund consisting of several professionally
managed portfolios, or funds, of securities. The Trust provides a convenient
way to invest in one or more of these funds. This Prospectus relates to shares
of the following fixed income funds (the "Funds" or the "Fixed Income Funds"):
1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
1784 INCOME FUND
1784 SHORT-TERM INCOME FUND
Shares of the Funds are offered primarily to individuals and institutional
investors, including accounts for which The First National Bank of Boston
("Bank of Boston"), its affiliates and correspondents, and other financial
institutions act in a fiduciary, agency or custodial capacity. Investors in
shares of the Funds are referred to hereinafter as "Shareholders." Shares of
the Funds are currently offered without any sales charges.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANK OF BOSTON OR ANY OF ITS AFFILIATES. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING RISK
TO PRINCIPAL.
This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing in the Funds.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information, dated October 2, 1995, has
been filed with the Securities and Exchange Commission (the "SEC") and is
available without charge through the Distributor, SEI Financial Services
Company, 680 East Swedesford Road, Wayne, PA 19087 or by calling 1-800-BKB-
1784. The Statement of Additional Information is incorporated into this
Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
October 2, 1995
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EXPENSE SUMMARY
- --------------------------------------------------------------------------------
Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of each of the Fixed Income Funds and annual operating expenses of
the Funds, and (ii) an example illustrating the dollar cost of such expenses on
a hypothetical $1,000 investment in each of the Funds.
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None
Sales Charge Imposed on Reinvested Dividends (as a percentage of offering
price) None
Deferred Sales Charge Imposed on Redemptions (as a percentage of offering
price) None
Redemption Fees (1) None
Exchange Fee None
</TABLE>
Annual Operating Expenses
- --------------------------------------------------------------------------------
(As a percentage of average net assets)
<TABLE>
<CAPTION>
1784 U.S.
Government
Medium- 1784
Term 1784 Short-Term
Income Fund Income Fund Income Fund
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees (after
fee waiver) (2) 0.60% 0.60% 0.45%
12b-1 Fee (after fee waiver) (2) None None None
Other Expenses 0.20% 0.20% 0.20%
- ---------------------------------------------------------------------
Total Operating Expenses (2) 0.80% 0.80% 0.65%
- ---------------------------------------------------------------------
</TABLE>
(1) If proceeds of a redemption of Fund shares are paid by wire transfer, a
wire transfer charge (presently $12.00) will be imposed.
(2) Bank of Boston, which serves as the Adviser for the Trust, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
each of the Fixed Income Funds to not more than 1.25% (1.00% for the 1784
Short-Term Income Fund) of average daily net assets on an annualized basis;
this limitation would not apply to any brokerage commissions, interest expense
or taxes or to extraordinary expense items, including but not limited to
litigation expenses. SEI Financial Services Company, which acts as Distributor
of the Trust's shares, has agreed to waive its 12b-1 fee, which is computed at
an annual rate of 0.25% of each Fund's average daily net assets. If the
Distributor should terminate this waiver, after a substantial period of time
annual payment of this fee may total more than the maximum sales charge that
would have been permissible if imposed entirely as an initial sales charge. SEI
Financial Management Corporation, which acts as the Trust's Administrator, has
agreed to waive its fee from certain funds of the Trust to assist these funds
in maintaining a competitive expense ratio. Bank of Boston contributes to the
Funds in order to limit other operating expenses and to assist the Funds in
maintaining a competitive expense ratio. Fee waivers by the Adviser,
Administrator and Distributor, and contributions by the Bank of Boston, are
voluntary and may be terminated at any time. From time to time the Adviser may
also waive additional portions of its fees to reduce net operating expenses to
less than that shown in the table above. Certain other parties may also agree
to waive portions of their fees from time to time on a month to month basis.
Additional information may be found under "The Adviser," "The Administrator"
and "The Distributor." Absent waivers, the Adviser's investment advisory fee is
calculated at an annual rate of 0.74% (0.50% for the 1784 Short-Term Income
Fund) of average daily net assets of each Fund. Absent the waiver of fees by
the Distributor, Adviser and Administrator, and voluntary contributions by the
Bank of Boston, other expenses and estimated total operating expenses would be
as follows: 0.28% and 1.27% of average daily net assets of the 1784 U.S.
Government Medium-Term Income Fund, 0.28% and 1.23% of average daily net assets
of the 1784 Income Fund, and 0.69% and 1.27% of average daily net assets of the
1784 Short-Term Income Fund, in each case on an annualized basis. Other
expenses are based on actual expenses for each Fund's fiscal year ended May 31,
1995, and include expense items described under "General Information -- The
Trust." A person who purchases shares through a financial institution may be
charged separate fees by the financial institution.
2
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Example
- --------------------------------------------------------------------------------
An investor would pay the following expenses on a hypothetical $1,000
investment assuming a 5% annual total return and redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1784 U.S. Government Medium-Term Income Fund $ 8 $26 $44 $99
1784 Income Fund $8 $26 $44 $99
1784 Short-Term Income Fund $7 $21 $36 $81
</TABLE>
Absent voluntary waivers by the Adviser, Distributor and Administrator and
contributions made by the Bank of Boston, the amounts for this example for one
year, three years, five years and ten years would be $13, $40, $70, $153 for
the 1784 U.S. Government Medium-Term Income Fund, $13, $40, $70 and $153 for
the 1784 Income Fund and $15, $46, $79 and $172 for the 1784 Short-Term Income
Fund. The example is based on actual expenses for each Fund's fiscal year ended
May 31, 1995. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RETURN, AND ACTUAL EXPENSES AND RETURN MAY BE GREATER OR
LESS THAN THOSE SHOWN. The purpose of this table is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in the Funds. Additional information may be found under
"General Information -- The Trust," "The Adviser," "The Administrator" and "The
Distributor."
SUMMARY
- --------------------------------------------------------------------------------
The following information is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information.
1784 Funds (the "Trust") is an open-end management investment company which
provides a convenient way to invest in one or more professionally managed funds
of securities. The following provides basic information about the 1784 U.S.
Government Medium-Term Income Fund, 1784 Income Fund and 1784 Short-Term Income
Fund (each, a "Fund" or a "Fixed Income Fund," and collectively, the "Funds" or
the "Fixed Income Funds"). Each of the Fixed Income Funds is a diversified
fund.
What Is the Investment Objective? The investment objective of the 1784 U.S.
Government Medium-Term Income Fund is current income consistent with
preservation of capital. The investment objective of the 1784 Income Fund and
the 1784 Short-Term Income Fund is to maximize current income. Preservation of
capital is a secondary objective for these two Funds. Each Fund's investment
objective may be changed only with the consent of holders of a majority of that
Fund's outstanding shares. There can be no assurance that any Fixed Income Fund
will achieve its investment objective. See "Investment Objective" and
"Investment Limitations."
What Are the Permitted Investments? The 1784 U.S. Government Medium-Term Income
Fund under normal circumstances invests at least 65% of its total assets in
U.S. Government securities, which include obligations issued or guaranteed as
to principal and interest by the U.S. Government or any of its agencies or
instrumentalities, and repurchase agreements involving U.S. Government
securities. Distributions of the 1784 U.S. Government Medium-Term Income Fund
derived from interest on obligations of the U.S. Government and certain of its
agencies and instrumentalities may be exempt from state and local taxes in
certain states. See "Taxes." Each of the 1784 Income Fund and the 1784 Short-
Term Income Fund under normal circumstances invests at least 80% of its net
assets in debt securities or securities with debt-like characteristics, such as
bonds, debentures, notes, mortgage-backed securities and asset-backed
securities of domestic and foreign issuers and municipal obligations. The Trust
expects each of these Funds,
3
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I784 FUNDS
- --------------------------------------------------------------------------------
under normal circumstances, to invest at least 65% of its net assets in debt
securities described above rated A or better by Standard & Poor's Ratings
Group, Duff & Phelps Credit Rating Company, Fitch Investors Service, Inc. or
Moody's Investors Service, Inc. or of comparable quality at the time of
purchase as determined by the Adviser. Under normal circumstances, the 1784
Income Fund maintains a dollar-weighted average portfolio maturity of from
seven to thirty years, with no security having a maturity of longer than thirty
years. Under normal circumstances, the 1784 Short-Term Income Fund maintains a
dollar-weighted average effective portfolio maturity of not more than three
years. Within this limitation, the Fund may purchase individual securities with
effective maturities greater than three years. Effective maturity takes into
account estimates of average life of mortgage-backed and asset-backed
securities and anticipated exercises of calls and prepayment rights.
What Are Some of the Risks? The investment policies of each of the Fixed Income
Funds entail certain risks and considerations of which an investor should be
aware. For example, the net asset value per share of each of the Fixed Income
Funds is not fixed and should be expected to fluctuate. In addition, values of
fixed income securities tend to vary inversely with interest rates and may be
affected by other market and economic factors as well; mortgage-backed
securities are subject to prepayment of the underlying mortgages and may not be
an effective means of locking in long-term interest rates; the longer maturity
securities in which the 1784 Income Fund may invest are subject to greater
market fluctuations as a result of changes in interest rates; and foreign
securities may subject the 1784 Income and 1784 Short-Term Income Funds to
different risks than those attendant to investments in securities of U.S.
issuers.
For further information, see "Investment Policies," "Certain Investment
Policies and Guidelines" and "Description of Permitted Investments and
Techniques" herein and in the Statement of Additional Information.
Who Is the Adviser? The First National Bank of Boston ("Bank of Boston" or the
"Adviser") serves as the Adviser for the Trust and is entitled to a fee which
is calculated daily and paid monthly at an annual rate of 0.74% (0.50% for the
1784 Short-Term Income Fund) of the average daily net assets of each of the
Fixed Income Funds. The Adviser has agreed for an indefinite period of time to
waive all or a portion of its fee in order to limit the total operating
expenses of the Fixed Income Funds to not more than 1.25% (1.00% for the 1784
Short-Term Income Fund) of each Fund's average daily net assets. Bank of Boston
contributes to the Funds in order to limit operating expenses and to assist the
Funds in maintaining a competitive expense ratio. Fee waivers and contributions
may be terminated at any time. See "The Adviser."
Who Is the Administrator? SEI Financial Management Corporation serves as the
Administrator for the Trust under an Administration Agreement and is entitled
to a fee which is calculated daily and paid monthly at an annual rate of 0.15%
of the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Each Fixed Income Fund's
portion of such fee is based on that Fund's average daily net assets. The
Administrator has agreed to waive a portion of its fees on a month to month
basis under certain circumstances. See "The Administrator."
Who Is the Shareholder Servicing Agent and Transfer Agent? SEI Financial
Management Corporation acts as dividend disbursing agent and shareholder
servicing agent for the Trust under the Administration Agreement and as
transfer agent for the Trust under a separate transfer agent agreement. See
"The Shareholder Servicing and Transfer Agent."
Who Is the Distributor? SEI Financial Services Company acts as distributor of
the Trust's shares. The Trust has adopted a distribution plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan
provides for payments to the Distributor of a fee, calculated daily and paid
monthly, at an annual rate of 0.25% of each Fixed Income Fund's
4
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I784 FUNDS
- --------------------------------------------------------------------------------
average daily net assets; the Distributor can use all or a portion of this fee
to compensate broker-dealers and other financial institutions that provide
services to Shareholders or to their customers who beneficially own shares of
the Fixed Income Funds. The Distributor has agreed to waive its 12b-1 fee.
However, distribution fees may be imposed in the event that the Distributor
determines to terminate its waiver of such fees. The Trust may create one or
more additional classes of shares, without distribution fees, of one or more of
the Funds. See "The Distributor."
How Do I Purchase Shares? Purchases of Fund shares may be made through the
Distributor by the close of business Monday through Friday except on days when
the New York Stock Exchange or the Federal Reserve Bank of Boston is closed
("Business Days"). Shares may also be purchased through broker-dealers which
have established dealer agreements with the Distributor. Purchase orders
submitted through broker-dealers normally will be received by the Distributor
on the Business Day after they are received by the broker-dealer.
A purchase order for shares representing an investment in a Fixed Income Fund
will be effective as of the Business Day the order is received by the
Distributor if the Distributor receives a purchase order in good form for the
shares and payment (by wire transfer or check) for the shares before 4:00 p.m.
Eastern Time ("ET") on that day. Shares are sold at their net asset value
determined as of the end of the day the order is effective. Shares purchased
will begin accruing dividends on the day following the date of purchase.
The minimum initial investment in a Fixed Income Fund is $1,000; all subsequent
purchases must be at least $250. Minimum investment requirements are lower for
accounts established for automatic investment programs and under tax-deferred
retirement programs (including IRAs). See "Purchase of Shares."
Shares of each of the Fixed Income Funds are currently being offered without
any sales charges. See "The Distributor."
How Do I Redeem Shares? Redemptions of shares of a Fixed Income Fund may be
made through the Transfer Agent on any Business Day. Redemption orders must be
placed in good form before 4:00 p.m. ET on any Business Day to be effective on
that day. The redemption price is the net asset value per share determined as
of the end of the day the order is effective. See "Redemption of Shares."
How are Distributions Paid? Substantially all of the net investment income
(exclusive of capital gains) of each of the Funds is distributed in the form of
dividends which are declared daily and paid monthly. Shareholders of record on
the record date for the dividend distribution will be entitled to the
dividends, except that shares will not begin accruing dividends until the day
following the date of their purchase. On redemption, a shareholder will receive
dividends through and including the day a valid redemption request is received
by the Transfer Agent. Any capital gain is distributed at least annually.
Distributions are paid in additional shares unless the Shareholder elects to
take the payments in cash. See "Dividends and Distributions."
How Do I Make Exchanges? Once payment for shares of a Fixed Income Fund has
been received by the Distributor, those shares may be exchanged for shares of
one or more other portfolios of the Trust at net asset value, provided the
amount of the exchange meets the minimum investment requirements for the other
portfolio of the Trust. There are no charges for an exchange. If an exchange
request in good order is received by the Distributor by 4:00 p.m. ET on any
Business Day, the exchange usually will occur on that day; however, requests
for exchange for shares of a money market fund must be received earlier than
4:00 p.m. ET (in cases when regular trading on the New York Stock Exchange
closes earlier than 4:00 p.m. ET, as early as 12:00 noon ET) for the exchange
to occur on that day. A Shareholder must obtain and should read the prospectus
of the other portfolio and consider the differences in investment objectives
and policies before making any exchange. An exchange is treated, for federal
and state income tax purposes, as a sale of
5
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I784 FUNDS
- --------------------------------------------------------------------------------
the Fixed Income Fund shares exchanged, and could result in gain or loss to the
Shareholder. See "Exchanges."
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following table provides condensed financial information about the 1784
U.S. Government Medium-Term Income Fund for the period from June 7, 1993
(commencement of operations) through May 31, 1995, and about the 1784 Short-
Term Income Fund and 1784 Income Fund for the period from July 1, 1994
(commencement of operations) through May 31, 1995. The information should be
read in conjunction with the financial statements appearing in the Funds'
Annual Report to Shareholders, which is incorporated by reference in the
Statement of Additional Information. The financial statements and notes, as
well as the table below, covering the period through May 31, 1995 have been
audited by Coopers & Lybrand L.L.P., independent accountants, whose report is
included in the Funds' Annual Report. Copies of the Annual Report may be
obtained without charge from the Distributor.
FINANCIAL HIGHLIGHTS
For the Period Ended May 31, 1995
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net Ratio
Asset Realized and Dividends Net Assets Ratio of Net
Value Net Unrealized from Net Asset Value End of Expenses Income
Beginning Investment Gains or (Losses) Investment End Total of Period to Average to Average
of Period Income on Investments Income of Period Return (000) Net Assets Net Assets
--------- ---------- ----------------- ---------- ----------- ------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
MEDIUM-TERM
INCOME(1)
====================
6/7/93-5/31/94 $10.00 0.59 (0.64) (0.59) $ 9.36 (0.65)%* $ 92,387 0.31%** 6.08%**
6/1/94-5/31/95 $ 9.36 0.58 0.21 (0.58) $ 9.57 8.79% $130,081 0.80% 6.24%
SHORT-TERM
INCOME FUND(2)
=================
7/1/94-5/31/95 $10.00 0.56 0.09 (0.56) $10.09 6.74%* $ 52,581 0.48%** 6.31%**
INCOME FUND(2)
=================
7/1/94-5/31/95 $10.00 0.62 0.39 (0.62) $10.39 10.69%* $196,515 0.55%** 7.01%**
<CAPTION>
Ratio Ratio of
of Expenses Net Income
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ---------- ---------
<S> <C> <C> <C>
U.S. GOVERNMENT
MEDIUM-TERM
INCOME(1)
====================
6/7/93-5/31/94 1.35%** 5.04%** 144.77%
6/1/94-5/31/95 1.27% 5.77% 142.14%
SHORT-TERM
INCOME FUND(2)
=================
7/1/94-5/31/95 1.27%** 5.52%** 84.54%
INCOME FUND(2)
=================
7/1/94-5/31/95 1.23%** 6.33%** 80.53%
</TABLE>
* Returns are for the period indicated and have not been annualized.
** Ratios for this period have been annualized.
(1) The U.S. Government Medium-Term Income Fund commenced operations on June 7,
1993.
(2) The Short-Term Income Fund and the Income Fund commenced operations on July
1, 1994.
6
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I784 FUNDS
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THE TRUST
- --------------------------------------------------------------------------------
1784 Funds (the "Trust") is an open-end management investment company that
currently offers units of beneficial interest ("shares") in several separate
professionally managed investment portfolios, or funds. Each share of each fund
represents an undivided, proportionate interest in that fund. This Prospectus
relates to shares of the Trust's 1784 U.S. Government Medium-Term Income Fund,
1784 Short-Term Income Fund, and 1784 Income Fund, each of which is a
diversified fund. The Trust's other funds include the 1784 U.S. Treasury Money
Market Fund, 1784 Institutional U.S. Treasury Money Market Fund, 1784 Tax-Free
Money Market Fund, 1784 Growth and Income Fund, 1784 Asset Allocation Fund,
1784 International Equity Fund, 1784 Tax-Exempt Medium-Term Income Fund, 1784
Massachusetts Tax-Exempt Income Fund, 1784 Connecticut Tax-Exempt Income Fund,
and 1784 Rhode Island Tax-Exempt Income Fund. Information regarding the Trust's
other funds is contained in separate prospectuses that may be obtained from the
Trust's distributor, SEI Financial Services Company (the "Distributor"), 680
East Swedesford Road, Wayne, Pennsylvania 19087, or by calling 1-800-BKB-1784.
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the 1784 U.S. Government Medium-Term Income Fund is
current income consistent with preservation of capital.
The investment objective of the 1784 Short-Term Income Fund is to maximize
current income. Preservation of capital is a secondary objective. This Fund is
designed for investors seeking a higher yield than from a money market fund and
more price stability than a longer-term bond fund.
The investment objective of the 1784 Income Fund is to maximize current income.
Preservation of capital is a secondary objective.
There is no assurance that the investment objective of any Fund will be met.
The investment objective of each Fund is a fundamental policy of that Fund, and
therefore cannot be changed without the consent of holders of a majority of
that Fund's outstanding shares. See "Investment Limitations."
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The 1784 U.S. Government Medium-Term Income Fund is a diversified fund which
under normal circumstances invests at least 65% of its total assets in U.S.
Government securities, i.e., obligations issued or guaranteed as to principal
and interest by the U.S. Government or any of its agencies and
instrumentalities, and repurchase agreements involving U.S. Government
securities. The Fund may also invest in receipts evidencing separately traded
interest and principal component parts of U.S. Government obligations. The Fund
may write (sell) covered call options and enter into fixed income futures
contracts and options (in each case for hedging purposes only).
The 1784 U.S. Government Medium-Term Income Fund may purchase mortgage-backed
securities issued or guaranteed as to payment of principal and interest by the
U.S. Government or any of its agencies or instrumentalities and mortgage-backed
securities issued by private issuers rated A or better by Moody's Investors
Service, Inc. ("Moody's") or by Standard & Poor's Ratings Group ("S&P") or of
comparable quality at the time of purchase as determined by the Adviser and
backed by mortgage pass-through certificates issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities. The principal
governmental issuers or guarantors of mortgage-backed securities are the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), and Federal Home Loan Mortgage Corporation ("FHLMC").
Obligations of GNMA are backed by the full faith and credit of the U.S.
Government while obligations of FNMA and FHLMC are supported by the respective
agency only. The Fund may purchase mortgage-backed securities that are backed
or collateralized by fixed, adjustable or floating rate mortgages. Not more
than 35% of the Fund's total assets are invested in mortgage-backed securities
which are not issued or guaranteed as
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to payment of principal and interest by the U.S. Government or any of its
agencies or instrumentalities.
The Trust expects the Fund to maintain an average weighted remaining maturity
of three to ten years. The Adviser may shorten the average maturity
substantially in anticipation of a change in the interest rate environment for
temporary defensive purposes by investing in money market instruments and in
money market funds. To the extent the Fund is invested in money market
instruments and/or money market funds for temporary defensive purposes, the
Fund will not be pursuing its investment objective. Under normal circumstances,
it is anticipated that the annual portfolio turnover rate for the Fund will not
exceed 100%; for the Fund's fiscal years ended May 31, 1994 and May 31, 1995,
this rate was 145% and 142%, respectively.
For more information regarding the permitted investments and investment
practices of the 1784 U.S. Government Medium-Term Income Fund, the purpose of
these investments and investment practices and certain risks associated with
certain of these investments and investment practices, and information
regarding the ratings listed above, see "Certain Investment Policies and
Guidelines," "Description of Permitted Investments and Techniques," the
Appendix--"Description of Ratings" and the Statement of Additional Information.
Under normal circumstances, each of the 1784 Income Fund and the 1784 Short-
Term Income Fund invests at least 80% of its net assets in debt securities and
securities with debt-like characteristics, such as bonds, debentures, notes,
mortgage-backed securities and asset-backed securities of domestic and foreign
issuers and municipal obligations. Each Fund may invest up to 30% of its net
assets in securities of foreign issuers. The Trust expects each Fund, under
normal circumstances, to invest at least 65% of its net assets in debt
securities described above rated A or better by S&P, Duff & Phelps Credit
Rating Company ("Duff"), Fitch Investors Service, Inc. ("Fitch") or Moody's or
of comparable quality at the time of purchase as determined by the Adviser.
Each Fund is a diversified fund.
The securities in which the 1784 Income Fund and the 1784 Short-Term Income
Fund may invest include: (1) bonds, debentures, or other debt instruments of
U.S. or foreign issuers rated BBB or better by S&P, Duff, or
Fitch or Baa or better by Moody's or of comparable quality at the time of
purchase as determined by the Adviser; (2) debt obligations issued or
guaranteed as to principal and interest by the U.S. Government or any of its
agencies and instrumentalities; (3) debt securities issued or guaranteed by
foreign governments, their political subdivisions, agencies or
instrumentalities and debt securities of supranational entities, in each case
which the Adviser deems to be of comparable credit quality at the time of
purchase to the corporate debt instruments in which the Fund may invest; (4)
mortgage-backed securities and asset-backed securities rated A or better by
S&P, Duff, Fitch or Moody's or of comparable quality at the time of purchase as
determined by the Adviser; (5) zero coupon securities issued by the U.S.
Treasury or by corporations, and receipts evidencing separately traded interest
and principal component parts of U.S. Government obligations; (6) municipal
securities issued by the states, territories and possessions of the United
States and the District of Columbia and their respective political
subdivisions, agencies and instrumentalities; (7) bank obligations described
under "Description of Permitted Investments and Techniques;" (8) short-term
commercial paper rated A-2 or better by S&P, P-2 or better by Moody's, F-2 or
better by Fitch, or Duff 2 or better by Duff, or of comparable quality at the
time of purchase as determined by the Adviser; and (9) repurchase agreements
involving the foregoing types of securities. Debt securities rated Baa by
Moody's or BBB by S&P may have speculative characteristics. See the Appendix
for a description of the above ratings.
The Funds may, for hedging purposes or in order to generate additional income,
write (sell) covered call options, and may, for hedging purposes, enter into
futures contracts and related options. In addition, the Funds may make
additional types of investments and engage in other investment practices, as
described in "Description of Permitted Investments and Techniques."
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The Trust expects the 1784 Income Fund to maintain a dollar-weighted average
maturity of from seven to thirty years under normal circumstances. While
securities with longer maturities tend to produce higher yields than securities
with shorter maturities, they are also subject to greater market fluctuations
as a result of changes in interest rates.
The Trust expects the 1784 Short-Term Income Fund to maintain a dollar-weighted
average effective maturity of not more than three years under normal
circumstances. Effective maturity takes into account estimates of average life
of mortgage-backed and asset-backed securities and anticipated exercises of
calls and prepayment rights. Securities with shorter maturities generally are
subject to less price movement than securities of comparable quality with
longer maturities.
The Adviser may shorten the average maturity of a Fund substantially in
anticipation of a change in the interest rate environment for temporary
defensive purposes by investing in money market instruments and in money market
funds. To the extent a Fund is invested in money market instruments and/or
money market funds for temporary defensive purposes, the Fund will not be
pursuing its investment objective. Under normal circumstances, it is
anticipated that the annual portfolio turnover rate for each of these Funds
will not exceed 100%; for the fiscal year ended May 31, 1995, this rate was 81%
for the 1784 Income Fund and 85% for the 1784 Short-Term Income Fund.
For more information regarding the permitted investments and investment
practices of the 1784 Income Fund and the 1784 Short-Term Income Fund, the
purposes of these investments and investment practices and certain risks
associated with certain of these investments and investment practices, and
information regarding the ratings listed above, see "Certain Investment
Policies and Guidelines," "Description of Permitted Investments and
Techniques," the Appendix -- "Description of Ratings" and the Statement of
Additional Information.
CERTAIN INVESTMENT POLICIES AND GUIDELINES
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The market value of each Fund's fixed income investments (including money
market instruments) changes in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. Moreover,
while securities with longer maturities tend to produce higher yields, the
prices of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates. Securities with shorter
maturities, such as those in which the 1784 Short-Term Income Fund primarily
invests, generally produce lower yields than longer term securities of
comparable quality and tend to be subject to less price movement. Changes by
recognized agencies in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal also affect the
value of these investments. Changes in the value of Fund securities affects the
Fund's net asset value; under most circumstances, changes in the value of Fund
securities will not affect cash income derived from these securities.
Each Fixed Income Fund's investments normally consist primarily of securities
that are listed on recognized exchanges or actively traded in the over-the-
counter market. Each Fixed Income Fund may also hold securities that are
neither so listed nor so traded. However, none of the Fixed Income Funds
invests more than 15% of its net assets in illiquid securities.
In general, mortgage-backed securities are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities the yield of which reflects then-prevailing interest
rates, which may be lower. Thus, mortgage-backed securities may not be an
effective means of locking in long-term interest rates for the Funds.
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For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each of the Fixed Income Funds may invest up to 100% of its
assets in money market instruments described under "Description of Permitted
Investments and Techniques," consisting of the following: (1) securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities; (2)
repurchase agreements; (3) bank obligations described under "Description of
Permitted Investments and Techniques;" (4) commercial paper, other short-term
debt securities or variable or floating rate instruments rated in one of the
two highest short-term rating categories by a "nationally recognized
statistical rating organization" as defined under Securities and Exchange
Commission rules ("NRSRO") or of comparable credit quality as determined by the
Adviser; and (5) asset-backed securities. The Funds may also invest, for
temporary defensive purposes, in money market funds. To the extent a Fund is
invested in money market instruments and/or money market funds for temporary
defensive purposes, the Fund will not be pursuing its investment objective.
Each of the Fixed Income Funds may invest in floating or variable rate
obligations and may purchase securities on a when-issued basis. Each of the
Funds may also, from time to time, engage in securities lending; however, loans
made by a Fund of the securities it holds may not exceed 33 1/3% of that Fund's
total assets. Each of the Funds may enter into interest rate futures contracts
and related options.
Investments in securities of foreign issuers may subject the 1784 Income Fund
and 1784 Short-Term Income Fund to different risks than those attendant to
investments in securities of U.S. issuers, such as changes in currency rates or
exchange control regulations, differences in accounting, auditing and financial
reporting standards, more volatile or less liquid markets, the possibility of
expropriation or confiscatory taxation, and political instability. There may
also be less publicly available information with regard to foreign issuers than
domestic issuers. In addition, foreign markets may be characterized by less
liquidity, greater price volatility, less regulation and higher transaction
costs than U.S. markets.
The 1784 Income Fund and 1784 Short-Term Income Fund may invest in companies
(or governments) of or within developed as well as developing countries
throughout the world. Shareholders should be aware that investing in the fixed
income markets of developing countries involves exposure to economic structures
that are generally less diverse and mature, and to political systems which can
be expected to have less stability, than those of developed countries. A
developing country is generally considered to be one which is in the initial
stage of its industrialization cycle with a low per capita income. Historical
experience indicates that the markets of developing countries have been more
volatile that the markets of developed countries with more mature economies;
such markets often have provided higher rates of return and greater risks to
investors. Such characteristics can be expected to continue in the future.
Investment in securities of issuers based in developing countries entail all of
the risks of investing in securities of foreign issuers but to a heightened
degree. Each of these Funds may invest not more than 15% of its net assets in
securities of issuers in developing countries and not more than 30% of its net
assets in securities of foreign issuers, including the 15% it may invest in
issuers in developing countries.
In the event a security owned by a Fixed Income Fund is downgraded below the
rating categories discussed above, the Adviser will review and take action it
deems appropriate with regard to the security.
INVESTMENT LIMITATIONS
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The investment objective of each Fund and the following investment limitations
are fundamental policies of that Fund. Fundamental policies cannot be changed
with respect to a Fund without the consent of the holders of a majority of that
Fund's outstanding shares. The term "majority of the outstanding shares" means
the vote of (i) 67% or more of the Fund's shares present at a meeting, if more
than 50% of the outstanding shares of the Fund are present or
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represented by proxy, or (ii) more than 50% of the Fund's outstanding shares,
whichever is less.
A Fund may not:
1. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation (i)
utility companies will be divided according to their services, for example,
gas, gas transmission, electric and telephone will each be considered a
separate industry; (ii) financial service companies will be classified
according to the end users of their services; for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry; and (iii) supranational entities will be considered to be a separate
industry.
2. Make loans except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objectives and policies; (b) enter into
repurchase agreements; and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
3. Borrow, except that a Fund may borrow money from banks and may enter into
reverse repurchase agreements, in either case in an amount not to exceed 33
1/3% of the Fund's total assets and then only as a temporary measure for
extraordinary or emergency purposes (e.g., to meet Shareholder redemption
requests). A Fund will not purchase any securities for its portfolio at any
time at which its borrowings equal or exceed 5% of its total assets (taken at
market value).
4. With respect to 75% of the total assets of the Fund, purchase securities of
any issuer (except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements involving such
securities) if as a result more than 5% of the total assets of the Fund would
be invested in the securities of such issuer or more than 10% of the
outstanding voting securities of such issuer would be owned by the Fund.
The foregoing percentages apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISER
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The First National Bank of Boston ("Bank of Boston" or the "Adviser") manages
the assets of each Fund pursuant to an Investment Advisory Agreement (the
"Advisory Agreement") with the Trust. Subject to such policies as the Board of
Trustees of the Trust may determine, the Adviser makes investment decisions for
each Fund. Jack A. Ablin, Senior Fund Manager, has been a manager of the 1784
U.S. Government Medium-Term Income Fund since June, 1993 (commencement of its
operations) and of the 1784 Income Fund since July 1, 1994 (commencement of its
operations). Mr. Ablin, who has more than nine years of investment management
experience, has been a Senior Fund Manager at Bank of Boston since 1990. From
1987 to 1990, Mr. Ablin was a Fixed Income Portfolio Manager with
Constitutional Capital Management Company. Emmett M. Wright, Fund Manager, has
been a manager of the 1784 U.S. Government Medium-Term Income Fund and of the
1784 Income Fund since September 1, 1995. Mr. Wright, who has more than five
years of investment management and research analysis experience, was an
Associate Fund Manager at Bank of Boston from 1993 to 1994 and has been a Fund
Manager at Bank of Boston since 1994. Mary K. Werler has been the manager of
the 1784 Short-Term Income Fund since July 1, 1994 (commencement of its
operations). Ms. Werler, who has more than six years of investment management
experience, has been a Fund Manager at Bank of Boston since 1993. From 1987 to
1993, Ms. Werler was an Associate Portfolio Manager with Keystone Custodian
Funds. For its services under the Advisory Agreement, the Adviser receives from
each Fund a fee accrued daily and paid monthly at an annual rate equal to 0.74%
(0.50% for the 1784 Short-Term
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Income Fund) of the Fund's average daily net assets. However, the Adviser has
agreed for an indefinite period of time to waive all or a portion of its fees
in order to limit the total operating expenses of each of the Funds on an
annualized basis to not more than 1.25% (1.00% for the 1784 Short-Term Income
Fund) of its average daily net assets; this limitation would not apply to any
brokerage commissions, interest expense or taxes or to extraordinary expense
items, including but not limited to litigation expenses. Fee waivers may be
terminated at any time. From time to time the Adviser may also waive additional
portions of its fees to reduce net operating expenses to less than the amounts
specified above.
For the fiscal year ended May 31, 1995, the fees payable to the Bank of Boston
under the Advisory Agreement with respect to each of the Funds were as follows:
for the 1784 U.S. Government Medium-Term Income Fund, $837,109, of which
$158,372 was voluntarily waived (after giving effect to such waiver, 0.60% of
such Fund's average daily net assets for that fiscal year); for the 1784 Income
Fund, $1,109,000, of which $588,122 was voluntarily waived (after giving effect
to such waiver, 0.32% of such Fund's average daily net assets for that fiscal
year); and for the 1784 Short-Term Income Fund, $144,000, of which $58,064 was
voluntarily waived (after giving effect to such waiver, 0.27% of such Fund's
average daily net assets for that fiscal year). In addition, the Bank of Boston
contributed $77,295 to the 1784 Government Medium-Term Income Fund, $78,271 to
the 1784 Income Fund and $14,876 to the 1784 Short-Term Income Fund to decrease
the Funds' other operating expenses and to assist the Funds in maintaining a
competitive expense ratio. Management's discussion of the Fixed Income Funds'
performance is included in the Funds' Annual Report to Shareholders which
investors may obtain without charge by contacting the Distributor. The Funds
may execute brokerage or other agency transactions through the Adviser or an
affiliate.
Bank of Boston, a national banking association, is the successor to a number of
banking institutions, the first of which was chartered in 1784. All of the
capital stock of Bank of Boston (except directors' qualifying shares) is owned
by Bank of Boston Corporation, a registered bank holding company. Bank of
Boston and its affiliates are engaged in providing a wide variety of financial
services to individuals, corporate and institutional customers, governments,
and other financial institutions throughout New England, the United States and
internationally. These services include individual and community banking,
consumer finance, mortgage origination and servicing, domestic corporate and
investment banking, leasing, international banking services, commercial real
estate lending, private banking, trust services, correspondent banking, and
securities and payments processing. Bank of Boston's principal business address
is 100 Federal Street, Boston, MA 02110. Prior to the organization of the Trust
in 1993, the Adviser had not served as the investment adviser for management
investment companies. The Adviser also manages the other funds comprising the
Trust.
Bank of Boston has been providing asset management services since 1890. Its
portfolio managers are responsible for investing in money market, equity, and
fixed income securities and they have earned national recognition and respect.
The investment management group within Bank of Boston which manages the Fixed
Income Funds is the same group which has managed Bank of Boston's collective
trust funds with similar investment objectives. As of December 31, 1994, Bank
of Boston and its affiliates managed more than $13 billion in assets worldwide.
Bank of Boston and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Funds, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Bank of Boston and its
affiliates deal, trade and invest for their own account in certain types of
securities purchased on behalf of the Funds. Bank of Boston and its affiliates
may sell such securities to and purchase them from other investment companies
sponsored by SEI Financial Services Company or its
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affiliates. The Adviser has informed the Trust that, in making its investment
decisions, it does not obtain or use material inside information in the
possession of any division or department of Bank of Boston or in the possession
of any affiliate of Bank of Boston.
The Glass-Steagall Act prohibits certain financial institutions, such as Bank
of Boston, from engaging in the business of underwriting securities of open-end
investment companies, such as the Funds. Bank of Boston takes the position,
based on the advice of counsel, that the investment advisory services it
provides under the Advisory Agreement do not constitute underwriting activities
and are consistent with the requirements of the Glass-Steagall Act and other
relevant federal and state legal and regulatory precedent. State laws on this
issue may differ from applicable federal law, and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Future changes in either federal or state statutes or
regulations relating to the permissible activities of banks, as well as future
judicial or administrative decisions and interpretations of present and future
federal and state statutes and regulations, could prevent Bank of Boston from
continuing to perform such services for the Trust. If Bank of Boston were to be
prevented from acting as the Adviser, the Trust would seek alternative means
for obtaining such services.
THE ADMINISTRATOR
- --------------------------------------------------------------------------------
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), and the Trust are parties to an
administration agreement dated as of June 1, 1993 (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
provides the Trust with administrative services other than investment advisory
services, including all regulatory reporting, necessary office space,
equipment, personnel, and facilities.
The Administrator is entitled to a fee which is calculated daily and paid
monthly at an annual rate of 0.15% of the Trust's first $300 million of average
daily net assets, 0.12% of the Trust's second $300 million of average daily net
assets and 0.10% of the Trust's average daily net assets over $600 million.
Each Fixed Income Fund's portion of such fee is based on the average daily net
assets of such Fund. The Administrator has agreed to waive a portion of its
fees on a month to month basis under certain circumstances for certain of the
portfolios of the Trust.
THE SHAREHOLDER SERVICING AND TRANSFER AGENT
- --------------------------------------------------------------------------------
SEI Financial Management Corporation acts as dividend disbursing agent and
shareholder servicing agent for the Trust. Compensation for these services is
paid under the Administration Agreement. SEI Financial Management Corporation
also acts as transfer agent (the "Transfer Agent") under a separate transfer
agent agreement. The principal business address of the Transfer Agent is 680
East Swedesford Road, Wayne, PA 19087.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") dated as of June 1, 1993, and the Trust has adopted a
distribution plan (the "Plan") dated as of June 1, 1993 pursuant to Rule 12b-1
under the Investment Company Act of 1940. As provided in the Distribution
Agreement and the Plan, the Trust will pay the Distributor a fee for its
services, calculated daily and paid monthly, at an annual rate of .25% of the
average daily net assets of each Fixed Income Fund. The Distributor may apply
all or a portion of this fee toward: (a) compensation for its services in
connection with distribution assistance or provision of Shareholder services;
or (b) payments to financial institutions and intermediaries such as banks
(including Bank of Boston), savings and loan associations, insurance companies,
investment counselors, broker-dealers and the Distributor's affiliates and
subsidiaries, as compensation for services, reimbursement of expenses incurred
in connection with distribution assistance, or provision of Shareholder
services. The Plan is
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characterized as a "compensation plan" (in contrast to "reimbursement"
arrangements in which a distributor's compensation is linked directly to the
distributor's expenses) since the distribution fee will be paid to the
Distributor without regard to the distribution or Shareholder service expenses
incurred by the Distributor or the amount of payments made to financial
institutions and intermediaries. The Distributor has agreed to waive the 12b-1
fee. This waiver may be terminated by the Distributor at any time.
The Trust may create one or more additional classes of shares of any or all of
the Fixed Income Funds to be offered without distribution fees to certain types
of investors.
The Funds may execute brokerage or other agency transactions through the
Distributor, for which the Distributor receives compensation.
From time to time the Distributor may provide incentive compensation to
employees of banks (including Bank of Boston), broker-dealers and investment
counselors, and to its own employees, in connection with the sale of shares of
the Funds or other portfolios of the Trust. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation, including merchandise, airline vouchers, trips and vacation
packages. Such promotional incentives will be offered uniformly to all program
participants and will be predicated upon the amount of shares of the Funds and
other portfolios of the Trust sold by the participant.
PURCHASE OF SHARES
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Shares of the Funds are sold on a continuous basis and may be purchased
directly from the Trust's Distributor either by mail or by telephone. Shares
may also be purchased through a broker-dealer which has established a dealer
agreement with the Distributor.
Purchases of shares of each Fund may be made Monday through Friday except on
days when the New York Stock Exchange or the Federal Reserve Bank of Boston is
closed ("Business Days"). Current holidays for the New York Stock Exchange
and/or the Federal Reserve Bank of Boston are New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Thanksgiving and Christmas. Except as provided below, the
minimum initial investment in the shares is $1,000, and all subsequent
purchases of shares must be at least $250. Minimum purchase amounts may be
waived by the Distributor in its discretion. No minimum purchase amount applies
to subsequent purchases made by reinvestment of dividends.
The purchase price for shares of a Fund is their net asset value next
determined after the Distributor receives a purchase order in good form. Net
asset value per share is determined as of the close of regular trading on the
New York Stock Exchange, 4:00 p.m. ET, on each Business Day. Purchases will be
made in full and fractional shares of a Fund calculated to three decimal
places.
A purchase order for shares of a Fund will be effective as of the Business Day
the order is received by the Distributor if the Distributor receives a purchase
order, in good form, for the shares and payment (by wire transfer or check) for
the shares before 4:00 p.m. ET on that day. Purchase orders submitted through
broker-dealers which have established dealer agreements with the Distributor
normally will be received by the Distributor on the Business Day after they are
received by the broker-dealer. In certain circumstances where the agreement
between the Distributor and the customer's broker so permits, a purchase order
for additional shares of a Fixed Income Fund will be effective as of the
Business Day the order is received by the Distributor if the Distributor
receives a purchase order in good form for the shares before 4:00 p.m. ET on
that day and payment (by wire transfer or check) for the shares is received
before 4:00 p.m. ET within 5 Business Days thereafter.
By Mail
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Investors may purchase shares of any Fund by completing and signing an Account
Application and
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mailing it, along with a check (or other negotiable bank instrument or money
order) payable to the Fund in which shares are being purchased, e.g., "1784
U.S. Government Medium-Term Income Fund," "1784 Income Fund" or "1784 Short-
Term Income Fund," to SEI Financial Management Corporation (the "Transfer
Agent"), P.O. Box 1784, Wayne, PA 19087-8784. Subsequent purchases of shares
may be made at any time by mailing a check (or other negotiable bank draft or
money order) to the Transfer Agent.
Account Applications can be obtained by calling the Distributor at 1-800-BKB-
1784.
By Telephone
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If a Shareholder has previously submitted an Account Application, that
Shareholder may also purchase shares by telephone by calling the Distributor
toll-free at 1-800-BKB-1784. Orders by telephone will not be executed until an
Account Application and payment have been received. In certain circumstances
where the agreement between the Distributor and the customer's broker so
permits, orders by telephone representing subsequent purchases of shares of a
Fixed Income Fund will be executed prior to receipt of payment, but payment
must be received before 4:00 p.m. ET within 5 Business Days thereafter.
Tax-Deferred Retirement Programs
- --------------------------------------------------------------------------------
The Funds are eligible for purchase by tax-deferred retirement programs such as
IRAs, KEOGHs, and 401(k) plans, and the minimum initial investment requirement
for an account established under such a program is $250. Bank of Boston offers
a number of tax-deferred retirement plans through which shares of a Fund may be
purchased. All Fund accounts established under a tax-deferred retirement
program must elect to have all dividends reinvested in the Fund.
Systematic Investment Plan (SIP)
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A Shareholder may also arrange for periodic additional investments in a Fixed
Income Fund through automatic deductions by Direct Deposit (if available from a
Shareholder's employer) or by Automatic Clearing House ("ACH") transactions
from a checking account by completing the appropriate section of the Account
Application. The Systematic Investment Plan is subject to account minimum
initial purchase amounts and minimum maintained balance requirements. The
minimum pre-authorized investment amount is $50 per month. An Account
Application may be obtained by contacting the Distributor at 1-800-BKB-1784.
Other Information Regarding Purchases
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Shares of a Fund may also be purchased through financial institutions,
including Bank of Boston, which provide shareholder service or other assistance
to the Trust. Texas residents may only purchase shares through the Distributor.
Shares purchased by persons ("Customers") through financial institutions may be
held of record by the financial institution. Financial institutions may impose
cut-off times for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Distributor. Customers should
contact their financial institution for information as to the institution's
procedures for transmitting purchase, exchange or redemption orders to the
Distributor. The Distributor's receipt of an order may be delayed by one or
more Business Days.
Customers who desire to transfer the registration of shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change. Other Shareholders who desire to
transfer the registration of their shares should contact the Administrator.
Purchases may be made by ACH transactions, as well as by check or wire
transfer.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution.
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No certificates representing shares will be issued.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such offer. Each Fund will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. These
procedures will include verification of a caller's identity by asking for his
or her name, address, telephone number, Social Security number, and account
number. If these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine are not followed, the Fund may be liable
for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
For all purchases, if payment is not made or a check received for shares does
not clear, the purchase will be cancelled and the investor could be liable for
any losses to the Fund, including losses resulting from a decline in the net
asset value of the applicable shares between the date of purchase and the date
of cancellation, and for a check return fee up to $25.00, as applicable. Shares
purchased will begin accruing dividends on the day following the date of
purchase.
The net asset value per share of each Fund is determined by dividing the total
market value of the Fund's investments and other assets, less any liabilities,
by the total outstanding shares of the Fund. Each Fund may use a pricing
service to provide market quotations. A pricing service may use a matrix system
of valuation to value fixed income securities which considers factors such as
securities prices, yield features, ratings, and developments related to a
specific security.
REDEMPTION OF SHARES
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Shareholders may redeem their shares on any Business Day and shares may
ordinarily be redeemed by mail or telephone, with proceeds payable by check,
ACH or wire transfer. A redemption is treated, for federal and state income tax
purposes, as a sale of the Fund shares redeemed; a redemption could, therefore,
result in taxable gain or loss to the Shareholder. If proceeds are paid by wire
transfer, a wire transfer charge (presently $12.00) will be imposed.
By Mail
- --------------------------------------------------------------------------------
A written request for redemption must be received by the Transfer Agent in good
form in order to constitute a valid request for redemption. All account holders
must sign the redemption request. Under certain circumstances, the Transfer
Agent may require that the signatures on the request be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange, or by another
eligible guarantor institution. Redemption requests may be mailed to SEI
Financial Management Corporation, P.O. Box 1784, Wayne, PA 19087-8784 or 680
East Swedesford Road, Wayne, PA 19087.
By Telephone
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Shares may be redeemed by telephone if the Shareholder elects that option on
the Account Application (unless a written redemption request, with the
Shareholder's signature guaranteed, is required; see "Signature Guarantees"
below). Telephone redemption orders must be placed with the Transfer Agent
prior to 4:00 p.m. ET on any Business Day to be effective on such day. The
Shareholder may have the proceeds mailed to his or her address or wired to a
commercial bank account previously designated on the Account Application.
Telephone redemption requests may be made by calling the Transfer Agent at 1-
800-BKB-1784. Shareholders may not close their account by telephone. During
periods of drastic economic or market changes or severe weather or other
emergencies, Shareholders may find it difficult to implement a telephone
redemption. If such a case should occur, another method of redemption, such as
written request sent via an overnight delivery service, should be considered.
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Signature Guarantees
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If a Shareholder requests a redemption for an amount in excess of $25,000, a
redemption of any amount to be payable to anyone other than the Shareholder of
record or a redemption of any amount to be sent to any address other than the
Shareholder's address of record with the applicable Fund (or in the case of ACH
or wire transfers, other than as provided in the Shareholder's Account
Application), all account holders on the Shareholder's account must sign a
written redemption request and their signatures must be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange or by another
eligible guarantor institution. The Trust and the Transfer Agent reserve the
right to amend these requirements for the applicable Fund at any time without
notice. For questions about the proper form of redemption requests, call 1-800-
BKB-1784.
Other Information Regarding Redemptions
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All redemption orders for shares of the Funds are effected at the net asset
value per share next determined after receipt, by the Transfer Agent, of a
valid request for redemption in good form, as described above. Payment to
Shareholders for shares redeemed will be made within seven days after receipt
by the Transfer Agent of the request for redemption. A redemption must involve
either shares having an aggregate value of at least $250 or all the shares in
an account. Each Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures will
include verification of a caller's identity by asking for his or her name,
address, telephone number, Social Security number, and account number. If these
or other reasonable procedures to confirm that instructions communicated by
telephone are genuine are not followed, the Fund may be liable for any losses
to a Shareholder due to unauthorized or fraudulent instructions. Otherwise, the
investor will bear all risk of loss relating to a purchase, redemption or
exchange by telephone or a wire transfer.
Forwarding of redemption proceeds for shares purchased, or received in exchange
for shares purchased, by check (including certified or cashier's checks) may be
delayed for 15 or more days to ensure that payment has been collected for the
purchase of such shares. Each Fund intends to pay cash for all shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in Fund securities with a market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem, at net asset value, the shares of any Shareholder
if, because of redemptions of shares by or on behalf of the Shareholder (and
not solely because of market declines), the account of such Shareholder in the
Fund has a value of less than the minimum initial purchase amount (normally
$1,000). Accordingly, an investor purchasing shares of the Fund in only the
minimum investment amount may be subject to such involuntary redemption if he
or she thereafter redeems any of these shares. Before the Fund exercises its
right to redeem such shares and to send the proceeds to the Shareholder, the
Shareholder will be given notice that the value of the shares in his or her
account is less than the minimum amount and will be allowed 60 days to make an
additional investment in the Fund in an amount which will increase the value of
the account to at least the minimum amount. Accounts established under a tax-
deferred retirement program may be subject to involuntary redemption as
described above only if such account has a value of less than $250, the minimum
initial purchase amount for such accounts.
The right of any Shareholder to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or to the extent otherwise
permitted by the Investment Company Act of 1940, if an emergency exists. See
"Purchase and Redemption of
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Shares" in the Statement of Additional Information for examples of when the
right of redemption may be suspended.
SYSTEMATIC WITHDRAWAL PLAN
- --------------------------------------------------------------------------------
A Shareholder may direct the shareholder servicing agent to send him or her
regular monthly, quarterly, semi-annual or annual payments, as designated on
the Account Application and based upon the value of his or her account. Each
payment under a systematic withdrawal plan must be at least $100, except in
certain limited circumstances. A withdrawal payment under the plan is treated,
for federal and state income tax purposes, as a sale of a number of Fund shares
sufficient to fund the payment; such payment could, therefore, result in
taxable gain or loss to the Shareholder.
EXCHANGES
- --------------------------------------------------------------------------------
Some or all of the shares of a Fixed Income Fund for which payment has been
received by the Distributor (i.e., an established account) may be exchanged at
their net asset value for shares of one or more of the other portfolios of the
Trust, including shares of another Fixed Income Fund. Exchanges will be made
only after instructions in writing or by telephone are received for an
established account by the Distributor.
In the case of shares held of record by Bank of Boston or one of its affiliates
but beneficially owned by a Customer, to exchange such shares the Customer
should contact Bank of Boston or the affiliate, who will contact the
Distributor and effect the exchange on behalf of the Customer. If an exchange
request in good order is received by the Distributor by 4:00 p.m. ET on any
Business Day, the exchange usually will occur on that day; however, requests
for exchange for shares of a money market fund must be received earlier than
4:00 p.m. ET (in cases when regular trading on the New York Stock Exchange
closes earlier than 4:00 p.m. ET, as early as 12:00 noon ET) for the exchange
to occur on that day. Any Shareholder or Customer who wishes to make an
exchange must have received a current prospectus of the portfolio in which he
or she wishes to invest before the exchange will be effected. Residents of any
state may only exchange shares for shares of another portfolio of the Trust if
that portfolio is registered in that state.
Each exchange must involve either shares having an aggregate value of at least
$250 or all the shares in the account, and the amount of the exchange must meet
the minimum investment requirements for the portfolio of the Trust into which
the exchange is being made.
Exchanges may be made by telephone only if that option has been elected by the
Shareholder on the Account Application. Shares may be exchanged by telephone by
calling the Distributor toll free at 1-800-BKB-1784.
No fees are currently charged to Shareholders directly in connection with
exchanges, although each of the Fixed Income Funds reserves the right, upon not
less than 60 days' written notice, to charge Shareholders a nominal fee in
accordance with rules promulgated by the SEC. Each of the Fixed Income Funds
also reserves the right to reject any exchange request in whole or in part. The
exchange privilege (or any aspect of it) may be changed or terminated at any
time.
An exchange is treated, for federal and state income tax purposes, as a sale of
the Fixed Income Fund shares exchanged; an exchange could, therefore, result in
taxable gain or loss to the Shareholder.
CHECKWRITING
- --------------------------------------------------------------------------------
A Shareholder in the 1784 Short-Term Income Fund may redeem shares by writing
checks on his or her account for $250 or more. Once a Shareholder has signed
and returned a signature card agreement, that Shareholder will receive a supply
of checks.
A check may be made payable to any person, and the Shareholder's account will
continue to earn dividends until the check clears. The checkwriting privilege
is available on the terms specified in the signature card agreement and may be
terminated or changed by the Fund at any time.
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Because of the difficulty of determining in advance the exact value of a Fund
account, a Shareholder may not use a check to close his or her account. These
checks are currently free, i.e. there is no charge for this service; however,
the Shareholder's account will be charged a fee for stopping payment of a check
upon a Shareholder's request or if the check cannot be honored because of
insufficient funds or for other valid reasons.
A redemption by check is treated, for federal and state income tax purposes, as
a sale of the Fund shares redeemed and could, therefore, result in taxable gain
or loss to the Shareholder.
PERFORMANCE
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From time to time, the Trust may advertise a Fund's yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. The yield of a Fund refers to the annualized
income generated by an investment in the Fund over a specified 30-day period.
The yield is calculated by assuming that the income generated by the investment
during that period is generated over one year and is shown as a percentage of
the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, net of any sales charge imposed, for designated time
periods (including but not limited to the period from which the Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all
dividend and capital gain distributions.
A Fund's performance may from time to time be compared to that of other mutual
funds tracked by mutual fund rating services, to that of broad groups of
comparable mutual funds or to that of unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs.
TAXES
- --------------------------------------------------------------------------------
The following is a discussion of certain United States federal income tax
considerations relevant to the purchase, ownership, and disposition of shares
in the Funds. The discussion, which is based on current tax laws, regulations,
rulings, and judicial decisions (all of which are subject to change at any time
by legislative, judicial, or administrative action), is not intended to be
complete; therefore, prospective investors should consult their own tax
advisers as to the tax consequences to them of an investment in a Fund.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
Tax Status of the Fixed Income Funds
- --------------------------------------------------------------------------------
Each Fund is treated as a separate entity for federal income tax purposes, and
is not combined with the other Funds or the Trust's other portfolios. The Trust
intends to qualify each Fund each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and to make distributions to that Fund's shareholders in accordance
with the timing requirements set out in the Code. As a result, it is expected
that the Funds will not be required to pay any federal income or excise taxes,
although foreign source income received by the 1784 Income Fund or the 1784
Short-Term Income Fund may be subject to foreign withholding taxes.
Tax Treatment of Shareholders
- --------------------------------------------------------------------------------
1784 U.S. Government Medium-Term Income Fund
Shareholders of the 1784 U.S. Government Medium-Term Income Fund generally will
have to pay federal income taxes and may be subject to state or local taxes on
the dividends and capital gain distributions they receive from the Fund,
whether paid in cash or in additional shares. Distributions from net investment
income and short-term capital gains will be taxable to Shareholders as ordinary
income, while Fund distributions of net capital gains (the excess of net long-
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term capital gains over net short-term capital losses) will be taxable to
Shareholders as long-term capital gains, regardless of how long the
Shareholders have held their shares.
Distributions that are derived from interest on obligations of the U.S.
Government and certain of its agencies and instrumentalities (but generally not
from capital gains realized upon the disposition of such obligations) may be
exempt from state and local taxes. The Trust intends to advise Shareholders of
the extent, if any, to which Fund distributions consist of such interest.
1784 Short-Term Income Fund and 1784 Income Fund
Shareholders of these Funds normally will have to pay federal income taxes and
any state or local taxes on the dividends and capital gain distributions they
receive from a Fund, whether paid in cash or in additional shares.
Distributions from net investment income and short-term capital gains will be
taxable to Shareholders as ordinary income, while distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) will be taxable to Shareholders as long-term capital gains, regardless
of how long Shareholders have held their shares.
General
The Trust expects that none of the dividends received from the Funds will be
eligible for the dividends received deduction for corporations. Any Fund
dividend that is declared in October, November, or December of a calendar year,
payable to shareholders of record in such a month, and that is paid the
following January will be treated as if received by the Shareholders on
December 31 of the year in which the dividend is declared.
The Trust will make annual reports to Shareholders of the federal income tax
status of all distributions from each Fund.
The exchange or redemption of Fund shares is a taxable event to the
Shareholder; however, under certain circumstances, realized losses may be
disallowed and short-term capital losses may be converted into long-term
capital losses.
The Funds will generally withhold tax payments at the rate of 30% on dividends
and other payments that are subject to such withholding and that are made to
persons who are neither citizens nor residents of the U.S., although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. Each
Fund is also required in certain circumstances to apply backup withholding of
31% of taxable dividends and certain redemption proceeds paid to any
Shareholder (including a Shareholder who is neither a citizen nor a resident of
the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. Backup
withholding will not, however, be applied to payments that have been subject to
30% (or lower treaty rate) withholding.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust
- --------------------------------------------------------------------------------
The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated February 5, 1993. The Declaration of Trust permits the Trust to
issue an unlimited number of shares of beneficial interest of each of the
portfolios (referred to as "series") of the Trust, each of which is a separate
fund. In addition to the Fixed Income Funds, the Trust includes the following
funds: 1784 Institutional U.S. Treasury Money Market Fund, 1784 U.S. Treasury
Money Market Fund, 1784 Tax-Free Money Market Fund, 1784 Growth and Income
Fund, 1784 Asset Allocation Fund, 1784 International Equity Fund, 1784 Tax-
Exempt Medium-Term Income Fund, 1784 Massachusetts Tax-Exempt Income Fund, 1784
Connecticut Tax-Exempt Income Fund, and 1784 Rhode Island Tax-Exempt Income
Fund. All consideration received by the Trust for shares of any
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fund and all assets of such fund belong to that fund and are subject to
liabilities related thereto. The Trust reserves the right to create and issue
additional series of shares, and reserves the right to create and issue shares
of additional classes of any or all series.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses and reports to Shareholders,
costs of custodian services and registering the shares of the Funds and other
series under federal and state securities laws, pricing, insurance expenses,
brokerage costs, interest charges, taxes, and amortization of organization
expenses, and any extraordinary expenses including but not limited to
litigation expenses. For the fiscal year ended May 31, 1995, the total expenses
of each of the Funds were as follows: for the 1784 U.S. Government Medium-Term
Income Fund, $1,449,843, of which $544,860 was voluntarily waived or reimbursed
by the Bank of Boston (after giving effect to such waiver or reimbursement,
0.80% of such Fund's average daily net assets for that fiscal year); for the
1784 Income Fund, $1,808,186, of which $985,091 was voluntarily waived or
reimbursed by the Bank of Boston (after giving effect to such waiver or
reimbursement, 0.55% of such Fund's average daily net assets for that fiscal
year); and for the 1784 Short-Term Income Fund, $357,999, of which $221,254 was
voluntarily waived or reimbursed by the Bank of Boston (after giving effect to
such waiver or reimbursement, 0.48% of such Fund's average daily net assets for
that fiscal year).
Under applicable law, Shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the risk of a
Shareholder incurring financial loss on account of such Shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations and inadequate insurance existed. The Trust believes that the
likelihood of such circumstances is remote.
Trustees of the Trust
- --------------------------------------------------------------------------------
The management and affairs of the Trust are supervised by its Board of
Trustees. The Trustees have approved contracts under which, as described above,
certain companies provide essential management, administrative and Shareholder
services to the Trust.
Voting Rights
- --------------------------------------------------------------------------------
Each share held entitles the Shareholder of record to one vote. Each fund or
class will vote separately on matters relating solely to that fund or class. As
a Massachusetts business trust, the Trust is not required to hold annual
meetings of Shareholders but approval will be sought for certain changes in the
operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested, the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
Reporting
- --------------------------------------------------------------------------------
The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
Shareholder Inquiries
- --------------------------------------------------------------------------------
Shareholder inquiries should be directed to SEI Financial Management
Corporation, P.O. Box 1784, Wayne, Pennsylvania 19087-8784, at 1-800-BKB-1784.
Dividends and Distributions
- --------------------------------------------------------------------------------
Substantially all of the net investment income (not including capital gains) of
the Fixed Income Funds is distributed in the form of dividends which are
declared daily and paid monthly. Shareholders of record will be entitled to
receive the dividend, except that shares will not begin accruing dividends
until the day following the date of their purchase. On redemption, a
shareholder will receive dividends through and
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including the day a valid redemption request is received by the Transfer Agent.
Currently, capital gains of the Funds, if any, will be distributed at least
annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the Shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Administrator at least 15 days prior to the distribution.
Dividends and distributions of the Funds are paid on a per-share basis. The
value of each share will be reduced by the amount of the payment. If the shares
are purchased shortly before the record date for a dividend or the distribution
of capital gains, a Shareholder will pay the full price for the shares and
receive some portion of the price back as a taxable dividend or distribution.
If dividend payments are returned and unclaimed within 30 days, they will be
reinvested and the Shareholder will be deemed to have elected to receive future
dividend and capital gain distributions in additional shares.
Counsel and Independent Accountants
- --------------------------------------------------------------------------------
Bingham, Dana & Gould, Boston, MA, serve as counsel to the Trust. Coopers &
Lybrand L.L.P., Boston, MA, serve as the independent accountants of the Trust.
Custodian
- --------------------------------------------------------------------------------
Bank of Boston, 100 Federal Street, Boston, MA 02110, acts as Custodian of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940. Foreign securities may be held
through subcustodians approved by the Trust's Board of Trustees. Under a
separate agreement, Bank of Boston also provides certain accounting services
for the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS AND TECHNIQUES
- --------------------------------------------------------------------------------
The following is a description of certain of the permitted investments and
investment techniques for the Funds. Not all of the Funds will normally invest
in all of the investments, nor engage in all of the investment techniques,
listed below. See "Investment Policies." Except as specifically stated below or
elsewhere in this Prospectus or in the Statement of Additional Information with
respect to certain of the Funds' permitted investments and investment
techniques, there are no limits on the amount of assets a Fund may invest in
particular types of securities.
U.S. Treasury Obligations -- U.S. Treasury obligations include bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS"). STRIPS are sold as zero coupon securities. These
securities are usually structured with two classes that receive different
portions of the interest and principal payments from the underlying obligation.
The yield to maturity on the interest-only class is extremely sensitive to the
rate of principal payments on the underlying obligation. The market value of
the principal-only class generally is unusually volatile in response to changes
in interest rates. See "Zero Coupon Securities" below for more information on
these securities.
Receipts -- A Fund may purchase interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
or brokerage firms and are created by depositing U.S. Treasury obligations into
a special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts" ("TIGRs"),
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and "Certificates of Accrual on Treasury Securities" ("CATS"). TRs, TIGRs, and
CATS are sold as zero coupon securities. See "Zero Coupon Securities" below for
more information on these securities.
U.S. Government Agencies -- Certain Federal agencies such as the Government
National Mortgage Association ("GNMA") have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States (e.g., GNMA) or supported by the issuing agencies' right to borrow from
the Treasury. The issues of other agencies are supported only by the credit of
the instrumentality (e.g., Federal National Mortgage Association, "FNMA").
Bank Obligations -- A Fund may invest in bank obligations, i.e., certificates
of deposit, time deposits (including Eurodollar time deposits) and bankers'
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and
foreign branches of foreign banks, domestic savings and loan associations and
other banking institutions. A Fund may invest in such obligations, however,
only if the issuer (or the parent company, in the case of subsidiaries or
branches) has assets of at least $1 billion, and only if the Adviser deems the
bank obligation to be of comparable credit quality to the commercial paper in
which the applicable Fund may invest.
Bankers' Acceptances -- A banker's acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
Certificates of Deposit -- A certificate of deposit is a negotiable interest-
bearing instrument with a specific maturity. Certificates of deposit are issued
by banks and savings and loan institutions in exchange for the deposit of funds
and normally can be traded in the secondary market prior to maturity.
Money Market Funds -- A money market fund is an investment company that limits
its investments to high quality money market instruments with a weighted
average maturity of 90 days or less. A Fund may not invest more than 5% of its
assets in any one money market fund or more than 10% of its assets in other
investment companies, including money market funds. When a Fund invests in a
money market fund, a Shareholder bears not only his or her proportionate share
of the Fund's expenses, but also indirectly his or her share of the expenses of
the money market fund, including management fees.
Time Deposits -- A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities; therefore, no Fund will invest more than
15% of its net assets in such time deposits and other illiquid securities.
Options -- A Fund may engage in writing call options from time to time as the
Adviser deems appropriate. Under a call option, the purchaser of the option has
the right to purchase, and the writer (the Fund) the obligation to sell, the
underlying security at the exercise price during the option period. Call
options written on individual securities are written solely as covered call
options (such as options written on securities owned by the Fund) and may be
written in order to generate additional income or for hedging purposes. Such
options must be listed on a national securities exchange. In order to close out
an option position, the Fund may enter into a "closing purchase transaction" --
the purchase of a call option on the same security with the same exercise
price and expiration date as any call option which it may previously have
written on any particular security. When the Fund security is sold, the Fund
effects a closing purchase transaction so as to close out any existing call
option on that security. If the Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
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option expires or the Fund delivers the underlying security upon exercise.
Each Fund may write covered call options on its securities provided the
aggregate value of such options does not exceed 10% of the Fund's net assets as
of the time such options are entered into by the Fund.
Each Fund may purchase put options on its securities provided the aggregate
value of such options does not exceed 10% of the Fund's net assets as of the
time such options are entered into by the Fund. Under a put option, the
purchaser of the option has the right to sell the underlying security at the
exercise price during the option period.
There are risks associated with options transactions, including the following:
(1) the success of a hedging strategy may depend on the ability of the Adviser
to predict movements in the prices of individual securities, market
fluctuations and movements in interest rates; (2) there may be an imperfect
correlation between the movement in prices of securities held by a Fund and
price movements of the related options; (3) there may not be a liquid secondary
market for options; and (4) while a Fund will receive a premium when it writes
covered call options, it may not participate fully in a rise in the market
value of the underlying security.
Futures and Options on Futures -- A Fund may also enter into bond and interest
rate futures contracts and options on futures contracts provided that the sum
of the Fund's initial margin deposits on open futures contracts plus the amount
paid for premiums for unexpired options on futures contracts does not exceed 5%
of the market value of the Fund's total assets and the outstanding obligations
to purchase securities under futures contracts do not exceed 20% of the Fund's
total assets. Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific security at a
specified future time and at a specified price. An option on a futures contract
gives the purchaser the right, in exchange for a premium, to assume a position
in a futures contract at a specified exercise price during the term of the
option. A Fund will minimize the risk that it will be unable to close out a
futures contract by entering into only those futures contracts which are traded
on national futures exchanges.
It is intended that the Funds would use futures contracts and related options
only for bona fide hedging purposes, i.e., to offset unfavorable changes in the
value of securities otherwise held or expected to be acquired for investment
purposes. There are risks associated with these hedging activities, including
the following: (1) the success of a hedging strategy may depend on the ability
of the Adviser to predict movements in the prices of individual securities,
fluctuations in markets, and movements in interest rates; (2) there may be an
imperfect or no correlation between the changes in market value of the
securities held by the Fund and the prices of futures and options on futures;
(3) there may not be a liquid secondary market for a futures contract or
futures option; (4) trading restrictions or limitations may be imposed by an
exchange; and (5) government regulations may restrict trading in futures
contracts and futures options.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by the Funds may carry variable or floating rates of interest and may involve a
conditional or unconditional demand feature permitting the holder to demand
payment of principal at any time, or at specified intervals. Such obligations
may include variable amount master demand notes. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a Federal Reserve composite index. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security; a Fund will not
invest more than 15% of its net assets in illiquid securities.
The interest rates on these securities may be reset daily, weekly, quarterly or
some other reset period, and may have a floor or ceiling on interest rate
charges. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates.
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Interest Rate Swaps -- An interest rate swap is a transaction in which the
parties involved exchange variable-rate instruments for fixed-rate instruments.
A Fund would undertake a swap if it believed that interest rates were moving in
a manner that made holding one type of instrument more advantageous than the
other. Thus, the success of a swap depends on the Adviser's ability to predict
correctly the movement of interest rates.
Commercial Paper -- Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from one to 270 days.
Securities of Foreign Issuers -- Investments in securities of foreign issuers
are subject to special risks such as future adverse political and economic
developments, possible seizure, nationalization or expropriation of foreign
investments, less stringent disclosure requirements, more volatile or less
liquid markets, the possible establishment of exchange controls or taxation at
the source, greater fluctuation in value due to changes in exchange rates, or
the adoption of other foreign governmental restrictions. These risks are
heightened for securities of issuers in developing countries. Such investments
may also entail higher custodial fees than domestic investments. Foreign
securities issuers are often subject to accounting treatment and engage in
business practices different from those of domestic securities issuers. Each of
the 1784 Income Fund and 1784 Short-Term Income Fund may invest up to 15% of
its net assets in securities of issuers in developing countries and up to 30%
of its net assets in securities of foreign issuers, including the 15% it may
invest in the securities of issuers in developing countries.
Foreign Currency Transactions -- Each of the 1784 Income Fund and 1784 Short-
Term Income Fund may engage in currency exchange transactions to protect
against uncertainty in the level of future exchange rates in connection with
hedging and other non-speculative strategies involving specific settlement
transactions, so long as such transactions do not exceed 20% of the Fund's
total assets. A Fund will conduct currency exchange transactions either on a
spot (i.e., cash) basis at the rate prevailing in the currency exchange market,
or through entering into forward contracts to purchase or sell currencies. A
forward currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which must be more than two days from the
date of the contract, at a price set at the time of the contract. Transaction
hedging is the purchase or sale of forward currency with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities. These contracts are entered into
in the interbank market conducted directly between currency traders (typically
commercial banks or other financial institutions) and their customers.
Loan Participations -- The 1784 Short-Term Income Fund and 1784 Income Fund may
invest in interests in loans to U.S. corporations (i.e., borrowers) which are
administered by the lending bank or agent for a syndicate of lending banks, and
sold by the lending bank or syndicate member ("intermediary bank"). In a loan
participation, the borrower of the underlying loan will be deemed to be the
issuer of the participation interest except to the extent the Fund derives its
rights from the intermediary bank. The Fund may only purchase interests in loan
participations issued by a bank in the United States with assets exceeding $1
billion and for which the underlying loan is issued by borrowers in whose
obligations the Fund may invest. Because the intermediary bank does not
guarantee a loan participation in any way, a loan participation is subject to
the credit risk generally associated with the underlying corporate borrower. In
addition, in the event the underlying corporate borrower fails to pay principal
and interest when due, the Fund may be subject to delays, expenses and risks
that are greater than those that would have been involved if the Fund had
purchased a direct obligation (such as commercial paper) of such borrower
because it may be necessary under the terms of the loan participation for the
Fund to assert its rights against the borrower through the intermediary bank.
Moreover, under the terms of a loan participation the purchasing Fund may be
regarded as a creditor of the intermediary bank (rather
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I784 FUNDS
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than the underlying corporate borrower), so that the Fund may also be subject
to the risk that the issuing bank may become insolvent. Further, in the event
of the bankruptcy or insolvency of the corporate borrower, a loan participation
may be subject to certain defenses that can be asserted by such borrower as a
result of improper conduct by the issuing bank. The secondary market, if any,
for these loan participations is limited and any such participation purchased
by a Fund may be regarded as illiquid; no Fund will invest more than 15% of its
net assets in illiquid securities.
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933 or an exemption from
registration are referred to as "restricted securities." Each of the Fixed
Income Funds may invest up to 15% of its net assets in illiquid securities,
including restricted securities; however, this limit will not apply to a
restricted security if it is determined by or under the direction of the
Trust's Board of Trustees, based on trading markets for the specific restricted
security, that such security is liquid. The liquidity of these investments
could be impaired if trading does not develop or declines. In the case of
illiquid securities, the absence of a trading market can make it difficult to
ascertain a market value for these investments. Disposing of illiquid
securities may involve time-consuming negotiation and legal expense, and it may
be difficult or impossible for a Fund to sell them promptly at an acceptable
price.
Repurchase Agreements -- A repurchase agreement is an agreement by which a
person obtains a security and simultaneously commits to return the security to
the seller at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days from the date of purchase. The
Custodian or its agent will hold the security as collateral for the repurchase
agreement. Collateral must be maintained at a value at least equal to 100% of
the purchase price. A Fund bears a risk of loss in the event the other party
defaults on its obligations and the Fund is delayed or prevented from its right
to dispose of the collateral securities or if the Fund realizes a loss on the
sale of the collateral securities. The Adviser will enter into repurchase
agreements on behalf of a Fund only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
guidelines established and periodically reviewed by the Trustees. Pursuant to
an exemptive order from the SEC, each of the Funds may enter into repurchase
agreements on a pooled basis with other portfolios of the Trust.
Mortgage-Backed Securities -- Each of the Funds may acquire securities
representing an interest in a pool of mortgage loans that are issued or
guaranteed by a U.S. Government agency. The primary issuers or guarantors of
these mortgage-backed securities are GNMA, FNMA and the Federal Home Loan
Mortgage Corporation. The 1784 Income Fund and 1784 Short-Term Income Fund may
also invest in mortgage-backed securities issued by non-governmental entities
which consist of collateralized mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICs") that are rated in one of the top three
categories by S&P or Moody's or are of comparable quality as determined by the
Adviser. The mortgages backing these securities include conventional thirty-
year fixed rate mortgages, graduated payment mortgages, and adjustable rate
mortgages. The Funds will purchase only CMOs and REMICs that are backed solely
by GNMA certificates or other mortgage pass-through certificates issued or
guaranteed by the U.S. Government or its agencies and instrumentalities.
However, the guarantees do not extend to the mortgage-backed securities' value,
which is likely to vary inversely with fluctuations in interest rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yield of a particular issue of pass-
through certificates. During periods of declining interest rates, prepayment of
mortgages underlying
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mortgage-backed securities can be expected to accelerate. When the mortgage
obligations are prepaid, the Fund reinvests the prepaid amounts in securities,
the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life. The
Adviser believes that the estimated average life is the most appropriate
measure of the maturity of a mortgage-backed security. Accordingly, in order to
determine the average maturity of a Fund, the Adviser will use an estimate of
the average life of a mortgage-backed security. An average life estimate is a
function of an assumption regarding anticipated prepayment patterns. The
assumption is based upon current interest rates, current conditions in the
relevant housing markets and other factors. The assumption is necessarily
subjective, and thus different market participants could produce somewhat
different average life estimates with regard to the same security. There can be
no assurance that the average life as estimated by the Adviser will be the
actual average life.
Mortgage "Dollar Roll" Transactions -- Each of the 1784 Income and the 1784
Short-Term Income Funds may enter into mortgage "dollar roll" transactions with
selected banks and broker-dealers pursuant to which the Fund sells mortgage-
backed securities for delivery in the future (generally within 30 days) and
simultaneously contracts to purchase substantially similar (same type, coupon
and maturity) securities on a specified future date. The Funds will only enter
into covered rolls. A "covered roll" is a specific type of dollar roll for
which there is an offsetting cash position or a cash equivalent security
position which matures on or before the forward settlement date of the dollar
roll transaction. Each Fund will not commit more than 20% of its total assets
to dollar roll transactions.
Asset-Backed Securities -- Asset-backed securities consist of securities
secured by company receivables, truck and auto loans, leases, and credit card
receivables. These issues are normally traded over-the-counter and typically
have a short-intermediate maturity structure depending on the paydown
characteristics of the underlying financial assets which are passed through to
the security holder. Because prepayment of those underlying financial assets
affects the maturity of asset-backed securities, the Adviser will use estimates
of the average life of asset-backed securities in order to determine the
effective maturity of the Funds. See "Mortgage-Backed Securities" for more
information on estimates of average life. There can be no assurance that the
average life of an asset-backed security as estimated by the Adviser will be
the actual average life.
Standby Commitments -- A Fund may acquire securities subject to a standby
commitment which permits a Fund to sell the security at a fixed price prior to
maturity. The underlying municipal securities subject to a standby commitment
may be sold at any time at the market rates. In certain cases, a premium may be
paid for a standby commitment. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving standby commitments is to maintain flexibility and
liquidity to permit the Fund to meet redemptions and remain as fully invested
as possible in municipal securities. Each Fund will limit standby commitment
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Trust's Board of Trustees.
There is no limit to the percentage of Fund securities that any Fund may
purchase subject to a standby commitment but the amount paid directly or
indirectly for a standby commitment held by any Fund will not exceed 1/2 of 1%
of the value of the total assets of the Fund.
Municipal Securities -- Municipal securities which the 1784 Income and the 1784
Short-Term Income Funds may purchase include (i) debt obligations issued by or
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on behalf of public authorities to obtain funds to be used for various public
facilities, for refunding outstanding obligations, for general operating
expenses, and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair, or improvement of privately operated
facilities. Municipal notes include (but are not limited to) general obligation
notes, tax anticipation notes, revenue anticipation notes, bond obligation
notes, certificates of indebtedness, demand notes, and construction loan notes.
Municipal bonds include (but are not limited to) general obligation bonds,
revenue or special obligation bonds, private activity and industrial
development bonds. General obligation bonds are backed by the taxing power of
the issuing municipality. Revenue bonds are backed by the revenues of a project
or facility, e.g., tolls from a toll bridge. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed
as security for such payment.
Municipal securities also include participations in municipal leases. These are
undivided interests in a portion of an obligation in the form of a lease or
installment purchase issued by a state or local government to acquire equipment
or facilities. Municipal leases frequently have special risks not normally
associated with general obligation bonds or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by
the appropriate legislative body on a yearly or other periodic basis. Although
the obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In light of these concerns, the Trust
has adopted and follows procedures for determining whether municipal lease
securities purchased by a Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures require
that a number of factors be used in evaluating the liquidity of a municipal
lease security, including the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number
of other potential purchasers, the willingness of dealers to undertake to make
a market in the security, the nature of the marketplace in which the security
trades, the credit quality of the security, and other factors which the Adviser
may deem relevant.
Forward Commitments or Purchases on a When-Issued Basis -- Each of the Funds
may enter into forward commitments or purchase securities on a when- issued
basis, which means that the price of the securities is fixed at the time of
commitment and that the delivery and payment will ordinarily take place beyond
customary settlement time. The interest rate realized on these securities is
fixed as of the purchase date and no interest accrues to the Fund before
settlement. These securities are subject to market fluctuation due to changes
in market interest rates and will have the effect of leveraging the Fund's
assets; the securities are also subject to fluctuation in value pending
settlement based upon public perception of the creditworthiness of the issuer
of these securities. Securities purchased on a when-issued or forward
commitment basis may expose a Fund to risk because such securities may
experience such fluctuations in value prior to their actual delivery.
Agreements to purchase securities on a when-issued or forward commitment basis
will only be made with the intention of taking delivery and not for speculative
purposes. A Fund may invest up to 25% of its assets in forward commitments or
commitments to purchase securities on a when-issued basis. While awaiting
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delivery of securities purchased on such bases, a Fund will establish a
segregated account consisting of cash, short-term money market instruments or
high quality debt securities equal to the amount of the commitments to purchase
securities on such bases.
Zero Coupon Securities -- A zero coupon security pays no interest or principal
to its holder during its life. A zero coupon security is sold at a discount,
frequently substantial, and redeemed at face value at its maturity date. The
amount of the discount is accrued over the life of the security and constitutes
the income earned on the security for both accounting and tax purposes. The
market prices of zero coupon securities are generally more volatile than the
market prices of securities of similar maturity that pay interest periodically,
and zero coupon securities are likely to respond to a greater degree to
interest rate changes than are non-zero coupon securities with similar maturity
and credit qualities.
Securities Lending -- In order to generate additional income, a Fund may lend
the securities in which it is invested pursuant to agreements requiring that
the loan be continuously secured by cash, securities of the U.S. Government or
its agencies or any combination of cash and such securities as collateral equal
at all times to 100% of the market value of the securities lent plus accrued
interest. A Fund may lend up to 33 1/3% of its total assets. The Fund will
continue to receive interest on the securities lent while simultaneously
earning interest on the investment of cash collateral in U.S. Government
securities. There may be risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from such securities loans
justifies the attendant risk.
Convertible Securities -- The 1784 Income and 1784 Short-Term Income Funds may
invest in convertible securities. Convertible securities have characteristics
similar to both fixed income and equity securities. Because of the conversion
feature, the market value of convertible securities tends to move together with
the market value of the underlying stock. As a result, a Fund's selection of
convertible securities is based, to a great extent, on the potential for
capital appreciation that may exist in the underlying stock. The value of
convertible securities is also affected by prevailing interest rates, the
credit quality of the issuer, and any call provisions. The convertible
securities in which the Fund may invest include both debt obligations and
preferred stock. Each Fund will not invest more than 20% of its total assets in
these securities.
Guaranteed Investment Contracts ("GIC") -- The 1784 Income and 1784 Short-Term
Income Funds may invest in GICs. A GIC is contract between an insurance company
and, generally, an institutional investor that guarantees the investor a
specified interest rate for a specified period and the return of the investor's
principal. Each Fund will not invest more than 20% of its total assets in GICs.
Warrants -- The 1784 Income and 1784 Short-Term Income Funds may invest in
warrants. Each Fund may invest up to 2% of its net assets in warrants, except
that this limitation does not apply to warrants acquired in units or attached
to securities. A warrant is an instrument issued by a corporation which gives
the holder the right to subscribe for a specified amount of the corporation's
capital stock at a set price for a specified period of time.
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APPENDIX A
DESCRIPTION OF RATINGS
- --------------------------------------------------------------------------------
The following descriptions are summaries of certain published ratings.
Description of Commercial Paper Ratings
- --------------------------------------------------------------------------------
The following descriptions of commercial paper ratings have been published by
Standard and Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") and Fitch Investors Service, Inc. ("Fitch").
S&P's ratings are graded into several categories of which A is the highest.
This category is divided into sub-categories as follows:
A-1 This highest sub-category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality, respectively, on the
basis of relative repayment capacity.
Commercial paper issues rated F-1+, F-1, and F-2 by Fitch are judged by Fitch
to be of "exceptionally strong" quality, "very strong" quality and "good"
quality, respectively, on the basis of relative repayment capacity.
Description of Corporate Bond Ratings
- --------------------------------------------------------------------------------
Bonds rated AAA by S&P have the highest rating S&P assigns to debt obligations.
Such a rating indicates an extremely strong capacity to repay principal and pay
interest. Bonds rated AA also qualify as high-quality debt obligations.
Capacity to repay principal and pay interest is very strong, and differs from
AAA issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher rated categories.
Bonds rated BBB by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Bonds which are rated Aaa by Moody's 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 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. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than with Aaa securities.
Bonds which are rated A by Moody's 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.
Bonds which are rated Baa by Moody's are considered to be medium-grade
obligations (i.e., they are neither
A-1
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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.
Bonds rated AAA by Fitch are considered to be investment grade and of very high
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
Bonds rated AA by Fitch are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
Bonds rated A by Fitch are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Description of Municipal Note Ratings
- --------------------------------------------------------------------------------
S&P's municipal note ratings reflect the liquidity concerns and market access
risks unique to notes. An SP-1 rating indicates a strong capacity to pay
principal and interest. Issues determined to possess very strong
characteristics are given a plus (+) designation. An SP-2 rating indicates a
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
Moody's MIG-1/VMIG-1 designation denotes best quality. Municipal notes that
obtain this rating possess strong protection due to established cash flows,
superior liquidity support or demonstrated broad-based access to the market for
refinancing. Moody's MIG-2/VMIG-2 designation denotes high quality. Margins of
protection are ample although not so large as in the MIG-1/VMIG-1 group.
Municipal notes rated F-1+, F-1 and F-2 by Fitch are judged by Fitch to be of
"exceptionally strong" quality, "very strong" quality and "good" quality,
respectively, on the basis of the degree of assurance of timely payment.
A-2
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APPENDIX B
TAXABLE EQUIVALENT YIELD TABLES
- --------------------------------------------------------------------------------
These tables are for illustrative purposes only and are not intended to predict
the actual return an individual would earn on an investment in the Funds. No
assurance can be made that any Fund will attain any particular yield. The tax
rates used in these tables are based upon published 1995 marginal tax rates
currently available and scheduled to be in effect. The tables do not take into
account changes in tax rates that are proposed from time to time. Investors
should consult their tax advisers to determine their actual tax rates.
1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
Find your Federal tax bracket based on your taxable income.
<TABLE>
<CAPTION>
You would need the taxable yield listed
opposite the Federal
1995 tax bracket in the chart below to have a
Taxable Income* Federal tax-exempt yield of:
- -------------------------------------------- Marginal -------------------------------------------
Single Joint Rate 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- --------------------- --------------------- -------- ----- ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-- 23,350 $ 0-- 39,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
23,351-- 56,550 $ 39,001-- 94,250 28.00% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
56,551-- 117,950 94,251-- 143,600 31.00% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
117,951-- 256,500 143,601-- 256,500 36.00% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
256,501 and more 256,501 and more 39.60% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code.
Note: Information in this table is provided as of June 30, 1995.
1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
Find your combined Massachusetts and Federal tax bracket based on your taxable
income.
<TABLE>
<CAPTION>
You would need the taxable yield listed
opposite the
combined Massachusetts and Federal tax
bracket in the
1995 Combined chart below to have a Massachusetts tax-
Taxable Income* Massachusetts exempt yield of:
- ------------------------------------------- and Federal ---------------------------------------------
Single Joint State Rate Federal Rate Tax Bracket** 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- -------------------- -------------------- ---------- ------------ ------------- ----- ----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-- 23,350 $ 0-- 39,000 12.00% 15.00% 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
23,351-- 56,550 39,001-- 94,250 12.00% 28.00% 36.64% 6.31% 7.10% 7.89% 8.68% 9.47% 10.26% 11.05%
56,551-- 117,950 94,251-- 143,600 12.00% 31.00% 39.28% 6.59% 7.41% 8.23% 9.06% 9.88% 10.70% 11.53%
117,951-- 256,500 143,601-- 256,500 12.00% 36.00% 43.68% 7.10% 7.99% 8.88% 9.77% 10.65% 11.54% 12.43%
over 256,500 over 256,500 12.00% 39.60% 46.85% 7.53% 8.47% 9.41% 10.35% 11.29% 12.23% 13.17%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Massachusetts Personal Income Tax laws;
however, Massachusetts taxable income may vary due to differences in
exemptions, itemized deductions, and other items.
** For Federal tax purposes, these combined rates reflect the applicable
marginal rates for 1995, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal return.
Note: Information in this table is provided as of June 30, 1995.
B-1
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1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
Find your combined Rhode Island and Federal tax bracket based on your taxable
income.
<TABLE>
<CAPTION>
You would need the taxable yield listed
opposite the
combined Rhode Island and Federal tax bracket
in the
1995 Combined chart below to have a Rhode Island tax-exempt
Taxable Income* Rhode Island yield of:
- ------------------------------------ State Federal and Federal ---------------------------------------------
Single Joint Rate Rate Tax Bracket** 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- ----------------- ----------------- ------ ------- ------------- ----- ----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-- 23,350 $ 0-- 39,000 4.13% 15.00% 18.51% 4.91% 5.52% 6.14% 6.75% 7.36% 7.98% 8.59%
23,351-- 56,550 39,001-- 94,250 7.70% 28.00% 33.54% 6.02% 6.77% 7.52% 8.28% 9.03% 9.78% 10.53%
56,551--117,950 94,251--143,600 8.53% 31.00% 36.88% 6.34% 7.13% 7.92% 8.71% 9.51% 10.30% 11.09%
117,951--256,500 143,601--256,500 9.90% 36.00% 42.34% 6.94% 7.80% 8.67% 9.54% 10.41% 11.27% 12.14%
over 256,500 over 256,500 10.89% 39.60% 46.18% 7.43% 8.36% 9.29% 10.22% 11.15% 12.08% 13.01%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Rhode Island Personal Income Tax law; however,
Rhode Island taxable income may differ due to differences in exemptions,
itemized deductions, and other items.
** For Federal tax purposes, these combined rates reflect the applicable
marginal rates for 1995, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal return.
Note: Information in this table is provided as of June 30, 1995.
1784 CONNECTICUT TAX-EXEMPT INCOME FUND
Find your combined Connecticut and Federal tax bracket based on your taxable
income.
<TABLE>
<CAPTION>
You would need the taxable yield listed
opposite the
combined Connecticut and Federal tax
bracket in the
1995 Combined chart below to have a Connecticut tax-
Taxable Income* Connecticut exempt yield of:
- ------------------------------------ State Federal and Federal ------------------------------------------
Single Joint Rate** Rate Tax Bracket*** 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- ----------------- ----------------- ------ ------- -------------- ----- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-- 23,350 $ 0-- 39,000 4.50% 15.00% 18.83% 5.54% 6.16% 6.78% 7.39% 8.01% 8.62%
23,351-- 56,550 39,001-- 94,250 4.50% 28.00% 31.24% 6.54% 7.27% 8.00% 8.73% 9.45% 10.18%
56,551--117,950 94,251--143,600 4.50% 31.00% 34.11% 6.83% 7.59% 8.35% 9.11% 9.86% 10.62%
117,951--256,500 143,601--256,500 4.50% 36.00% 38.88% 7.36% 8.18% 9.00% 9.82% 10.63% 11.45%
over 256,500 over 256,500 4.50% 39.60% 42.32% 7.80% 8.67% 9.54% 10.40% 11.27% 12.14%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Connecticut Personal Income Tax law; however,
Connecticut taxable income may differ due to differences in exemptions,
itemized deductions, and other items.
** The Connecticut credits have not been included in the calculation of the
state rates. A credit between 1% and 75% is automatically allowed for
single taxpayers with a CT adjusted gross income ranging from $12,000 to
$52,500. A credit between 1% and 75% is automatically allowed for married
filing joint taxpayers with CT adjusted gross income ranging from $24,000
to $100,500.
*** For Federal tax purposes, these combined rates reflect the applicable
marginal rates for 1995, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal
return.
Note: Information in this table is provided as of June 30, 1995.
B-2
================================================================================
<PAGE>
================================================================================
PROSPECTUS
[LOGO OF 1784 FUNDS APPEARS HERE]
Investment Adviser:
THE FIRST NATIONAL BANK OF BOSTON
1784 FUNDS (the "Trust") is a mutual fund consisting of several professionally
managed portfolios, or funds, of securities. The Trust provides a convenient
way to invest in one or more of these funds. This Prospectus relates to shares
of the following tax-exempt funds (the "Funds" or the "Tax-Exempt Funds"):
1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
1784 CONNECTICUT TAX-EXEMPT INCOME FUND
Shares of the Funds are offered primarily to individuals and institutional
investors, including accounts for which The First National Bank of Boston
("Bank of Boston"), its affiliates and correspondents, and other financial
institutions act in a fiduciary, agency or custodial capacity. Investors in
shares of the Funds are referred to hereinafter as "Shareholders." Shares of
the Funds are currently offered without any sales charges.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANK OF BOSTON OR ANY OF ITS AFFILIATES. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING RISK
TO PRINCIPAL.
This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing in the Funds.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information, dated October 2, 1995, has
been filed with the Securities and Exchange Commission (the "SEC") and is
available without charge through the Distributor, SEI Financial Services
Company, 680 East Swedesford Road, Wayne, PA 19087 or by calling 1-800-BKB-
1784. The Statement of Additional Information is incorporated into this
Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
October 2, 1995
================================================================================
<PAGE>
================================================================================
I784 FUNDS
- --------------------------------------------------------------------------------
EXPENSE SUMMARY
- --------------------------------------------------------------------------------
Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of each of the Tax-Exempt Funds and annual operating expenses of the
Funds, and (ii) an example illustrating the dollar cost of such expenses on a
hypothetical $1,000 investment in each of the Funds.
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None
Sales Charge Imposed on Reinvested Dividends (as a percentage of offering
price) None
Deferred Sales Charge Imposed on Redemptions (as a percentage of offering
price) None
Redemption Fees (1) None
Exchange Fee None
</TABLE>
Annual Operating Expenses
- --------------------------------------------------------------------------------
(As a percentage of average net assets)
<TABLE>
<CAPTION>
1784
Tax-Exempt 1784 1784 1784
Medium- Massachusetts Rhode Island Connecticut
Term Tax-Exempt Tax-Exempt Tax-Exempt
Income Fund Income Fund Income Fund Income Fund
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advisory Fees (after fee
waiver) (2) 0.60% 0.60% 0.60% 0.60%
12b-1 Fee (after fee
waiver) (2) None None None None
Other Expenses (2) 0.20% 0.20% 0.20% 0.20%
- ----------------------------------------------------------------------------
Total Operating Expenses
(2) 0.80% 0.80% 0.80% 0.80%
- ----------------------------------------------------------------------------
</TABLE>
(1) If proceeds of a redemption of Fund shares are paid by wire transfer, a
wire transfer charge (presently $12.00) will be imposed.
(2) Bank of Boston, which serves as the Adviser for the Trust, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
each of the Tax-Exempt Funds to not more than 1.25% of average daily net assets
on an annualized basis; this limitation would not apply to any brokerage
commissions, interest expense or taxes or to extraordinary expense items,
including but not limited to litigation expenses. SEI Financial Services
Company, which acts as Distributor of the Trust's shares, has agreed to waive
its 12b-1 fee, which is computed at an annual rate of 0.25% of each Fund's
average daily net assets. If the Distributor should terminate this waiver,
after a substantial period of time annual payment of this fee may total more
than the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge. SEI Financial Management Corporation,
which acts as the Trust's Administrator, has agreed to waive its fee from
certain funds of the Trust to assist these funds in maintaining a competitive
expense ratio. Bank of Boston contributes to the Funds in order to limit other
operating expenses and to assist the Funds in maintaining a competitive expense
ratio. Fee waivers by the Adviser, Administrator and Distributor, and
contributions by the Bank of Boston, are voluntary and may be terminated at any
time. From time to time the Adviser may also waive additional portions of its
fees to reduce net operating expenses to less than that shown in the table
above. Certain other parties may also agree to waive portions of their fees
from time to time on a month to month basis. Additional information may be
found under "The Adviser," "The Administrator" and "The Distributor." Absent
waivers, the Adviser's investment advisory fee is calculated at an annual rate
of 0.74% of the average daily net assets of each of the Tax-Exempt Funds.
Absent the waiver of fees by the Distributor, Adviser and Administrator, and
voluntary contributions by the Bank of Boston, other expenses and estimated
total operating expenses would be as follows: 0.27% and 1.26% of average daily
net assets of the 1784 Tax-Exempt Medium-Term Income Fund, 0.36% and 1.35% of
average daily net assets of the 1784 Massachusetts Tax-Exempt Income Fund,
0.61% and 1.60% of average daily net assets of the 1784 Rhode Island Tax-Exempt
Income Fund and 0.41% and 1.40% of average daily net assets of the 1784
Connecticut Tax-Exempt Income Fund, in each case on an annualized basis. Other
expenses are based on actual expenses for each Fund's fiscal year ended May 31,
2
================================================================================
<PAGE>
================================================================================
I784 FUNDS
- --------------------------------------------------------------------------------
1995, and include expense items described under "General Information -- The
Trust." A person who purchases shares through a financial institution may be
charged separate fees by the financial institution.
Example
- --------------------------------------------------------------------------------
An investor would pay the following expenses on a hypothetical $1,000
investment assuming a 5% annual total return and redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1784 Tax-Exempt Medium-Term Income Fund $8 $26 $44 $99
1784 Massachusetts Tax-Exempt Income Fund $8 $26 $44 $99
1784 Rhode Island
Tax-Exempt Income Fund $8 $26 $44 $99
1784 Connecticut
Tax-Exempt Income Fund $8 $26 $44 $99
</TABLE>
Absent voluntary waivers by the Adviser, Distributor and Administrator and
contributions made by the Bank of Boston, the amounts for this example for one
year, three years, five years and ten years would be $13, $40, $69 and $152 for
the 1784 Tax-Exempt Medium-Term Income Fund, $14, $43, $74 and $162 for the
1784 Massachusetts Tax-Exempt Income Fund, $16, $50, $87 and $190 for the 1784
Rhode Island Tax-Exempt Income Fund and $14, $44, $77 and $168 for the 1784
Connecticut Tax-Exempt Income Fund. The example is based on actual expenses for
each Fund's fiscal year ended May 31, 1995. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN, AND ACTUAL
EXPENSES AND RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of
this table is to assist the investor in understanding the various costs and
expenses that may be directly or indirectly borne by investors in the Funds.
Additional information may be found under "General Information -- The Trust,"
"The Adviser," "The Administrator" and "The Distributor."
SUMMARY
- --------------------------------------------------------------------------------
The following information is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information.
1784 Funds (the "Trust") is an open-end management investment company which
provides a convenient way to invest in one or more professionally managed funds
of securities. The following provides basic information about the 1784 Tax-
Exempt Medium-Term Income Fund, 1784 Massachusetts Tax-Exempt Income Fund, 1784
Rhode Island Tax-Exempt Income Fund and 1784 Connecticut Tax-Exempt Income Fund
(each, a "Fund" or a "Tax-Exempt Fund," and collectively, the "Funds" or the
"Tax-Exempt Funds"). The 1784 Tax-Exempt Medium-Term Income Fund is a
diversified fund; each of the 1784 Massachusetts Tax-Exempt Income Fund, the
1784 Rhode Island Tax-Exempt Income Fund, and the 1784 Connecticut Tax-Exempt
Income Fund (collectively, the "State Funds") is a non-diversified fund.
What Is the Investment Objective? The investment objective of the 1784 Tax-
Exempt Medium-Term Income Fund is current income, exempt from federal income
taxes, consistent with preservation of capital. The investment objective of the
1784 Massachusetts Tax-Exempt Income Fund is current income, exempt from both
federal and Massachusetts personal income taxes, consistent with the
preservation of capital. The investment objective of the 1784 Rhode Island Tax-
Exempt Income Fund is current income exempt from federal income tax, from Rhode
Island personal income tax and from the Rhode Island business corporation tax.
The investment objective of the 1784 Connecticut Tax-Exempt Income Fund is
current income exempt from both federal and Connecticut personal income taxes.
Preservation of capital is a secondary objective for each of these Funds. Each
Fund's investment
3
================================================================================
<PAGE>
================================================================================
I784 FUNDS
- --------------------------------------------------------------------------------
objective may be changed only with the consent of holders of a majority of that
Fund's outstanding shares. There can be no assurance that any Tax-Exempt Fund
will achieve its investment objective. See "Investment Objective" and
"Investment Limitations."
What Are the Permitted Investments? The 1784 Tax-Exempt Medium-Term Income Fund
under normal market conditions invests at least 80% of its net assets in
obligations issued by or on behalf of the states, territories or possessions of
the United States and the District of Columbia and their respective political
subdivisions, agencies and instrumentalities, the interest on which, in the
opinion of counsel for the issuer, is exempt from federal income tax and not
included as a preference item under the alternative minimum tax (collectively,
"Municipal Securities"). Each of the State Funds under normal market conditions
invests at least 80% of its net assets in Municipal Securities, and normally
invests at least 65% of its total assets in Municipal Securities the interest
on which, in the opinion of counsel for the issuer, is exempt from both federal
and that state's personal income tax and not included as a preference item
under the alternative minimum tax.
What Are Some of the Risks? The investment policies of each of the Tax-Exempt
Funds entail certain risks and considerations of which an investor should be
aware. For example, the net asset value per share of each of the Tax-Exempt
Funds is not fixed and should be expected to fluctuate. In addition, values of
fixed income securities tend to vary inversely with interest rates and may be
affected by other market and economic factors as well; mortgage-backed
securities are subject to prepayment of the underlying mortgages and may not be
an effective means of locking in long-term interest rates; and the longer
maturity securities in which the Funds may invest are subject to greater market
fluctuations as a result of changes in interest rates. Since the State Funds
are non-diversified funds, a relatively high percentage of their assets may be
invested in the securities of a limited number of issuers, which means that the
value of the shares of these Funds may be more susceptible to any single
economic, political or regulatory occurrence than the shares of a diversified
investment company.
For further information, see "Investment Policies," "Certain Investment
Policies and Guidelines" and "Description of Permitted Investments and
Techniques" herein and in the Statement of Additional Information.
Who Is the Adviser? The First National Bank of Boston ("Bank of Boston" or the
"Adviser") serves as the Adviser for the Trust and is entitled to a fee which
is calculated daily and paid monthly at an annual rate of 0.74% of the average
daily net assets of each of the Tax-Exempt Funds. The Adviser has agreed for an
indefinite period of time to waive all or a portion of its fee in order to
limit the total operating expenses of the Tax-Exempt Funds to not more than
1.25% of each Fund's average daily net assets. Bank of Boston contributes to
the Funds in order to limit operating expenses and to assist the Funds in
maintaining a competitive expense ratio. Fee waivers and contributions may be
terminated at any time. See "The Adviser."
Who Is the Administrator? SEI Financial Management Corporation serves as the
Administrator for the Trust under an Administration Agreement and is entitled
to a fee which is calculated daily and paid monthly at an annual rate of 0.15%
of the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Each Tax-Exempt Fund's
portion of such fee is based on that Fund's average daily net assets. The
Administrator has agreed to waive a portion of its fees on a month to month
basis under certain circumstances. See "The Administrator."
Who Is the Shareholder Servicing Agent and Transfer Agent? SEI Financial
Management Corporation acts as dividend disbursing agent and shareholder
servicing agent for the Trust under the Administration Agreement and as
transfer agent for the Trust under a separate transfer agent agreement. See
"The Shareholder Servicing and Transfer Agent."
4
================================================================================
<PAGE>
================================================================================
I784 FUNDS
- --------------------------------------------------------------------------------
Who Is the Distributor? SEI Financial Services Company acts as distributor of
the Trust's shares. The Trust has adopted a distribution plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan
provides for payments to the Distributor of a fee, calculated daily and paid
monthly at an annual rate of 0.25% of each Tax-Exempt Fund's average daily net
assets; the Distributor can use all or a portion of this fee to compensate
broker-dealers and other financial institutions that provide services to
Shareholders or to their customers who beneficially own shares of the Tax-
Exempt Funds. The Distributor has agreed to waive its 12b-1 fee. However,
distribution fees may be imposed in the event that the Distributor determines
to terminate its waiver of such fees. The Trust may create one or more
additional classes of shares, without distribution fees, of one or more of the
Funds. See "The Distributor."
How Do I Purchase Shares? Purchases of Fund shares may be made through the
Distributor by the close of business Monday through Friday except on days when
the New York Stock Exchange or the Federal Reserve Bank of Boston is closed
("Business Days"). Shares may also be purchased through broker-dealers which
have established dealer agreements with the Distributor. Purchase orders
submitted through broker-dealers normally will be received by the Distributor
on the Business Day after they are received by the broker-dealer.
A purchase order for shares representing an investment in a Tax-Exempt Fund
will be effective as of the Business Day the order is received by the
Distributor if the Distributor receives a purchase order in good form for the
shares and payment (by wire transfer or check) for the shares before 4:00 p.m.
Eastern Time ("ET") on that day. Shares are sold at their net asset value
determined as of the end of the day the order is effective. Shares purchased
will begin accruing dividends on the day following the date of purchase.
The minimum initial investment in a Tax-Exempt Fund is $1,000; all subsequent
purchases must be at least $250. Minimum investment requirements are lower for
accounts established for automatic investment programs. See "Purchase of
Shares."
Shares of each of the Tax-Exempt Funds are currently being offered without any
sales charges. See "The Distributor."
How Do I Redeem Shares? Redemptions of shares of a Tax-Exempt Fund may be made
through the Transfer Agent on any Business Day. Redemption orders must be
placed in good form before 4:00 p.m. ET on any Business Day to be effective on
that day. The redemption price is the net asset value per share determined as
of the end of the day the order is effective. See "Redemption of Shares."
How Are Distributions Paid? Substantially all of the net investment income
(exclusive of capital gains) of each of the Funds is distributed in the form of
dividends which are declared daily and paid monthly. Shareholders of record on
the record date for the dividend distribution will be entitled to the
dividends, except that shares will not begin accruing dividends until the day
following the date of their purchase. On redemption, a shareholder will receive
dividends through and including the day a valid redemption request is received
by the Transfer Agent. Any capital gain is distributed at least annually.
Distributions are paid in additional shares unless the Shareholder elects to
take the payment in cash. See "Dividends and Distributions."
How Do I Make Exchanges? Once payment for shares of a Tax-Exempt Fund has been
received by the Distributor, those shares may be exchanged for shares of one or
more other portfolios of the Trust at net asset value, provided the amount of
the exchange meets the minimum investment requirements for the other portfolio
of the Trust. There are no charges for an exchange. If an exchange request in
good order is received by the Distributor by 4:00 p.m. ET on any Business Day,
the exchange usually will occur on that day; however, requests for exchanges
for shares of a money market fund must be received earlier than 4:00 p.m. ET
(in cases when regular trading on the New York
5
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
I784 FUNDS
- --------------------------------------------------------------------------------
Stock Exchange closes earlier than 4:00 p.m. ET, as early as 12:00 noon ET) for
the exchange to occur on that day. A Shareholder must obtain and should read
the prospectus of the other portfolio and consider the differences in
investment objectives and policies before making any exchange. An exchange is
treated, for federal and state income tax purposes, as a sale of the Tax-Exempt
Fund shares exchanged, and could result in taxable gain or loss to the
Shareholder. See "Exchanges."
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following table provides condensed financial information about the 1784
Tax-Exempt Medium-Term Income Fund and the 1784 Massachusetts Tax-Exempt Income
Fund for the period from June 14, 1993 (commencement of operations) through May
31, 1995, and about the 1784 Rhode Island Tax-Exempt Income Fund and the 1784
Connecticut Tax-Exempt Income Fund for the period from August 1, 1994
(commencement of operations) through May 31, 1995. The information should be
read in conjunction with the financial statements appearing in the Funds'
Annual Report to Shareholders, which is incorporated by reference in the
Statement of Additional Information. The financial statements and notes, as
well as the table below, covering the period through May 31, 1995 have been
audited by Coopers & Lybrand L.L.P., independent accountants, whose report is
included in the Funds' Annual Report. Copies of the Annual Report may be
obtained without charge from the Distributor.
FINANCIAL HIGHLIGHTS
For the Period Ended May 31, 1995
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net Ratio
Asset Realized and Dividends Net Assets Ratio of Net
Value Net Unrealized from Net Asset Value End of Expenses Income
Beginning Investment Gains or (Losses) Investment End Total of Period to Average to Average
of Period Income on Investments Income of Period Return (000) Net Assets Net Assets
--------- ---------- ----------------- ---------- ----------- ------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT
MEDIUM-TERM
INCOME (1)
=================
6/14/93-5/31/94 $10.00 0.49 (0.10) (0.49) $ 9.90 3.93%* $ 36,365 0.32%** 5.06%**
6/1/94-5/31/95 $ 9.90 0.48 0.24 (0.48) $10.14 7.58% $176,345 0.80% 5.02%
MASSACHUSETTS
TAX-EXEMPT
INCOME (1)
=================
6/14/93-5/31/94 $10.00 0.50 (0.19) (0.50) $ 9.81 3.04%* $ 49,662 0.33%** 5.10%**
6/1/94-5/31/95 $ 9.81 0.47 0.09 (0.47) $ 9.90 6.00% $ 82,058 0.80% 4.93%
RHODE ISLAND
TAX-EXEMPT
INCOME FUND (2)
=================
8/1/94-5/31/95 $10.00 0.45 0.13 (0.45) $10.13 6.09%* $ 32,495 0.54%** 5.56%**
CONNECTICUT
TAX-EXEMPT
INCOME FUND (2)
=================
8/1/94-5/31/95 $10.00 0.45 0.27 (0.45) $10.27 7.45%* $ 61,369 0.52%** 5.44%**
<CAPTION>
Ratio Ratio of
of Expenses Net Income
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ---------- ---------
<S> <C> <C> <C>
TAX-EXEMPT
MEDIUM-TERM
INCOME (1)
=================
6/14/93-5/31/94 1.61%** 3.77%** 98.83%
6/1/94-5/31/95 1.26% 4.56% 74.74%
MASSACHUSETTS
TAX-EXEMPT
INCOME (1)
=================
6/14/93-5/31/94 1.41%** 4.02%** 13.99%
6/1/94-5/31/95 1.35% 4.38% 34.59%
RHODE ISLAND
TAX-EXEMPT
INCOME FUND (2)
=================
8/1/94-5/31/95 1.60%** 4.50%** 57.51%
CONNECTICUT
TAX-EXEMPT
INCOME FUND (2)
=================
8/1/94-5/31/95 1.40%** 4.56%** 35.56%
</TABLE>
* Returns are for the period indicated and have not been annualized.
** Ratios for this period have been annualized.
(1) The Tax-Exempt Medium-Term Income and Massachusetts Tax-Exempt Income Funds
commenced operations on June 14, 1993.
(2) The Rhode Island Tax-Exempt Income and Connecticut Tax-Exempt Income Funds
commenced operations on August 1, 1994.
6
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<PAGE>
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I784 FUNDS
- --------------------------------------------------------------------------------
THE TRUST
- --------------------------------------------------------------------------------
1784 Funds (the "Trust") is an open-end management investment company that
currently offers units of beneficial interest ("shares") in several separate
professionally managed investment portfolios, or funds. Each share of each fund
represents an undivided, proportionate interest in that fund. This Prospectus
relates to shares of the Trust's 1784 Tax-Exempt Medium-Term Income Fund, a
diversified fund, and of the 1784 Massachusetts Tax-Exempt Income Fund, 1784
Rhode Island Tax-Exempt Income Fund, and 1784 Connecticut Tax-Exempt Income
Fund, which are non-diversified funds. The Trust's other funds include the 1784
U.S. Treasury Money Market Fund, 1784 Institutional U.S. Treasury Money Market
Fund, 1784 Tax-Free Money Market Fund, 1784 Growth and Income Fund, 1784 Asset
Allocation Fund, 1784 International Equity Fund, 1784 U.S. Government Medium-
Term Income Fund, 1784 Short-Term Income Fund, and 1784 Income Fund.
Information regarding the Trust's other funds is contained in separate
prospectuses that may be obtained from the Trust's distributor, SEI Financial
Services Company (the "Distributor"), 680 East Swedesford Road, Wayne,
Pennsylvania 19087, or by calling 1-800-BKB-1784.
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the 1784 Tax-Exempt Medium-Term Income Fund is
current income, exempt from federal income taxes, consistent with preservation
of capital.
The investment objective of the 1784 Massachusetts Tax-Exempt Income Fund is
current income, exempt from both federal and Massachusetts personal income
taxes, consistent with the preservation of capital.
The investment objective of the 1784 Rhode Island Tax-Exempt Income Fund is
current income exempt from federal income tax, from Rhode Island personal
income tax, and from the Rhode Island business corporation tax. Preservation of
capital is a secondary objective.
The investment objective of the 1784 Connecticut Tax-Exempt Income Fund is
current income exempt from both federal and Connecticut personal income tax.
Preservation of capital is a secondary objective.
There is no assurance that the investment objective of any Tax-Exempt Fund will
be met. The investment objective of each Fund is a fundamental policy of that
Fund, and therefore cannot be changed without the consent of holders of a
majority of that Fund's outstanding shares. See "Investment Limitations."
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The 1784 Tax-Exempt Medium-Term Income Fund is a diversified fund which, as a
matter of fundamental policy, invests at least 80% of its net assets under
normal market conditions in obligations issued by or on behalf of the states,
territories and possessions of the United States and the District of Columbia
and their respective political subdivisions, agencies and instrumentalities,
the interest on which, in the opinion of counsel for the issuer, is exempt from
federal income tax and not included as a preference item under the alternative
minimum tax (collectively, "Municipal Securities"). Municipal Securities in
which the Fund invests include (i) municipal notes which are rated MIG-2 or
VMIG-2 or better by Moody's Investors Service, Inc. ("Moody's") or SP-2 or
better by Standard & Poor's Ratings Group ("S&P") at the time of investment, or
which, if not rated by Moody's or by S&P, are of at least comparable quality,
as determined by the Adviser; (ii) municipal bonds which are rated BBB or
better by S&P or Baa or better by Moody's at the time of investment or which,
if not rated by Moody's or by S&P, are of at least comparable quality, as
determined by the Adviser; and (iii) tax-exempt commercial paper which is rated
at least A-2 by S&P or Prime-2 by Moody's at the time of investment or which is
of comparable quality as determined by the Adviser. Bonds rated BBB by S&P or
Baa by Moody's may have speculative characteristics.
The securities other than Municipal Securities in which the 1784 Tax-Exempt
Medium-Term Income Fund may
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invest include (1) U.S. Government securities, i.e., obligations issued or
guaranteed as to principal and interest by the U.S. Government or any of its
agencies and instrumentalities; (2) bonds, debentures or other debt instruments
rated BBB or better by S&P or Baa or better by Moody's or of comparable quality
at the time of purchase as determined by the Adviser; (3) short-term commercial
paper rated A-2 or better by S&P or P-2 or better by Moody's or of comparable
quality at the time of purchase as determined by the Adviser; (4) bank
obligations described under "Description of Permitted Investments and
Techniques;" (5) mortgage-backed securities and asset-backed securities rated A
or better by S&P or Moody's or of comparable quality at the time of purchase as
determined by the Adviser; (6) receipts evidencing separately traded interest
and principal component parts of U.S. Government obligations; and (7)
repurchase agreements. Securities rated BBB by S&P or Baa by Moody's may have
speculative characteristics. The Fund may write (sell) covered call options and
enter into fixed income futures contracts and options (in each case for hedging
purposes only).
The Fund may also invest up to 5% of its net assets in securities of closed-end
investment companies traded on a recognized securities exchange or actively
traded in the over-the-counter market. The Fund may also invest up to 20% of
its net assets in securities the interest on which is subject to federal income
tax or the federal alternative minimum tax. Up to 15% of the net assets of the
Fund may be invested in illiquid securities.
The Trust expects the 1784 Tax-Exempt Medium-Term Income Fund to maintain an
average weighted maturity of three to ten years. The Adviser may shorten the
average maturity substantially in anticipation of a change in the interest rate
environment for temporary defensive purposes by investing in money market
instruments and in money market funds. To the extent the Fund is invested in
money market instruments and/or money market funds for temporary defensive
purposes, the Fund will not be pursuing its investment objective. Under normal
circumstances, it is anticipated that the annual portfolio turnover rate for
the Fund will not exceed 100%; for the Fund's fiscal years ended May 31, 1994
and May 31, 1995, this rate was 99% and 75%, respectively.
For more information regarding the permitted investments and investment
practices of the 1784 Tax-Exempt Medium-Term Income Fund, the purposes of these
investments and investment practices and certain risks associated with certain
of these investments and investment practices, and information regarding the
ratings listed above, see "Certain Investment Policies and Guidelines,"
"Description of Permitted Investments and Techniques" and Appendix A --
"Description of Ratings."
Each of the 1784 Massachusetts Tax-Exempt Income Fund, 1784 Rhode Island Tax-
Exempt Income Fund, and 1784 Connecticut Tax-Exempt Income Fund (each, a "State
Fund"), as a matter of fundamental policy, invests at least 80% of its net
assets under normal market conditions in Municipal Securities, and normally
invests at least 65% of its total assets in Municipal Securities the interest
on which, in the opinion of counsel for the issuer, is exempt from both federal
income tax and that state's personal income tax and not included as a
preference item under the alternative minimum tax (collectively, "State
Municipal Securities"). State Municipal Securities in which a State Fund
invests include (i) municipal notes which are rated MIG-2 or VMIG-2 or better
by Moody's, SP-2 or better by S&P or F-2 or better by Fitch Investors Service,
Inc. ("Fitch") at the time of investment or which, if not rated by Moody's, S&P
or Fitch are of at least comparable quality, as determined by the Adviser; (ii)
municipal bonds which are rated BBB or better by S&P or Fitch or Baa or better
by Moody's at the time of investment or which, if not rated by Moody's, S&P, or
Fitch are of at least comparable quality, as determined by the Adviser; and
(iii) tax-exempt commercial paper which is rated at least A-2 by S&P, F-2 by
Fitch or Prime-2 by Moody's at the time of investment or which, if not rated by
S&P, Fitch, or Moody's is of at least comparable quality, as determined by the
Adviser. Bonds rated BBB by S&P or Baa by Moody's may have speculative
characteristics.
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The securities other than State Municipal Securities in which each State Fund
may invest include: (1) Municipal Securities the interest on which is not
exempt from that state's income tax; (2) U.S. Government securities, i.e.,
obligations issued or guaranteed as to principal and interest by the U.S.
Government or any of its agencies and instrumentalities; (3) bonds, debentures
or other debt instruments rated BBB or better by S&P or Fitch or Baa or better
by Moody's or of comparable quality at the time of purchase as determined by
the Adviser; (4) short-term commercial paper rated A-2 or better by S&P, P-2 or
better by Moody's or F-2 or better by Fitch or of comparable quality at the
time of purchase as determined by the Adviser; (5) bank obligations described
under "Description of Permitted Investments and Techniques;" (6) mortgage-
backed securities and asset-backed securities rated A or better by S&P, Moody's
or Fitch or of comparable quality at the time of purchase as determined by the
Adviser; (7) receipts evidencing separately traded interest and principal
component parts of U.S. Government obligations; and (8) repurchase agreements
involving any of the foregoing securities. Securities rated BBB by S&P or Baa
by Moody's may have speculative characteristics. Each State Fund may write
(sell) covered call options and may enter into fixed income futures contracts
and options (in each case for hedging purposes only).
Each State Fund may also invest up to 20% of its net assets in securities the
interest on which is subject to federal income tax or the federal alternative
minimum tax. Up to 15% of the net assets of each State Fund may be invested in
illiquid securities.
The Trust expects the State Funds to maintain average weighted maturities of
from five to ten years. The Adviser may shorten the average maturity of a State
Fund substantially in anticipation of a change in the interest rate environment
for temporary defensive purposes by investing in money market instruments and
money market funds. To the extent a State Fund is invested in money market
instruments and/or money market funds for temporary defensive purposes, the
Fund will not be pursuing its investment objective. Under normal circumstances,
it is anticipated that the annual portfolio turnover rate for each State Fund
will not exceed 100%. For the fiscal years ended May 31, 1994 and May 31, 1995,
this rate was 14% and 35%, respectively, for the 1784 Massachusetts Tax-Exempt
Income Fund. For the fiscal year ended May 31, 1995 the portfolio turnover rate
for the 1784 Rhode Island Tax-Exempt Income Fund was 58% and for the 1784
Connecticut Tax-Exempt Income Fund was 36%.
Each State Fund is a non-diversified investment company, which means that more
than 5% of its total assets may be invested in one or more issuers, although
the Adviser does not expect to invest more than 25% of the total assets of a
State Fund in any one issuer. Since a relatively high percentage of assets of
these Funds may be invested in the obligations of a limited number of issuers,
the value of the shares of the Funds may be more susceptible to any single
economic, political or regulatory occurrence than the shares of a diversified
investment company. The Trust intends that each State Fund satisfy the
diversification requirements necessary to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended. Under these
requirements, at the close of each quarter of the Fund's taxable year, (A) at
least 50% of its total assets must be represented by cash and cash items,
Government securities and securities of other regulated investment companies
and other securities limited in respect of any one issuer to not more than 5%
of the total assets of the Fund and not more than 10% of the outstanding voting
securities of such issuer, and (B) not more than 25% of the Fund's total assets
may be invested in the securities (other than Government securities or the
securities of other regulated investment companies) of any one issuer.
For more information regarding the permitted investments and investment
practices of the State Funds, the purposes of these investments and investment
practices and certain risks associated with certain of these investments and
investment practices, and information regarding the ratings listed above, see
"Certain Investment Policies and Guidelines," "Description of Permitted
Investments and Techniques" and Appendix A -- "Description of Ratings."
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CERTAIN INVESTMENT POLICIES AND GUIDELINES
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The market value of each Fund's fixed income investments (including money
market instruments) changes in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. Moreover,
while securities with longer maturities tend to produce higher yields, the
values of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates. Changes by recognized
agencies in the rating of any fixed income security and in the ability of an
issuer to make payments of interest and principal also affect the value of
these investments. Changes in the value of Fund securities will affect the
Fund's net asset value; under most circumstances, changes in the value of Fund
securities will not affect cash income derived from these securities.
Each Tax-Exempt Fund's investments normally consist primarily of securities
that are listed on recognized exchanges or actively traded in the over-the-
counter market. Each Tax-Exempt Fund may also hold securities that are neither
so listed nor so traded. However, none of the Tax-Exempt Funds invests more
than 15% of its net assets in illiquid securities.
In general, mortgage-backed securities are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities the yield of which reflects then-prevailing interest
rates, which may be lower. Thus, mortgage-backed securities may not be an
effective means of locking in long-term interest rates for the Funds.
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each of the Tax-Exempt Funds may invest up to 100% of its
assets in money market instruments described under "Description of Permitted
Investments and Techniques," consisting of the following: (1) securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities; (2)
repurchase agreements; (3) bank obligations described under "Description of
Permitted Investments and Techniques;" (4) commercial paper, other short-term
debt securities or variable or floating rate instruments rated in one of the
two highest short-term rating categories by a "nationally recognized
statistical rating organization" as defined under Securities and Exchange
Commission rules ("NRSRO") or of comparable credit quality as determined by the
Adviser; and (5) asset-backed securities. The Funds may also invest, for
temporary defensive purposes, in money market funds. To the extent a Fund is
invested in money market instruments and/or money market funds for temporary
defensive purposes, the Fund will not be pursuing its investment objective.
Each of the Tax-Exempt Funds may invest in floating or variable rate
obligations and may purchase securities on a when-issued basis. Each of the
Funds may also, from time to time, engage in securities lending; however, loans
made by a Fund of the securities it holds may not exceed 33 1/3% of that Fund's
total assets. Each of the Funds may enter into interest rate futures contracts
and related options.
In the event a security owned by a Tax-Exempt Fund is downgraded below the
rating categories discussed above, the Adviser will review and take action it
deems appropriate with regard to the security.
Special Factors Relating to Massachusetts, Rhode Island and Connecticut
Municipal Securities
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Each State Fund intends to invest a significant portion of its assets in
Municipal Securities, the interest on which, in the opinion of bond counsel, is
exempt from both federal income tax and that state's income tax and is not
included as a preference item under the federal alternative minimum tax. The
payment of interest on and the preservation of principal of these securities is
dependent upon the continuing ability of issuers within that state and/or
obligors of state, municipal and public
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authority debt obligations to meet their obligations thereunder. Investors
should consider the greater risk inherent in a State Fund's concentration in
such obligations versus the safety that comes with a less geographically
concentrated investment portfolio and should compare the yield available on a
portfolio of Massachusetts, Rhode Island or Connecticut issues with the yield
of a more diversified portfolio including out-of-state issues before making an
investment decision. Many of a State Fund's Municipal Securities are likely to
be obligations of state governmental issuers which rely in whole or in part,
directly or indirectly, on real property taxes as a source of revenue.
In the late 1980s and early 1990s, Massachusetts, Rhode Island, and Connecticut
each suffered economic slowdowns. In the Commonwealth of Massachusetts, during
such time, economic performance slowed significantly, particularly in the
construction, real estate, financial and manufacturing sectors (including
technology), with especially adverse results in 1990 and the first half of
1991. The economy appears to be recovering with small growth reported in some
sectors during 1993 and 1994. However, the manufacturing sector (including high
technology) continues to decline. Additionally, in the recent past, the
Commonwealth experienced fiscal difficulties. In each of the five fiscal years
commencing fiscal 1987, the Commonwealth's spending exceeded its revenues. In
the fiscal years 1992, 1993 and 1994, however, the Commonwealth's revenues
exceeded spending. In 1989, as a result of the budgetary difficulties of the
Commonwealth at that time, S&P and Moody's lowered their ratings of long-term
bonds issued by the Commonwealth. However, in September, 1992 both S&P and
Moody's raised their ratings of such bonds to A.
In Rhode Island, manufacturing in general and defense-related industries in
particular have declined significantly and employment has decreased in recent
years. As a result, the state government and other issuers of Rhode Island
Municipal Securities have experienced serious budgetary constraints. In order
to balance its budget, as it is required to do by the state constitution, the
Rhode Island state government has reduced expenditures and raised taxes, among
other measures. The recession seems to have stabilized. The state projects
continued recovery at a slow pace over the next five years.
In Connecticut as well, manufacturing in general and defense-related industries
in particular have declined significantly, and unemployment has risen. Despite
the serious economic problems facing the State, Connecticut has essentially
maintained its credit standing. General Fund surpluses in the State's 1986 and
1987 fiscal years were followed by operating deficits in its 1988, 1989, 1990,
and 1991 fiscal years. As a result of the recurring budgetary problems, S&P in
1991 downgraded the State's general obligation bonds from AA to AA-, although
Moody's continues to confirm its rating of Aa, for these bonds. Fitch gives
these obligations a rating of AA. Effective in 1991, the state legislature
enacted a personal income tax and reduced some state sales taxes. As a result
of these and other budgetary actions, the General Fund had operating surpluses
for the fiscal years ending in 1992, 1993 and 1994. The 1995 state budget
anticipates a small deficit. The 1996 state budget anticipates an operating
surplus.
A more detailed description of certain special factors affecting investment in
State Municipal Securities of which investors should be aware is set forth in
the Statement of Additional Information. See "Special Factors Relating to
Massachusetts, Rhode Island and Connecticut Municipal Securities" in the
Statement of Additional Information.
The foregoing discussion of special factors relating to Municipal Securities of
issuers in Massachusetts, Rhode Island and Connecticut is a summary of certain
information contained in certain official statements relating to securities
offerings by such issuers. The foregoing summaries do not purport to be a
complete description and are current as of the date of the corresponding
official statement.
INVESTMENT LIMITATIONS
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The investment objective of each Fund and the following investment limitations
are fundamental
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policies of that Fund. Fundamental policies cannot be changed with respect to a
Fund without the consent of the holders of a majority of that Fund's
outstanding shares. The term "majority of the outstanding shares" means the
vote of (i) 67% or more of the Fund's shares present at a meeting, if more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the Fund's outstanding shares, whichever is less.
A Fund may not:
1. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation (i)
utility companies will be divided according to their services, for example,
gas, gas transmission, electric and telephone will each be considered a
separate industry; and (ii) financial service companies will be classified
according to the end users of their services; for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry.
2. Make loans except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objectives and policies; (b) enter into
repurchase agreements; and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
3. Borrow, except that a Fund may borrow money from banks and may enter into
reverse repurchase agreements, in either case in an amount not to exceed 33
1/3% of the Fund's total assets and then only as a temporary measure for
extraordinary or emergency purposes (e.g., to meet Shareholder redemption
requests). A Fund will not purchase any securities for its portfolio at any
time at which its borrowings equal or exceed 5% of its total assets (taken at
market value).
In addition, the 1784 Tax-Exempt Medium-Term Income Fund may not purchase
securities of any issuer (except securities issued or guaranteed by the United
States, its agencies or instrumentalities and repurchase agreements involving
such securities) if as a result more than 5% of the total assets of the Fund
would be invested in the securities of such issuer or more than 10% of the
outstanding voting securities of such issuer would be owned by the Fund. This
restriction applies to 75% of the total assets of this Fund.
The foregoing percentages apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISER
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The First National Bank of Boston ("Bank of Boston" or the "Adviser") manages
the assets of each Fund pursuant to an Investment Advisory Agreement (the
"Advisory Agreement") with the Trust. Subject to such policies as the Board of
Trustees of the Trust may determine, the Adviser makes investment decisions for
each Fund. David H. Thompson, Director of Fund Management, has been the manager
of the 1784 Tax-Exempt Medium-Term Income Fund since June, 1993 and a co-
manager of the 1784 Rhode Island Tax-Exempt Income Fund and the 1784
Connecticut Tax-Exempt Income Fund since September of 1995. Mr. Thompson, who
has more than 22 years of experience in investment management, research
analysis and securities trading, has been the Director of Fund Management at
Bank of Boston since 1985. Susan A. Sanderson, Senior Fund Manager, has been
the manager of the 1784 Massachusetts Tax-Exempt Income Fund since June, 1993.
Ms. Sanderson, who has more than 15 years of experience in investment
management and securities trading, was an Associate Fund Manager at Bank of
Boston from 1987 to 1991 and has been a Fund Manager since 1991. James L.
Bosland, Senior Fund Manager, has been a co-manager of the 1784 Rhode Island
Tax-Exempt Income Fund and the 1784 Connecticut Tax-Exempt Income Fund since
July, 1994 (commencement of these Funds' operations). Mr. Bosland, who has more
than five years of experience in investment management and research analysis,
has been a Fund Manager and Senior Fund
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Manager at Bank of Boston since 1989. From 1988 to 1989, Mr. Bosland was a vice
president with First Funding Corporation.
For its services under the Advisory Agreement, the Adviser receives from each
Fund a fee accrued daily and paid monthly at an annual rate equal to 0.74% of
the Fund's average daily net assets. However, the Adviser has agreed for an
indefinite period of time to waive all or a portion of its fees in order to
limit the total operating expenses of each of the Funds on an annualized basis
to not more than 1.25% of its average daily net assets; this limitation would
not apply to any brokerage commissions, interest expense or taxes or to
extraordinary expense items, including but not limited to litigation expenses.
Fee waivers may be terminated at any time. From time to time the Adviser may
also waive additional portions of its fees to reduce net operating expenses to
less than the amount specified above.
For the fiscal year ended May 31, 1995, the fees payable to the Bank of Boston
under the Advisory Agreement with respect to each of the Funds were as follows:
for the 1784 Tax-Exempt Medium-Term Income Fund, $741,971, of which $140,373
was voluntarily waived (after giving effect to such waiver, 0.60% of such
Fund's average daily net assets for that fiscal year); for the 1784
Massachusetts Tax-Exempt Income Fund, $447,676, of which $84,695 was
voluntarily waived (after giving effect to such waiver, 0.60% of such Fund's
average daily net assets for that fiscal year); for the 1784 Rhode Island Tax-
Exempt Income Fund, $163,926, of which $87,263 was voluntarily waived (after
giving effect to such waiver, 0.29% of such Fund's average daily net assets for
that fiscal year); and for the 1784 Connecticut Tax-Exempt Income Fund,
$300,587, of which $163,399 was voluntarily waived (after giving effect to such
waiver, 0.28% of such Fund's average daily net assets for that fiscal year). In
addition, the Bank of Boston contributed $67,730 to the 1784 Tax-Exempt Medium-
Term Income Fund, $79,426 to the 1784 Massachusetts Tax-Exempt Income Fund,
$22,451 to the 1784 Rhode Island Tax-Exempt Income Fund and $1,285 to the 1784
Connecticut Tax-Exempt Income Fund to decrease the Funds' other operating
expenses and to assist the Funds in maintaining a competitive expense ratio.
Management's discussion of the Funds' performance is included in the Funds'
Annual Report to Shareholders which investors may obtain without charge by
contacting the Distributor. The Funds may execute brokerage or other agency
transactions through the Adviser or an affiliate.
Bank of Boston, a national banking association, is the successor to a number of
banking institutions, the first of which was chartered in 1784. All of the
capital stock of Bank of Boston (except directors' qualifying shares) is owned
by Bank of Boston Corporation, a registered bank holding company. Bank of
Boston and its affiliates are engaged in providing a wide variety of financial
services to individuals, corporate and institutional customers, governments,
and other financial institutions throughout New England, the United States and
internationally. These services include individual and community banking,
consumer finance, mortgage origination and servicing, domestic corporate and
investment banking, leasing, international banking services, commercial real
estate lending, private banking, trust services, correspondent banking, and
securities and payments processing. Bank of Boston's principal business address
is 100 Federal Street, Boston, MA 02110. Prior to the origination of the Trust
in 1993, the Adviser had not served as the investment adviser for management
investment companies. The Adviser also manages the other funds comprising the
Trust.
Bank of Boston has been providing asset management services since 1890. Its
portfolio managers are responsible for investing in money market, equity, and
fixed income securities and they have earned national recognition and respect.
The investment management group within Bank of Boston which manages the Fixed
Income Funds is the same group which has managed Bank of Boston's collective
trust funds with similar investment objectives. As of December 31, 1994, Bank
of Boston and its affiliates managed more than $13 billion in assets worldwide.
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Bank of Boston and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Funds, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Bank of Boston and its
affiliates deal, trade and invest for their own account in certain types of
securities purchased on behalf of the Funds. Bank of Boston and its affiliates
may sell such securities to and purchase them from other investment companies
sponsored by SEI Financial Services Company or its affiliates. The Adviser has
informed the Trust that, in making its investment decisions, it does not obtain
or use material inside information in the possession of any division or
department of Bank of Boston or in the possession of any affiliate of Bank of
Boston.
The Glass-Steagall Act prohibits certain financial institutions, such as Bank
of Boston, from engaging in the business of underwriting securities of open-end
investment companies, such as the Funds. Bank of Boston takes the position,
based on the advice of counsel, that the investment advisory services it
provides under the Advisory Agreement do not constitute underwriting activities
and are consistent with the requirements of the Glass-Steagall Act and other
relevant federal and state legal and regulatory precedent. State laws on this
issue may differ from applicable federal law, and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Future changes in either federal or state statutes or
regulations relating to the permissible activities of banks, as well as future
judicial or administrative decisions and interpretations of present and future
federal and state statutes and regulations, could prevent Bank of Boston from
continuing to perform such services for the Trust. If Bank of Boston were to be
prevented from acting as the Adviser, the Trust would seek alternative means
for obtaining such services.
THE ADMINISTRATOR
- --------------------------------------------------------------------------------
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), and the Trust are parties to an
administration agreement dated as of June 1, 1993 (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
provides the Trust with administrative services other than investment advisory
services, including all regulatory reporting, necessary office space,
equipment, personnel, and facilities.
The Administrator is entitled to a fee which is calculated daily and paid
monthly at an annual rate of 0.15% of the Trust's first $300 million of average
daily net assets, 0.12% of the Trust's second $300 million of average daily net
assets and 0.10% of the Trust's average daily net assets over $600 million.
Each Tax-Exempt Fund's portion of such fee is based on the average daily net
assets of such Fund. The Administrator has agreed to waive a portion of its
fees on a month to month basis under certain circumstances for certain of the
portfolios of the Trust.
THE SHAREHOLDER SERVICING AND TRANSFER AGENT
- --------------------------------------------------------------------------------
SEI Financial Management Corporation acts as dividend disbursing agent and
shareholder servicing agent for the Trust. Compensation for these services is
paid under the Administration Agreement. SEI Financial Management Corporation
also acts as transfer agent (the "Transfer Agent") under a separate transfer
agent agreement. The principal business address of the Transfer Agent is 650
East Swedesford Road, Wayne, PA 19087.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") dated as of June 1, 1993, and the Trust has adopted a
distribution plan (the "Plan") dated as of June 1, 1993 pursuant to Rule 12b-1
under the Investment Company Act of 1940. As provided in the Distribution
Agreement and the Plan, the Trust will pay the Distributor a fee for its
services, calculated
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daily and paid monthly, at an annual rate of .25% of the average daily net
assets of each Tax-Exempt Fund. The Distributor may apply all or a portion of
this fee toward: (a) compensation for its services in connection with
distribution assistance or provision of Shareholder services; or (b) payments
to financial institutions and intermediaries such as banks (including Bank of
Boston), savings and loan associations, insurance companies, investment
counselors, broker-dealers and the Distributor's affiliates and subsidiaries,
as compensation for services, reimbursement of expenses incurred in connection
with distribution assistance, or provision of Shareholder services. The Plan is
characterized as a "compensation plan" (in contrast to "reimbursement"
arrangements in which a distributor's compensation is linked directly to the
distributor's expenses) since the distribution fee will be paid to the
Distributor without regard to the distribution or Shareholder service expenses
incurred by the Distributor or the amount of payments made to financial
institutions and intermediaries. The Distributor has agreed to waive the 12b-1
fee. This waiver may be terminated by the Distributor at any time.
The Trust may create one or more additional classes of shares of any or all of
the Tax-Exempt Funds to be offered without distribution fees to certain types
of investors.
The Funds may execute brokerage or other agency transactions through the
Distributor, for which the Distributor receives compensation.
From time to time the Distributor may provide incentive compensation to
employees of banks (including Bank of Boston), broker-dealers and investment
counselors, and to its own employees, in connection with the sale of shares of
the Funds or other portfolios of the Trust. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation, including merchandise, airline vouchers, trips and vacation
packages. Such promotional incentives will be offered uniformly to all program
participants and will be predicated upon the amount of shares of the Funds and
other portfolios of the Trust sold by the participant.
PURCHASE OF SHARES
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Shares of the Funds are sold on a continuous basis and may be purchased
directly from the Trust's Distributor either by mail or by telephone. Shares
may also be purchased through a broker-dealer which has established a dealer
agreement with the Distributor.
Purchases of shares of each Fund may be made Monday through Friday except on
days when the New York Stock Exchange or the Federal Reserve Bank of Boston is
closed ("Business Days"). Current holidays for the New York Stock Exchange
and/or the Federal Reserve Bank of Boston are New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Thanksgiving and Christmas. Except as provided below, the
minimum initial investment in the shares is $1,000, and all subsequent
purchases of shares must be at least $250. Minimum purchase amounts may be
waived by the Distributor in its discretion. No minimum purchase amount applies
to subsequent purchases made by reinvestment of dividends.
The purchase price for shares of a Fund is their net asset value next
determined after the Distributor receives a purchase order in good form. Net
asset value per share is determined as of the close of trading on the New York
Stock Exchange, 4:00 p.m. ET, on each Business Day. Purchases will be made in
full and fractional shares of a Fund calculated to three decimal places.
A purchase order for shares of a Fund will be effective as of the Business Day
the order is received by the Distributor if the Distributor receives a purchase
order, in good form, for the shares and payment (by wire transfer or check) for
the shares before 4:00 p.m. ET on that day. Purchase orders submitted through
broker-dealers which have established dealer agreements with the Distributor
normally will be received by the Distributor on the Business Day after they are
received
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by the broker-dealer. In certain circumstances where the agreement between the
Distributor and the customer's broker so permits, a purchase order for
additional shares of a Tax-Exempt Fund will be effective as of the Business Day
the order is received by the Distributor if the Distributor receives a purchase
order in good form for the shares before 4:00 p.m. ET on that day and payment
(by wire transfer or check) for the shares is received before 4:00 p.m. ET
within 5 Business Days thereafter.
By Mail
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Investors may purchase shares of any Fund by completing and signing an Account
Application and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to the Fund in which shares are being
purchased, e.g., "1784 Tax-Exempt Medium-Term Income Fund," "1784 Massachusetts
Tax-Exempt Income Fund," "1784 Rhode Island Tax-Exempt Income Fund" or "1784
Connecticut Tax-Exempt Income Fund," to SEI Financial Management Corporation
(the "Transfer Agent"), P.O. Box 1784, Wayne, PA 19087-8784. Subsequent
purchases of shares may be made at any time by mailing a check (or other
negotiable bank draft or money order) to the Transfer Agent.
Account Applications can be obtained by calling the Distributor at 1-800-BKB-
1784.
By Telephone
- --------------------------------------------------------------------------------
If a Shareholder has previously submitted an Account Application, that
Shareholder may also purchase shares by telephone by calling the Distributor
toll-free at 1-800-BKB-1784. Orders by telephone will not be executed until an
Account Application and payment have been received. In certain circumstances
where the agreement between the Distributor and the customer's broker so
permits, orders by telephone representing subsequent purchases of shares of a
Tax-Exempt Fund will be executed prior to receipt of payment, but payment must
be received before 4:00 p.m. ET within 5 Business Days thereafter.
Systematic Investment Plan (SIP)
- --------------------------------------------------------------------------------
A Shareholder may also arrange for periodic additional investments in a Tax-
Exempt Fund through automatic deductions by Direct Deposit (if available from a
Shareholder's employer) or by Automatic Clearing House ("ACH") transactions
from a checking account by completing the appropriate section of the Account
Application. The Systematic Investment Plan is subject to account minimum
initial purchase amounts and minimum maintained balance requirements. The
minimum pre-authorized investment amount is $50 per month. An Account
Application may be obtained by contacting the Distributor at 1-800-BKB-1784.
Other Information Regarding Purchases
- --------------------------------------------------------------------------------
Shares of a Fund may also be purchased through financial institutions,
including Bank of Boston, which provide shareholder service or other assistance
to the Trust. Texas residents may only purchase shares through the Distributor.
Shares purchased by persons ("Customers") through financial institutions may be
held of record by the financial institution. Financial institutions may impose
cut-off times for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Distributor. Customers should
contact their financial institution for information as to the institution's
procedures for transmitting purchase, exchange or redemption orders to the
Distributor. The Distributor's receipt of an order may be delayed by one or
more Business Days.
Customers who desire to transfer the registration of shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change. Other Shareholders who desire to
transfer the registration of their shares should contact the Administrator.
Purchases may be made by ACH transactions, as well as by check or wire
transfer.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer
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account fees. Information concerning these services and any charges will be
provided to the Customer by the financial institution.
No certificates representing shares will be issued.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such offer. Each Fund will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. These
procedures will include verification of a caller's identity by asking for his
or her name, address, telephone number, Social Security number, and account
number. If these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine are not followed, the Fund may be liable
for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
For all purchases, if payment is not made or a check received for shares does
not clear, the purchase will be cancelled and the investor could be liable for
any losses to the Fund, including losses resulting from a decline in the net
asset value of the applicable shares between the date of purchase and the date
of cancellation, and for a check return fee up to $25.00, as applicable. Shares
purchased will begin accruing dividends on the day following the date of
purchase.
The net asset value per share of each Fund is determined by dividing the total
market value of the Fund's investments and other assets, less any liabilities,
by the total outstanding shares of the Fund. The Fund may use a pricing service
to provide market quotations. A pricing service may use a matrix system of
valuation to value fixed income securities which considers factors such as
securities prices, yield features, ratings, and developments related to a
specific security.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Shareholders may redeem their shares on any Business Day and shares may
ordinarily be redeemed by mail or telephone, with proceeds payable by check,
ACH or wire transfer. A redemption is treated, for federal and state income tax
purposes, as a sale of the Fund shares redeemed; a redemption could, therefore,
result in taxable gain or loss to the Shareholder. If proceeds are made by wire
transfer, a wire transfer charge (presently $12.00) will be imposed.
By Mail
- --------------------------------------------------------------------------------
A written request for redemption must be received by the Transfer Agent in good
form in order to constitute a valid request for redemption. All account holders
must sign the redemption request. Under certain circumstances, the Transfer
Agent may require that the signatures on the request be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange, or by another
eligible guarantor institution. Redemption requests may be mailed to SEI
Financial Management Corporation, P.O. Box 1784, Wayne, PA 19087-8784, or 680
East Swedesford Road, Wayne, PA 19087.
By Telephone
- --------------------------------------------------------------------------------
Shares may be redeemed by telephone if the Shareholder elects that option on
the Account Application (unless a written redemption request, with the
Shareholder's signature guaranteed, is required; see "Signature Guarantees"
below). Telephone redemption orders must be placed with the Transfer Agent
prior to 4:00 p.m. ET on any Business Day to be effective on such day. The
Shareholder may have the proceeds mailed to his or her address or wired to a
commercial bank account previously designated on the Account Application.
Telephone redemption requests may be made by calling the Transfer Agent at 1-
800-BKB-1784. Shareholders may not close their account by telephone. During
periods of drastic economic or market changes or severe weather or other
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emergencies, Shareholders may find it difficult to implement a telephone
redemption. If such a case should occur, another method of redemption, such as
written request sent via an overnight delivery service, should be considered.
Signature Guarantees
- --------------------------------------------------------------------------------
If a Shareholder requests a redemption for an amount in excess of $25,000, a
redemption of any amount to be payable to anyone other than the Shareholder of
record or a redemption of any amount to be sent to any address other than the
Shareholder's address of record with the applicable Fund (or in the case of ACH
or wire transfers, other than as provided in the Shareholder's Account
Application), all account holders on the Shareholder's account must sign a
written redemption request and their signatures must be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange or by another
eligible guarantor institution. The Trust and the Transfer Agent reserve the
right to amend these requirements for the applicable Fund at any time without
notice. For questions about the proper form of redemption requests, call 1-800-
BKB-1784.
Other Information Regarding Redemptions
- --------------------------------------------------------------------------------
All redemption orders for shares of the Funds are effected at the net asset
value per share next determined after receipt, by the Transfer Agent, of a
valid request for redemption in good form, as described above. Payment to
Shareholders for shares redeemed will be made within seven days after receipt
by the Transfer Agent of the request for redemption. A redemption must involve
either shares having an aggregate value of at least $250 or all the shares in
an account. Each Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures will
include verification of a caller's identity by asking for his or her name,
address, telephone number, Social Security number, and account number. If these
or other reasonable procedures to confirm that instructions communicated by
telephone are genuine are not followed, the Fund may be liable for any losses
to a Shareholder due to unauthorized or fraudulent instructions. Otherwise, the
investor will bear all risk of loss relating to a purchase, redemption or
exchange by telephone or a wire transfer.
Forwarding of redemption proceeds for shares purchased, or received in exchange
for shares purchased, by check (including certified or cashier's checks) may be
delayed for 15 or more days to ensure that payment has been collected for the
purchase of such shares. Each Fund intends to pay cash for all shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in Fund securities with a market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem, at net asset value, the shares of any Shareholder
if, because of redemptions of shares by or on behalf of the Shareholder (and
not solely because of market declines), the account of such Shareholder in the
Fund has a value of less than the minimum initial purchase amount (normally
$1,000). Accordingly, an investor purchasing shares of the Fund in only the
minimum investment amount may be subject to such involuntary redemption if he
or she thereafter redeems any of these shares. Before the Fund exercises its
right to redeem such shares and to send the proceeds to the Shareholder, the
Shareholder will be given notice that the value of the shares in his or her
account is less than the minimum amount and will be allowed 60 days to make an
additional investment in the Fund in an amount which will increase the value of
the account to at least the minimum amount.
The right of any Shareholder to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or to the extent otherwise
permitted by the Investment Company Act of 1940, if
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an emergency exists. See "Purchase and Redemption of Shares" in the Statement
of Additional Information for examples of when the right of redemption may be
suspended.
SYSTEMATIC WITHDRAWAL PLAN
- --------------------------------------------------------------------------------
A shareholder may direct the shareholder servicing agent to send him or her
regular monthly, quarterly, semi-annual or annual payments, as designated on
the Account Application and based upon the value of his or her account. Each
payment under a systematic withdrawal plan must be at least $100, except in
certain limited circumstances. A withdrawal payment under the plan is treated,
for federal and state income tax purposes, as a sale of a number of Fund shares
sufficient to fund the payment; such payment could, therefore, result in
taxable gain or loss to the Shareholder.
EXCHANGES
- --------------------------------------------------------------------------------
Some or all of the shares of a Tax-Exempt Fund for which payment has been
received by the Distributor (i.e., an established account) may be exchanged at
their net asset value for shares of one or more of the other portfolios of the
Trust, including shares of another Tax-Exempt Fund. Exchanges will be made only
after instructions in writing or by telephone are received for an established
account by the Distributor.
In the case of shares held of record by Bank of Boston or one of its affiliates
but beneficially owned by a Customer, to exchange such shares the Customer
should contact Bank of Boston or the affiliate, who will contact the
Distributor and effect the exchange on behalf of the Customer. If an exchange
request in good order is received by the Distributor by 4:00 p.m. ET on any
Business Day, the exchange usually will occur on that day; however, requests
for exchanges for shares of a money market fund must be received earlier than
4:00 p.m. ET (in cases when regular trading on the New York Stock Exchange
closes earlier than 4:00 p.m. ET, as early as 12:00 noon ET) for the exchange
to occur on that day. Any Shareholder or Customer who wishes to make an
exchange must have received a current prospectus of the portfolio in which he
or she wishes to invest before the exchange will be effected. Residents of any
state may only exchange shares for shares of another portfolio of the Trust if
that portfolio is registered in that state.
Each exchange must involve either shares having an aggregate value of at least
$250 or all the shares in the account, and the amount of the exchange must meet
the minimum investment requirements for the portfolio of the Trust into which
the exchange is being made.
Exchanges may be made by telephone only if that option has been elected by the
Shareholder on the Account Application. Shares may be exchanged by telephone by
calling the Distributor toll free at 1-800-BKB-1784.
No fees are currently charged to Shareholders directly in connection with
exchanges, although each of the Tax-Exempt Funds reserves the right, upon not
less than 60 days' written notice, to charge Shareholders a nominal fee in
accordance with rules promulgated by the SEC. Each of the Tax-Exempt Funds also
reserves the right to reject any exchange request in whole or in part. The
exchange privilege (or any aspect of it) may be changed or terminated at any
time.
An exchange is treated, for federal and state income tax purposes, as a sale of
the Tax-Exempt Fund shares exchanged; an exchange could, therefore, result in
taxable gain or loss to the Shareholder.
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time, the Trust may advertise a Fund's yield, tax-equivalent yield
and total return. These figures will be based on historical earnings and are
not intended to indicate future performance. The yield of a Fund refers to the
annualized income generated by an investment in the Fund over a specified 30-
day period. The yield is calculated by assuming that the income generated by
the investment during that period is generated over one year and is shown as a
percentage of the investment. Each Fund's tax-equivalent yield
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I784 FUNDS
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refers to the yield that a taxable fund would have to generate in order to
produce an equivalent after-tax yield.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, net of any sales charge imposed, for designated time
periods (including but not limited to the period from which the Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all
dividend and capital gain distributions.
A Fund's performance may from time to time be compared to that of other mutual
funds tracked by mutual fund rating services, to that of broad groups of
comparable mutual funds or to that of unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs.
TAXES
- --------------------------------------------------------------------------------
The following is a discussion of certain United States federal income tax
considerations relevant to the purchase, ownership, and disposition of shares
in the Funds. The discussion, which is based on current tax laws, regulations,
rulings, and judicial decisions (all of which are subject to change at any time
by legislative, judicial, or administrative action), is not intended to be
complete; therefore, prospective investors should consult their own tax
advisers as to the tax consequences to them of an investment in a Fund.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
Tax Status of the Tax-Exempt Funds
- --------------------------------------------------------------------------------
Each Fund is treated as a separate entity for federal income tax purposes, and
is not combined with the other Funds or the Trust's other portfolios. The Trust
intends to qualify each Fund each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and to make distributions to that Fund's shareholders in accordance
with the timing requirements set out in the Code. As a result, it is expected
that the Funds will not be required to pay any federal income or excise taxes.
Federal Tax Treatment of Shareholders
- --------------------------------------------------------------------------------
The Trust expects that dividends paid to Shareholders by the Tax-Exempt Funds
from interest on Municipal Securities (referred to as "exempt-interest
dividends") will be exempt from federal income tax because these Funds each
intend to satisfy certain requirements of the Code. One such requirement is
that at the close of each quarter of its taxable year, at least 50% of the
value of a Fund's total assets consists of obligations whose interest is exempt
from federal income tax.
Distributions of income from capital gains, from investments in taxable
securities (including repurchase agreements), and from certain other
transactions will be taxable to Shareholders, whether paid in cash or in
additional shares. Distributions from taxable net investment income and short-
term capital gains will be taxable to Shareholders as ordinary income, while
distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) will be taxable to Shareholders as long-
term capital gains, regardless of how long the Shareholders have held their
shares.
Interest on indebtedness incurred by Shareholders to purchase or carry shares
of a Tax-Exempt Fund
will not be deductible for federal income tax purposes. Exempt-interest
dividends are taken into account in calculating the amount of social security
and railroad retirement benefits that may be subject to federal income tax.
Certain distributions of exempt-interest dividends may also be a tax preference
item for purposes of the federal alternative minimum tax and all exempt-
interest dividends may increase a corporate shareholder's alternative minimum
tax. Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by private activity bonds should
consult their tax advisers before purchasing shares of the Funds.
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The Trust expects that none of the dividends received from the Funds will be
eligible for the dividends received deduction for corporations. Any Fund
dividend that is declared in October, November, or December of a calendar year,
payable to Shareholders of record in such a month, and that is paid the
following January will be treated as if received by the Shareholders on
December 31 of the year in which the dividend is declared.
The Trust will make annual reports to Shareholders of the federal income tax
status of all distributions from each Fund; the Trust will also make annual
reports to Shareholders of the State Funds of the applicable state tax status
of each State Fund's distributions.
The exchange or redemption of Fund shares is a taxable event to the
Shareholders; however, under certain circumstances, realized losses may be
disallowed and short-term capital losses may be converted into long-term
capital losses.
The Funds will generally withhold tax payments at the rate of 30% on dividends
and other payments that are subject to such withholding and that are made to
persons who are neither citizens nor residents of the U.S., although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. Each
Fund is also required in certain circumstances to withhold 31% of taxable
dividends and certain redemption proceeds paid to any Shareholder (including a
Shareholder who is neither a citizen nor a resident of the U.S.) who does not
furnish to the Fund certain information and certifications or who is otherwise
subject to backup withholding. Backup withholding will not, however, be applied
to payments that have been subject to 30% (or lower treaty rate) withholding.
State Taxes
- --------------------------------------------------------------------------------
Depending on the nature of the distribution of income and the residence of the
Shareholder, certain distributions by the Funds may be subject to state and
local income taxes. Shareholders of the 1784 Massachusetts Tax-Exempt Income
Fund who are subject to Massachusetts personal income taxation will not,
however, be required to include in their Massachusetts gross income that
portion of their exempt-interest dividends that the Trust identifies as
directly attributable to interest received by the Fund on obligations issued by
the Commonwealth of Massachusetts, its counties and municipalities,
authorities, political subdivisions, or instrumentalities. Such shareholders
also will not be required to include in their Massachusetts gross income that
portion of ordinary dividends that the Trust properly and timely identifies in
a written notice as being attributable to interest earned on obligations of the
United States or its agencies or possessions that are exempt from state
taxation. Exempt-interest dividends paid to a corporate shareholder will be
subject to the Massachusetts corporate excise tax, and shares of the 1784
Massachusetts Tax-Exempt Income Fund may be included in the net worth base of
that tax. Any capital gains distributed by the 1784 Massachusetts Tax-Exempt
Income Fund (except for cases in which capital gains are specifically exempted
from income taxation under the legislation authorizing issuance of the
obligations the sale of which produces the capital gains), and gains realized
by the Shareholder from a redemption or sale of shares of the Fund, will be
subject to Massachusetts personal income or the corporate excise tax, as
applicable.
Shareholders of the 1784 Rhode Island Tax-Exempt Income Fund who are subject to
Rhode Island personal income taxation or to the Rhode Island business
corporation tax will not be required to include in their Rhode Island taxable
income that portion of their exempt-interest dividends that the Trust
identifies as directly attributable to interest received by the Fund on
obligations issued by the State of Rhode Island and Providence Plantations, its
counties and municipalities, authorities, political subdivisions, or
instrumentalities. Shareholders of the Fund who are subject to Rhode Island
personal income taxation or to the Rhode Island business corporation tax will
be required to include in their Rhode Island income or net income, as
applicable, any capital gains or losses from a redemption or sale of shares of
the Fund, and any capital gains distributed by the Fund other than any such
distributions derived from
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the sale of underlying obligations issued by Rhode Island issuers that are
specifically exempted from Rhode Island taxation of capital gains by the Rhode
Island law authorizing issuance of the obligations.
Shareholders of the 1784 Connecticut Tax-Exempt Income Fund who are subject to
Connecticut personal income taxation will not be required to include in their
Connecticut gross income that portion of their exempt-interest dividends that
the Trust identifies as directly attributable to interest received by the Fund
on obligations issued by the State of Connecticut, its counties and
municipalities, authorities, political subdivisions, or instrumentalities. Any
capital gains distributed by the Fund may be subject to Connecticut personal
income taxes if received by Shareholders subject to such taxes, although
currently proposed regulations would exempt distributions of net capital gains
derived from the sale or exchange of obligations of Connecticut and its
political subdivisions. Exempt-interest dividend distributions by the Fund
derived from interest income of the Fund that is treated as a preference item
for Federal income tax purposes may be subject to the net Connecticut minimum
tax in the case of any Shareholder subject to both the Connecticut personal
income tax and the federal alternative minimum tax. Distributions of capital
gains and exempt-interest dividends derived from interest exempt from
Connecticut personal income tax and federal income tax will be subject to the
Connecticut Corporation Business Tax if received by a corporation subject to
such tax. Gains from the redemption or other sale of Fund shares may be subject
to Connecticut personal income taxes or the Connecticut corporation business
tax if the Shareholder is otherwise subject to those taxes.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust
- --------------------------------------------------------------------------------
The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated February 5, 1993. The Declaration of Trust permits the Trust to
issue an unlimited number of shares of beneficial interest of each of the
portfolios (referred to as "series") of the Trust, each of which is a separate
fund. In addition to the Tax-Exempt Funds, the Trust includes the following
funds: 1784 Institutional U.S. Treasury Money Market Fund, 1784 U.S. Treasury
Money Market Fund, 1784 Tax-Free Money Market Fund, 1784 Growth and Income
Fund, 1784 Asset Allocation Fund, 1784 International Equity Fund, 1784 U.S.
Government Medium-Term Income Fund, 1784 Short-Term Income Fund, and 1784
Income Fund. All consideration received by the Trust for shares of any fund and
all assets of such fund belong to that fund and are subject to liabilities
related thereto. The Trust reserves the right to create and issue additional
series of shares, and reserves the right to create and issue shares of
additional classes of any or all series.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses and reports to Shareholders,
costs of custodian services and registering the shares of the Funds and other
series under federal and state securities laws, pricing, insurance expenses,
brokerage costs, interest charges, taxes, and amortization of organization
expenses, and any extraordinary expenses including but not limited to
litigation expenses. For the fiscal year ended May 31, 1995, the total expenses
of each of the Funds were as follows: for the 1784 Tax-Exempt Medium-Term
Income Fund, $1,265,285, of which $464,922 was voluntarily waived or reimbursed
by the Bank of Boston (after giving effect to such waiver or reimbursement,
0.80% of such Fund's average daily net assets for that fiscal year); for the
1784 Massachusetts Tax-Exempt Income Fund, $814,052, of which $330,080 was
voluntarily waived or reimbursed by the Bank of Boston (after giving effect to
such waiver or reimbursement, 0.80% of such Fund's average daily net assets for
that fiscal year); for the 1784 Rhode Island Tax-Exempt Income Fund, $354,367,
of which $235,443 was voluntarily waived or reimbursed by the Bank of Boston
(after giving effect to such waiver or reimbursement, 0.54% of such Fund's
average daily net assets for that fiscal year); and for the 1784 Connecticut
Tax-Exempt Income Fund,
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$570,242, of which $357,499 was voluntarily waived or reimbursed by the Bank of
Boston (after giving effect to such waiver or reimbursement, 0.52% of such
Fund's average daily net assets for that fiscal year).
Under applicable law, Shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the risk of a
Shareholder incurring financial loss on account of such Shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations and inadequate insurance existed. The Trust believes that the
likelihood of such circumstances is remote.
Trustees of the Trust
- --------------------------------------------------------------------------------
The management and affairs of the Trust are supervised by its Board of
Trustees. The Trustees have approved contracts under which, as described above,
certain companies provide essential management, administrative and Shareholder
services to the Trust.
Voting Rights
- --------------------------------------------------------------------------------
Each share held entitles the Shareholder of record to one vote. Each fund or
class will vote separately on matters relating solely to that fund or class. As
a Massachusetts business trust, the Trust is not required to hold annual
meetings of Shareholders but approval will be sought for certain changes in the
operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested, the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
Reporting
- --------------------------------------------------------------------------------
The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
Shareholder Inquiries
- --------------------------------------------------------------------------------
Shareholder inquiries should be directed to SEI Financial Management
Corporation, P.O. Box 1784, Wayne, Pennsylvania 19087-8784, at 1-800-BKB-1784.
Dividends and Distributions
- --------------------------------------------------------------------------------
Substantially all of the net investment income (not including capital gains) of
the Tax-Exempt Funds is distributed in the form of dividends which are declared
daily and paid monthly. Shareholders of record will be entitled to receive the
dividend, except that shares purchased will not begin accruing dividends until
the day following the date of their purchase. On redemption, a shareholder will
receive dividends through and including the day a valid redemption request is
received by the Transfer Agent. Currently, capital gains of the Funds, if any,
will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the Shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Administrator at least 15 days prior to the distribution.
If dividend payments are returned and unclaimed within 30 days, they will be
reinvested and the Shareholder will be deemed to have elected to receive future
dividend and capital gain distributions in additional shares.
Counsel and Independent Accountants
- --------------------------------------------------------------------------------
Bingham, Dana & Gould, Boston, MA, serve as counsel to the Trust. Coopers &
Lybrand L.L.P., Boston, MA, serve as the independent accountants of the Trust.
Custodian
- --------------------------------------------------------------------------------
Bank of Boston, 100 Federal Street, Boston, MA 02110, acts as Custodian of the
Trust. The Custodian
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holds cash, securities and other assets of the Trust as required by the
Investment Company Act of 1940. Under a separate agreement, Bank of Boston also
provides certain accounting services for the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS AND TECHNIQUES
- --------------------------------------------------------------------------------
The following is a description of certain of the permitted investments and
investment techniques for the Funds. Not all of the Funds will normally invest
in all of the permitted investments, nor engage in all of the investment
techniques, listed below. See "Investment Policies." Except as specifically
stated below or elsewhere in this Prospectus or in the Statement of Additional
Information with respect to certain of the Funds' permitted investments and
investment techniques, there are no limits on the amount of assets a Fund may
invest in particular types of securities.
U.S. Treasury Obligations -- U.S. Treasury obligations include bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS"). STRIPS are sold as zero coupon securities. These
securities are usually structured with two classes that receive different
portions of the interest and principal payments from the underlying obligation.
The yield to maturity on the interest-only class is extremely sensitive to the
rate of principal payments on the underlying obligation. The market value of
the principal-only class generally is unusually volatile in response to changes
in interest rates. See "Zero Coupon Securities" below for more information on
these securities.
Receipts -- A Fund may purchase interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
or brokerage firms and are created by depositing U.S. Treasury obligations into
a special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts" ("TIGRs"),
and "Certificates of Accrual on Treasury Securities" ("CATS"). TRs, TIGRs, and
CATS are sold as zero coupon securities. See "Zero Coupon Securities" below for
more information on these securities.
U.S. Government Agencies -- Certain Federal agencies such as the Government
National Mortgage Association ("GNMA") have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States (e.g., GNMA) or supported by the issuing agencies' right to borrow from
the Treasury. The issues of other agencies are supported only by the credit of
the instrumentality (e.g., Federal National Mortgage Association, "FNMA").
Bank Obligations -- A Fund may invest in bank obligations, i.e., certificates
of deposit, time deposits (including Eurodollar time deposits) and bankers'
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and
foreign branches of foreign banks, domestic savings and loan associations and
other banking institutions. A Fund may invest in such obligations, however,
only if the issuer (or the parent company, in the case of subsidiaries or
branches) has assets of at least $1 billion, and only if the Adviser deems the
bank obligation to be of comparable credit quality to the commercial paper in
which the applicable Fund may invest.
Bankers' Acceptances -- A banker's acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
24
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I784 FUNDS
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Certificates of Deposit -- A certificate of deposit is a negotiable interest-
bearing instrument with a specific maturity. Certificates of deposit are issued
by banks and savings and loan institutions in exchange for the deposit of funds
and normally can be traded in the secondary market prior to maturity.
Money Market Funds -- A money market fund is an investment company that limits
its investments to high quality money market instruments with a weighted
average maturity of 90 days or less. A Fund may not invest more than 5% of its
assets in any one money market fund or more than 10% of its assets in other
investment companies, including money market funds. When a Fund invests in a
money market fund, a Shareholder bears not only his or her proportionate share
of the Fund's expenses, but also indirectly his or her share of the expenses of
the money market fund, including management fees.
Time Deposits -- A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities; therefore, no Fund will invest more than
15% of its net assets in such time deposits and other illiquid securities.
Futures and Options on Futures -- A Fund may also enter into bond and interest
rate futures contracts and options on futures contracts provided that the sum
of the Fund's initial margin deposits on open futures contracts plus the amount
paid for premiums for unexpired options on futures contracts does not exceed 5%
of the market value of the Fund's total assets and the outstanding obligations
to purchase securities under futures contracts do not exceed 20% of the Fund's
total assets. Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific security at a
specified future time and at a specified price. An option on a futures contract
gives the purchaser the right, in exchange for a premium, to assume a position
in a futures contract at a specified exercise price during the term of the
option. A Fund will minimize the risk that it will be unable to close out a
futures contract by entering into only those futures contracts which are traded
on national futures exchanges.
It is intended that the Funds would use futures contracts and related options
only for bona fide hedging purposes, i.e., to offset unfavorable changes in the
value of securities otherwise held or expected to be acquired for investment
purposes. There are risks associated with these hedging activities, including
the following: (1) the success of a hedging strategy may depend on the ability
of the Adviser to predict movements in the prices of individual securities,
fluctuations in markets, and movements in interest rates; (2) there may be an
imperfect or no correlation between the changes in market value of the
securities held by the Fund and the prices of futures and options on futures;
(3) there may not be a liquid secondary market for a futures contract or
futures option; (4) trading restrictions or limitations may be imposed by an
exchange; and (5) government regulations may restrict trading in futures
contracts and futures options.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by the Funds may carry variable or floating rates of interest and may involve a
conditional or unconditional demand feature permitting the holder to demand
payment of principal at any time or at specified intervals. Such obligations
may include variable amount master demand notes. A demand instrument with a
demand notice period exceeding seven days may be considered illiquid if there
is no secondary market for such security; a Fund will not invest more than 15%
of its net assets in illiquid securities.
The interest rates on these securities may be reset daily, weekly, quarterly or
some other reset period, and may have a floor or ceiling on interest rate
charges. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates.
Commercial Paper -- Commercial paper is the term used to designate unsecured
short-term promissory notes
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I784 FUNDS
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issued by corporations and other entities. Maturities on these issues vary from
one to 270 days.
Loan Participations -- The Funds may invest in interests in loans to U.S.
corporations (i.e., borrowers) which are administered by the lending bank or
agent for a syndicate of lending banks, and sold by the lending bank or
syndicate member ("intermediary bank"). In a loan participation, the borrower
of the underlying loan will be deemed to be the issuer of the participation
interest except to the extent the Fund derives its rights from the intermediary
bank. The Fund may only purchase interests in loan participations issued by a
bank in the United States with assets exceeding $1 billion and for which the
underlying loan is issued by borrowers in whose obligations the Fund may
invest. Because the intermediary bank does not guarantee a loan participation
in any way, a loan participation is subject to the credit risks generally
associated with the underlying corporate borrower. In addition, in the event
the underlying corporate borrower fails to pay principal and interest when due,
the Fund may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Fund had purchased a direct
obligation (such as commercial paper) of such borrower because it may be
necessary under the terms of the loan participation for the Fund to assert its
rights against the borrower through the intermediary bank. Moreover, under the
terms of a loan participation the purchasing Fund may be regarded as a creditor
of the intermediary bank (rather than of the underlying corporate borrower), so
that the Fund may also be subject to the risk that the issuing bank may become
insolvent. Further, in the event of the bankruptcy or insolvency of the
corporate borrower, a loan participation may be subject to certain defenses
that can be asserted by such borrower as a result of improper conduct by the
issuing bank. The secondary market, if any, for these loan participations is
limited and any such participation purchased by a Fund may be regarded as
illiquid; no Fund will invest more than 15% of its net assets in illiquid
securities.
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933 or an exemption from
registration are referred to as "restricted securities." Each of the Tax-Exempt
Funds may invest up to 15% of its net assets in illiquid securities, including
restricted securities; however, this limit will not apply to a restricted
security if it is determined by or under the direction of the Trust's Board of
Trustees, based on trading markets for the specific restricted security, that
such security is liquid. The liquidity of these investments could be impaired
if trading does not develop or declines. In the case of illiquid securities,
the absence of a trading market can make it difficult to ascertain a market
value for these investments. Disposing of illiquid securities may involve time-
consuming negotiation and legal expense, and it may be difficult or impossible
for a Fund to sell them promptly at an acceptable price.
Repurchase Agreements -- A repurchase agreement is an agreement by which a
person obtains a security and simultaneously commits to return the security to
the seller at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days from the date of purchase. The
Custodian or its agent will hold the security as collateral for the repurchase
agreement. Collateral must be maintained at a value at least equal to 100% of
the purchase price. A Fund bears a risk of loss in the event the other party
defaults on its obligations and the Fund is delayed or prevented from its right
to dispose of the collateral securities or if the Fund realizes a loss on the
sale of the collateral securities. The Adviser will enter into repurchase
agreements on behalf of a Fund only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
guidelines established and periodically reviewed by the Trustees. Pursuant to
an exemptive order from the SEC, each of the Funds may enter into repurchase
agreements on a pooled basis with other portfolios of the Trust.
Mortgage-Backed Securities -- Each of the Funds may acquire securities
representing an interest in a pool of mortgage loans that are issued or
guaranteed by a U.S. Government agency. The primary issuers or guarantors
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I784 FUNDS
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of these mortgage-backed securities are GNMA, FNMA and the Federal Home Loan
Mortgage Corporation. The Funds may also invest in mortgage-backed securities
issued by non-governmental entities which consist of collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs")
that are rated in one of the top three rating categories by S&P or Moody's or
are of comparable quality as determined by the Adviser. The mortgages backing
these securities include conventional thirty-year fixed rate mortgages,
graduated payment mortgages, and adjustable rate mortgages. The Funds will
purchase only CMOs and REMICs that are backed solely by GNMA certificates or
other mortgage pass-through certificates issued or guaranteed by the U.S.
Government or its agencies and instrumentalities. However, the guarantees do
not extend to the mortgage-backed securities' value, which is likely to vary
inversely with fluctuations in interest rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yield of a particular issue of pass-
through certificates. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When the mortgage obligations are prepaid, the Fund reinvests the prepaid
amounts in securities, the yield of which reflects interest rates prevailing at
the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life. The
Adviser believes that the estimated average life is the most appropriate
measure of the maturity of a mortgage-backed security. Accordingly, in order to
determine the average maturity of a Fund, the Adviser will use an estimate of
the average life of a mortgage-backed security. An average life estimate is a
function of an assumption regarding anticipated prepayment patterns. The
assumption is based upon current interest rates, current conditions in the
relevant housing markets and other factors. The assumption is necessarily
subjective, and thus different market participants could produce somewhat
different average life estimates with regard to the same security. There can be
no assurance that the average life as estimated by the Adviser will be the
actual average life.
Asset-Backed Securities -- Asset-backed securities consist of securities
secured by company receivables, truck and auto loans, leases, and credit card
receivables. These issues are normally traded over-the-counter and typically
have a short-intermediate maturity structure depending on the paydown
characteristics of the underlying financial assets which are passed through to
the security holder. Because prepayment of those underlying financial assets
affects the maturity of asset-backed securities, the Adviser will use estimates
of the average life of asset-backed securities in order to determine the
effective maturity of the Funds. See "Mortgage-Backed Securities" for more
information on estimates of average life. There can be no assurance that the
average life of an asset-backed security as estimated by the Adviser will be
the actual average life.
Standby Commitments -- A Fund may acquire securities subject to a standby
commitment which permits a Fund to sell the security at a fixed price prior to
maturity. The underlying municipal securities subject to a standby commitment
may be sold at any time at the market rates. In certain cases, a premium may be
paid for a standby commitment. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving standby commitments is to maintain flexibility and
liquidity to permit the Fund to meet redemptions and remain as fully invested
as
27
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I784 FUNDS
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possible in municipal securities. Each Fund will limit standby commitment
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Trust's Board of Trustees.
There is no limit to the percentage of Fund securities that any Fund may
purchase subject to a standby commitment but the amount paid directly or
indirectly for a standby commitment held by any Fund will not exceed 1/2 of 1%
of the value of the total assets of the Fund.
Municipal Securities -- Municipal securities which the Funds may purchase
include (i) debt obligations issued by or on behalf of public authorities to
obtain funds to be used for various public facilities, for refunding
outstanding obligations, for general operating expenses, and for lending such
funds to other public institutions and facilities, and (ii) certain private
activity and industrial development bonds issued by or on behalf of public
authorities to obtain funds to provide for the construction, equipment, repair,
or improvement of privately operated facilities. Municipal notes include (but
are not limited to) general obligation notes, tax anticipation notes, revenue
anticipation notes, bond obligation notes, certificates of indebtedness, demand
notes, and construction loan notes. Municipal bonds include (but are not
limited to) general obligation bonds, revenue or special obligation bonds,
private activity and industrial development bonds. General obligation bonds are
backed by the taxing power of the issuing municipality. Revenue bonds are
backed by the revenues of a project or facility, e.g., tolls from a toll
bridge. The payment of principal and interest on private activity and
industrial development bonds generally is dependent solely on the ability of
the facility's user to meet its financial obligations and the pledge, if any,
of real and personal property so financed as security for such payment.
Municipal Securities also include participations in municipal leases. These are
undivided interests in a portion of an obligation in the form of a lease or
installment purchase issued by a state or local government to acquire equipment
or facilities. Municipal leases frequently have special risks not normally
associated with general obligation bonds or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by
the appropriate legislative body on a yearly or other periodic basis. Although
the obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In light of these concerns, the Trust
has adopted and follows procedures for determining whether municipal lease
securities purchased by a Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures require
that a number of factors be used in evaluating the liquidity of a municipal
lease security, including the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number
of other potential purchasers, the willingness of dealers to undertake to make
a market in the security, the nature of the marketplace in which the security
trades, the credit quality of the security, and other factors which the Adviser
may deem relevant.
Forward Commitments or Purchases on a When-Issued Basis -- Each of the Funds
may enter into forward commitments or purchase securities on a when-issued
basis, which means that the price of the securities is fixed at the time of
commitment and that the delivery and payment will ordinarily take place beyond
customary settlement time. The interest rate realized on these securities is
fixed as of the purchase date and no interest accrues to the Fund before
settlement.
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I784 FUNDS
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These securities are subject to market fluctuation due to changes in market
interest rates and will have the effect of leveraging the Fund's assets; the
securities are also subject to fluctuation in value pending settlement based
upon public perception of the creditworthiness of the issuer of these
securities. Securities purchased on a when-issued or forward commitment basis
may expose a Fund to risk because such securities may experience such
fluctuations in value prior to their actual delivery. Agreements to purchase
securities on a when-issued or forward commitment basis will only be made with
the intention of taking delivery and not for speculative purposes. A Fund may
invest up to 25% of its assets in forward commitments or commitments to
purchase securities on a when-issued basis. While awaiting delivery of
securities purchased on such bases, a Fund will establish a segregated account
consisting of cash, short-term money market instruments or high quality debt
securities equal to the amount of the commitments to purchase securities on
such bases.
Zero Coupon Securities -- A zero coupon security pays no interest or principal
to its holder during its life. A zero coupon security is sold at a discount,
frequently substantial, and redeemed at face value at its maturity date. The
amount of the discount is accrued over the life of the security and constitutes
the income earned on the security for both accounting and tax purposes. The
market prices of zero coupon securities are generally more volatile than the
market prices of securities of similar maturity that pay interest periodically,
and zero coupon securities are likely to respond to a greater degree to
interest rate changes than are non-zero coupon securities with similar maturity
and credit qualities.
Securities Lending -- In order to generate additional income, a Fund may lend
the securities in which it is invested pursuant to agreements requiring that
the loan be continuously secured by cash, securities of the U.S. Government or
its agencies or any combination of cash and such securities as collateral equal
at all times to 100% of the market value of the securities lent plus accrued
interest. A Fund may lend up to 33 1/3% of its total assets. The Fund will
continue to receive interest on the securities lent while simultaneously
earning interest on the investment of cash collateral in U.S. Government
securities. There may be risk of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will only be made to borrowers deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from such securities loans
justifies the attendant risk.
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APPENDIX A
DESCRIPTION OF RATINGS
- --------------------------------------------------------------------------------
The following descriptions are summaries of certain published ratings.
Description of Commercial Paper Ratings
- --------------------------------------------------------------------------------
The following descriptions of commercial paper ratings have been published by
Standard and Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Service, Inc. ("Fitch"), Duff and Phelps, Inc.
("Duff"), and IBCA Limited and IBCA, Inc. (together, "IBCA"). As of the date
hereof, each of S&P, Moody's, Fitch, Duff and IBCA is a nationally recognized
statistical rating organization within the meaning of applicable SEC rules.
S&P's ratings are graded into several categories of which A is the highest.
This category is divided into sub-categories as follows:
A-1 This highest sub-category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality, respectively, on the
basis of relative repayment capacity.
Commercial paper issues rated F-1+, F-1 and F-2 by Fitch are judged by Fitch to
be of "exceptionally strong" quality, "very strong" quality and "good" quality,
respectively, on the basis of relative repayment capacity.
The rating Duff-1+ is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1+ is regarded as having the highest certainty of timely
payment with outstanding liquidity factors and safety just below risk free U.S.
Treasury short-term obligations. Paper rated Duff-1 is regarded as having a
very high certainty of timely payment, excellent liquidity factors and good
fundamental protection factors. Risk factors are minor.
The designation A1 by IBCA indicates that the obligation is supported by the
highest capacity for timely repayment. Where issues possess a particularly
strong credit feature, a rating of A1+ is assigned. Obligations rated A2 are
supported by a good capacity for timely repayment.
Description of Municipal Note Ratings
- --------------------------------------------------------------------------------
S&P's municipal note ratings reflect the liquidity concerns and market access
risks unique to notes. An SP-1 rating indicates a strong capacity to pay
principal and interest. Issues determined to possess very strong
characteristics are given a plus (+) designation. An SP-2 rating indicates a
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
Moody's MIG-1/VMIG-1 designation denotes best quality. Municipal notes that
obtain this rating possess strong protection due to established cash flows,
superior liquidity support or demonstrated broad-based access to the market for
refinancing. Moody's MIG-2/VMIG-2 designation denotes high quality. Margins of
protection are ample although not so large as in the MIG-1/VMIG-1 group.
A-1
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APPENDIX B
TAXABLE EQUIVALENT YIELD TABLE
- --------------------------------------------------------------------------------
This table is for illustrative purposes only and is not intended to predict the
actual return an individual would earn on an investment in the 1784 Tax-Free
Money Market Fund. No assurance can be made that the Fund will attain any
particular yield. The tax rates used in these tables are based upon published
1995 marginal tax rates currently available and scheduled to be in effect. The
tables do not take into account changes in tax rates that are proposed from
time to time. Investors should consult their tax advisers to determine their
actual tax rates.
1784 TAX-FREE MONEY MARKET FUND
Find your Federal tax bracket based on your taxable income.
<TABLE>
<CAPTION>
You would need the taxable yield
listed opposite the Federal
1995 tax bracket in the chart below to
Taxable Income* Federal have a tax-exempt yield of:
- ---------------------------------------- Marginal -----------------------------------
Single Joint Rate 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
- ------------ ------------------- -------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 23,351-- 56,550 $ 39,001-- 94,250 28.00% 2.08% 2.78% 3.47% 4.17% 4.86% 5.56%
56,551-- 117,950 94,251--143,600 31.00% 2.17% 2.90% 3.62% 4.35% 5.07% 5.80%
117,951-- 256,500 143,601--256,500 36.00% 2.34% 3.13% 3.91% 4.69% 5.47% 6.25%
256,501 and more 256,501 and more 39.60% 2.48% 3.31% 4.14% 4.97% 5.79% 6.62%
</TABLE>
*This amount represents taxable income as defined in the Internal Revenue Code.
Note: Information in this table is provided as of June 30, 1995.
B-1
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PROSPECTUS
[LOGO OF 1784 FUNDS APPEARS HERE]
Investment Adviser:
THE FIRST NATIONAL BANK OF BOSTON
1784 FUNDS (the "Trust") is a mutual fund consisting of several professionally
managed portfolios, or funds, of securities. The Trust provides a convenient
way to invest in one or more of these funds. This Prospectus relates to shares
of the 1784 TAX-FREE MONEY MARKET FUND and Class A shares of the 1784 U.S.
TREASURY MONEY MARKET FUND. The 1784 Tax-Free Money Market Fund and the 1784
U.S. Treasury Money Market Fund are referred to herein as the "Funds" or the
"Money Market Funds."
The Fund shares described in this Prospectus ("Shares") are offered primarily
to individuals and institutional investors, including accounts for which The
First National Bank of Boston ("Bank of Boston"), its affiliates and
correspondents, and other financial institutions act in a fiduciary, agency or
custodial capacity. Investors in Shares are referred to hereinafter as
"Shareholders." Shares are currently offered without any sales charges or
distribution fees.
AN INVESTMENT IN THE MONEY MARKET FUNDS IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT ANY MONEY MARKET FUND
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANK OF BOSTON OR ANY OF ITS AFFILIATES. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING RISK
TO PRINCIPAL.
This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing in the Funds.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information dated October 2, 1995, has
been filed with the Securities and Exchange Commission (the "SEC") and is
available without charge through the Distributor, SEI Financial Services
Company, 680 East Swedesford Road, Wayne, PA 19087 or by calling 1-800-BKB-
1784. The Statement of Additional Information is incorporated into this
Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
OCTOBER 2, 1995
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EXPENSE SUMMARY
- --------------------------------------------------------------------------------
Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of the 1784 Tax-Free Money Market Fund and Class A shares of the 1784
U.S. Treasury Money Market Fund and annual operating expenses of the Funds, and
(ii) an example illustrating the dollar cost of such expenses on a hypothetical
$1,000 investment in shares of each of the Funds.
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering price) None
Sales Charge Imposed on Reinvested Dividends
(as a percentage of the offering price) None
Deferred Sales Charge Imposed on Redemptions (as a percentage of the of-
fering price) None
Redemption Fees (1) None
Exchange Fee None
</TABLE>
Annual Operating Expenses
- --------------------------------------------------------------------------------
(As a percentage of average net assets)
<TABLE>
<CAPTION>
1784 U.S.
Treasury
1784 Tax- Money Market
Free Fund
Money Market Class A
Fund Shares
- --------------------------------------------------------------
<S> <C> <C>
Advisory Fees (after fee waiver)(2) 0.33% 0.40%
Other Expenses (2) 0.20% 0.25%
- --------------------------------------------------------------
Total Operating Expenses (2) 0.53% 0.65%
</TABLE>
- --------------------------------------------------------------------------------
(1) If proceeds of a redemption of Fund shares are paid by wire transfer, a
wire transfer charge (presently $12.00) will be imposed.
(2) Bank of Boston, which serves as the Adviser for the Trust, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
each of the Money Market Funds to not more than 0.65% of that Fund's average
daily net assets on an annualized basis; this limitation would not apply to any
brokerage commissions, interest expense or taxes or to extraordinary expense
items, including but not limited to litigation expenses. SEI Financial
Management Corporation, which acts as the Trust's Administrator, has agreed to
waive its fee from certain funds of the Trust to assist these funds in
maintaining a competitive expense ratio. Bank of Boston contributes to the
Funds in order to limit other operating expenses and to assist the Funds in
maintaining a competitive expense ratio. Fee waivers by the Adviser and the
Administrator, and contributions by the Bank of Boston, are voluntary and may
be terminated at any time. From time to time the Adviser may also waive
additional portions of its fees to reduce net operating expense to less than
that shown in the table above. Certain other parties may also agree to waive
portions of their fees from time to time on a month to month basis. Additional
information may be found under "The Adviser" and "The Administrator." Absent
waivers, the Adviser's investment advisory fee is calculated at an annual rate
of 0.40% of the average daily net assets of each Fund. Absent the waiver of
fees by the Adviser and Administrator, and voluntary contributions by the Bank
of Boston, other expenses and estimated total operating expenses would be as
follows: 0.24% and 0.64% of average daily net assets of the 1784 Tax-Free Money
Market Fund and 0.67% and 0.97% of average daily net assets represented by
Class A shares of the 1784 U.S. Treasury Money Market Fund. Other expenses are
based on actual expenses for each Fund's fiscal year ended May 31, 1995, and
include expense items described under "General Information -- The Trust." A
person who purchases shares through a financial institution may be charged
separate fees by the financial institution.
Example
- --------------------------------------------------------------------------------
An investor would pay the following expenses on a hypothetical $1,000
investment assuming a 5% annual
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total return and redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1784 Tax-Free Money Market Fund $5 $17 $30 $66
1784 U.S. Treasury Money Market Fund Class A
Shares $ 7 $21 $36 $81
</TABLE>
Absent voluntary waivers by the Adviser and Administrator and contributions
made by the Bank of Boston, the amounts for this example for one year, three
years, five years and ten years would be $7, $20, $36 and $80 for shares of the
1784 Tax-Free Money Market Fund and $10, $31, $54 and $119 for Class A shares
of the 1784 U.S. Treasury Money Market Fund. The example is based on actual
expenses for each Fund's fiscal year ended May 31, 1995. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN AND ACTUAL
EXPENSES AND RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of
this table is to assist the investor in understanding the various costs and
expenses that may be directly or indirectly borne by investors in the Funds.
Additional information may be found under "General Information -- The Trust,"
"The Adviser," and "The Administrator."
SUMMARY
- --------------------------------------------------------------------------------
The following information is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information.
1784 Funds (the "Trust") is an open-end management investment company which
provides a convenient way to invest in one or more professionally managed funds
of securities. The following provides basic information about the 1784 Tax-Free
Money Market Fund and 1784 U.S. Treasury Money Market Fund (each, a "Fund" or a
"Money Market Fund," and collectively, the "Funds" or the "Money Market
Funds"). Each of the Money Market Funds is a diversified fund.
What Is the Investment Objective? The investment objective of the 1784 Tax-Free
Money Market Fund is to preserve principal value and maintain a high degree of
liquidity while providing current income exempt from federal income taxes. The
investment objective of the 1784 U.S. Treasury Money Market Fund is to preserve
principal value and maintain a high degree of liquidity while providing current
income. Each Fund's investment objective may be changed only with the consent
of holders of a majority of that Fund's outstanding shares. There can be no
assurance that any Money Market Fund will achieve its investment objective. See
"Investment Objective" and "Investment Limitations."
What Are the Permitted Investments? Each of the Funds will limit its
investments to "eligible securities" under applicable SEC rules which are
deemed to present minimal credit risks. The securities in each Fund's portfolio
mature or are deemed to mature within 397 days, and the average maturity of the
investments in each Fund's portfolio (on a dollar-weighted basis) is 90 days or
less. The 1784 Tax-Free Money Market Fund under normal circumstances invests at
least 80% of its net assets in securities issued by or on behalf of the states,
territories and possessions of the United States, the District of Columbia and
their respective political subdivisions, agencies and instrumentalities, the
interest on which, in the opinion of counsel for the issuer, is exempt from
federal income tax and not included as a preference item under the alternative
minimum tax. The 1784 U.S. Treasury Money Market Fund under normal
circumstances invests at least 65% of its total assets in U.S. Treasury
Obligations and repurchase agreements involving such obligations. Under normal
circumstances the Fund intends to invest the balance of its investable assets
in other securities issued or guaranteed as to principal and interest by the
U.S. Government or any of its agencies or instrumentalities (collectively,
"U.S. Government Obligations") and repurchase agreements involving such
obligations. Distributions of the 1784 U.S. Treasury Money Market Fund derived
from interest on obligations of the U.S. Government and certain of its agencies
and instrumentalities may be exempt from state and local
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taxes in certain states. See "Taxes," "Investment Policies," "Description of
Permitted Investments and Techniques" and "Certain Investment Policies and
Guidelines."
Who Is the Adviser? The First National Bank of Boston ("Bank of Boston" or the
"Adviser") serves as the Adviser for the Trust and is entitled to a fee which
is calculated daily and paid monthly at an annual rate of 0.40% of the average
daily net assets of each of the Funds. The Adviser has agreed for an indefinite
period of time to waive all or a portion of its fee in order to limit the total
operating expenses of the Money Market Funds on an annualized basis to not more
than 0.65% of the average daily net assets of each of the Funds. Bank of Boston
contributes to the Funds in order to limit operating expenses and to assist the
Funds in maintaining a competitive expense ratio. Fee waivers and contributions
may be terminated at any time. See "The Adviser."
Who Is the Administrator? SEI Financial Management Corporation serves as the
Administrator for the Trust under an Administration Agreement and is entitled
to a fee which is calculated daily and paid monthly at an annual rate of 0.15%
of the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Each Money Market Fund's
portion of such fee is based on that Fund's average daily net assets. The
Administrator has agreed to waive a portion of its fees on a month to month
basis under certain circumstances. See "The Administrator."
Who Is the Shareholder Servicing Agent and Transfer Agent? SEI Financial
Management Corporation acts as dividend disbursing agent and shareholder
servicing agent for the Trust under the Administration Agreement and as
transfer agent for the Trust under a separate transfer agent agreement. See
"The Shareholder Servicing and Transfer Agent."
Who Is the Distributor? SEI Financial Services Company acts as distributor of
the Trust's shares. No compensation is paid to the Distributor for distribution
services for shares of the 1784 Tax-Free Money Market Fund or Class A shares of
the 1784 U.S. Treasury Money Market Fund. See "The Distributor."
How Do I Purchase Shares? Purchases may be made through the Distributor by the
close of business Monday through Friday except on days when the New York Stock
Exchange or the Federal Reserve Bank of Boston is closed ("Business Days").
Shares may also be purchased through broker-dealers which have established
dealer agreements with the Distributor. Purchase orders submitted through
broker-dealers normally will be received by the Distributor on the Business Day
after they are received by the broker-dealer.
A purchase order will be effective as of the Business Day the order is received
by the Distributor if the Distributor receives a purchase order in good form
and payment of federal funds before 12:00 noon Eastern Time ("ET") on that day.
The purchase price for shares of the 1784 Tax-Free Money Market Fund and Class
A shares of the 1784 U.S. Treasury Money Market Fund is the net asset value per
share (normally $1.00) next determined after the purchase order and federal
funds are received and accepted by the Distributor. When a Shareholder
purchases shares by check, the order is considered received by the Distributor
when the check is converted into federal funds, normally within two Business
Days. Shares purchased will begin accruing dividends on the date of purchase.
The minimum initial investment is $1,000; all subsequent purchases must be at
least $250. Minimum investment requirements are lower for accounts established
for automatic investment programs and under tax-deferred retirement programs
(including IRAs). See "Purchase of Shares."
How Do I Redeem Shares? Redemptions may be made through the Transfer Agent on
any Business Day. Redemption orders must be placed in good form prior to 12:00
noon ET on any Business Day to be effective on that day. See "Redemption of
Shares."
How Are Distributions Paid? Substantially all of the net investment income
(exclusive of capital gains) of each
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of the Funds is determined and declared on each Business Day as a dividend to
shareholders of record as of the close of business on that day. On redemption,
a Shareholder will receive dividends up to but not including the day a valid
redemption request is received by the Transfer Agent. Any capital gains will be
distributed at least annually. Distributions are paid in additional shares of
the 1784 Tax-Free Money Market Fund or Class A shares of the 1784 U.S. Treasury
Money Market Fund, as applicable, unless the Shareholder elects to take the
payment in cash. See "Dividends and Distributions."
How Do I Make Exchanges? Once payment for Shares has been received by the
Distributor, those shares may be exchanged for shares of one or more other
portfolios of the Trust at net asset value, provided the amount of the exchange
meets the minimum investment requirements for the other portfolio of the Trust.
There are no charges for an exchange. If an exchange request in good order is
received by the Distributor by 12:00 noon ET on any Business Day, the exchange
usually will occur on that day. A Shareholder must obtain and should read the
prospectus of the other portfolio and consider the differences in investment
objectives and policies before making any exchange. See "Exchanges."
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following table provides condensed financial information about the Money
Market Funds for the period from the commencement of operations (June 7, 1993
for the 1784 U.S. Treasury Money Market Fund and June 14, 1993 for the 1784
Tax-Free Money Market Fund) through May 31, 1995. The information should be
read in conjunction with the financial statements appearing in the Funds'
Annual Report to Shareholders, which are incorporated by reference in the
Statement of Additional Information. The financial statements and notes, as
well as the table below, covering the period through May 31, 1995 have been
audited by Coopers & Lybrand L.L.P., independent accountants, whose report is
included in the Funds' Annual Report. Copies of the Annual Report may be
obtained without charge from the Distributor. Only Class A shares of the 1784
U.S. Treasury Money Market Fund were outstanding during the period covered by
the table.
FINANCIAL HIGHLIGHTS
Shares of the 1784 Tax-Free Money Market Fund and Class A Shares of the 1784
U.S. Treasury Money Market Fund
For the Period Ended May 31, 1995
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Ratio Ratio of
Net Net Ratio of Expenses Net Income
Asset Dividends Net Assets Ratio of Net to Average to Average
Value Net from Net Asset Value End of Expenses Income Net Assets Net Assets
Beginning Investment Investment End Total of Period to Average to Average (Excluding (Excluding
of Period Income Income of Period Return (000) Net Assets Net Assets Waivers) Waivers)
--------- ---------- ---------- ----------- ------ --------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAX-FREE
MONEY MARKET(1)
====================
6/14/93-5/31/94 $1.00 0.02 (0.02) $1.00 2.31%* $407,448 0.27%** 2.39%** 0.71%** 1.95 %**
6/1/94-5/31/95 $1.00 0.03 (0.03) $1.00 3.29% $539,412 0.50% 3.28% 0.61% 3.17 %
U.S. TREASURY
MONEY MARKET(2)
====================
6/7/93-5/31/94 $1.00 0.03 (0.03) $1.00 2.64%* $ 5,593 0.65%** 2.91%** 6.42%** (2.86)%**
6/1/94-5/31/95 $1.00 0.05 (0.05) $1.00 4.81% $55,068 0.60% 5.13% 0.92% 4.81 %
</TABLE>
* Returns are for the period indicated and have not been annualized.
** Ratios for this period have been annualized.
(1) The Tax-Free Money Market Fund commenced operations on June 14, 1993.
(2) The U.S. Treasury Money Market Fund commenced operations on June 7, 1993.
-------------
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THE TRUST
- --------------------------------------------------------------------------------
1784 Funds (the "Trust") is an open-end management investment company that
offers units of beneficial interest, or shares, in several separate
professionally managed investment portfolios, or funds. Shares of the funds may
be offered in one or more classes. Each share of each fund or class represents
an undivided, proportionate interest in that fund or the assets of that fund
allocated to that class. Shares of the 1784 U.S. Treasury Money Market Fund are
offered through three separate classes, Class A, Class C and Class D, which
differ by the amount of distribution costs associated with each class. This
Prospectus relates to Class A shares of the Trust's 1784 U.S. Treasury Money
Market Fund and shares of the Trust's 1784 Tax-Free Money Market Fund, each of
which is a diversified fund. Information regarding Class C and Class D shares
of the 1784 U.S. Treasury Money Market Fund and shares of the Trust's other
funds is contained in separate prospectuses that may be obtained from the
Trust's distributor, SEI Financial Services Company (the "Distributor"), 680
East Swedesford Road, Wayne, Pennsylvania 19087, or by calling 1-800-BKB-1784.
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the 1784 Tax-Free Money Market Fund is to preserve
principal value and maintain a high degree of liquidity while providing current
income exempt from federal income taxes.
The investment objective of the 1784 U.S. Treasury Money Market Fund is to
preserve principal value and maintain a high degree of liquidity while
providing current income.
There can be no assurance that the investment objective of any Money Market
Fund will be met. The investment objective of each Fund is a fundamental policy
of that Fund, and therefore cannot be changed without the consent of holders of
a majority of that Fund's outstanding shares. See "Investment Limitations."
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Each of the Money Market Funds is required to comply with regulations of the
SEC applicable to money market funds using the amortized cost method for
calculating net asset value. These regulations impose certain quality, maturity
and diversification restraints on investments by each of the Funds. Under these
regulations, a Fund will invest only in U.S. dollar-denominated securities,
will maintain an average maturity on a dollar-weighted basis of 90 days or
less, and will acquire only "eligible securities" (as defined under applicable
SEC rules) that have a maturity of 397 days or less and that present minimal
credit risks as determined by or on behalf of the Board of Trustees of the
Trust. In certain circumstances, the maturity of a security will be deemed to
be the period remaining until the next interest rate adjustment date or until
payment of the security may be demanded. For a further discussion of these
rules (including the definition of "eligible securities"), see "Description of
Permitted Investments and Techniques -- Restraints on Investments by Money
Market Funds."
The 1784 Tax-Free Money Market Fund is a diversified fund which, as a matter of
fundamental policy, will invest at least 80% of its net assets under normal
market conditions in eligible securities issued by or on behalf of the states,
territories and possessions of the United States and the District of Columbia
and their respective political subdivisions, agencies and instrumentalities,
the interest on which, in the opinion of counsel for the issuer, is exempt from
federal income tax and not included as a preference item under the alternative
minimum tax (collectively, "Municipal Securities").
The 1784 Tax-Free Money Market Fund may purchase municipal obligations with
demand features, including floating or variable rate obligations. In addition,
the Fund may invest in commitments to purchase securities on a "when-issued"
basis, and reserves the right to purchase securities subject to a standby
commitment. The Adviser has discretion to invest up to 20% of the Fund's net
assets in securities subject to the alternative minimum tax and the following
types of taxable money
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market instruments: (1) securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; (2) repurchase agreements; (3) bank
obligations described under "Description of Permitted Investments and
Techniques;" (4) asset-backed securities; and (5) commercial paper, other
short-term debt instruments and variable and floating rate instruments. All
such taxable money market instruments must comply with the limitations on
investments described under "Description of Permitted Investments and
Techniques -- Restraints on Investments by Money Market Funds."
For more information regarding the permitted investments and investment
practices of the 1784 Tax-Free Money Market Fund, the purposes of these
investments and investment practices and certain risks associated with certain
of these investments and investment practices, see "Certain Investment Policies
and Guidelines" and "Description of Permitted Investments and Techniques."
The 1784 U.S. Treasury Money Market Fund is a diversified fund which will under
normal circumstances invest at least 65% of its total assets in bills, notes,
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal Reserve book-entry system (such component parts of obligations are
commonly referred to as "STRIPS" and all of the foregoing obligations are
referred to collectively as "U.S. Treasury Obligations") and in repurchase
agreements involving U.S. Treasury Obligations. In addition to U.S. Treasury
Obligations, the Fund may invest in other securities issued or guaranteed as to
principal and interest by the U.S. Government or any of its agencies and
instrumentalities (the foregoing obligations are referred to collectively as
"U.S. Government Obligations") and repurchase agreements involving U.S.
Government Obligations. Under normal circumstances the Fund intends to invest
all of its investable assets in U.S. Treasury Obligations, U.S. Government
Obligations and repurchase agreements involving U.S. Treasury Obligations or
U.S. Government Obligations.
For more information regarding the permitted investments and investment
practices of the 1784 U.S. Treasury Money Market Fund, the purposes of these
investments and investment practices and certain risks associated with certain
of these investments and investment practices, see "Certain Investment Policies
and Guidelines" and "Description of Permitted Investments and Techniques."
CERTAIN INVESTMENT POLICIESAND GUIDELINES
- --------------------------------------------------------------------------------
A Money Market Fund's investments in STRIPS will be limited to securities with
maturities of less than 397 days. Investing in these securities entails certain
risks, including that these interest components may be more volatile in market
value than Treasury bills of comparable maturity, as further described in
"Description of Permitted Investments and Techniques." No Money Market Fund may
invest more than 20% of its total assets in STRIPS or actively trade STRIPS
(i.e., combine the components of STRIPS to create derivative securities).
Each Money Market Fund may invest in when-issued securities and variable rate
and floating rate obligations. When investing in when-issued securities, a Fund
will not accrue income until delivery of the securities and will invest in such
securities only for the purpose of actually acquiring the securities and not
for the purpose of leveraging. Investing in when-issued securities may have the
effect of leveraging. A Fund may invest up to 25% of its total assets in
forward commitments or commitments to purchase securities on a when-issued
basis. While awaiting delivery of securities purchased on such basis, a Fund
will establish a segregated account consisting of cash, short-term money market
instruments or high quality debt securities equal to the amount of the
commitments to purchase securities on such basis.
In addition, each Money Market Fund may, from time to time, engage in
securities lending; however, loans made by a Fund of the securities it holds
may not exceed 33 1/3% of that Fund's total assets.
7
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INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The investment objective of each Fund and the following investment limitations
are fundamental policies of that Fund. It is also a fundamental policy of the
1784 Tax-Exempt Money Market Fund to invest at least 80% of its net assets
under normal market conditions in Municipal Securities. Fundamental policies
cannot be changed with respect to a Fund without the consent of the holders of
a majority of that Fund's outstanding shares. The term "majority of the
outstanding shares" means the vote of (i) 67% or more of the Fund's shares
present at a meeting, if more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (ii) more than 50% of the Fund's
outstanding shares, whichever is less.
A Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if as a result more than 5% of the total assets of
the Fund would be invested in the securities of such issuer or more than 10% of
the outstanding voting securities of such issuer would be owned by the Fund;
provided, however, that the 1784 Tax-Free Money Market Fund may invest up to
25% of its total assets without regard to this restriction as permitted by
applicable law. The U.S. Treasury Money Market Fund will be diversified with
respect to 100% of its assets provided that the Fund may invest up to 25% of
its total assets in a single issuer for a period of up to three business days
if such securities qualify as "first tier securities" under applicable SEC
rules. The 1784 Tax-Free Money Market Fund will be diversified with respect to
75% of its total assets. For purposes of these limitations, loan participations
are considered to be issued by both the issuing bank and the underlying
corporate borrower, and a repurchase agreement is deemed to be an acquisition
of the underlying securities, provided that the seller's obligation to
repurchase the securities from the Fund is fully collateralized.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry or securities the
interest upon which is paid from revenue of similar type of industrial
development projects, provided that this limitation does not apply to (i)
investments in obligations issued or guaranteed by the U.S. Government or any
of its agencies and instrumentalities and repurchase agreements involving such
securities; (ii) obligations issued by domestic banks, foreign branches of
domestic banks and U.S. branches of foreign banks, to the extent that the Fund
may under the Investment Company Act of 1940, as amended, reserve freedom of
action to concentrate its investments in such securities; and (iii) in the case
of the 1784 Tax-Free Money Market Fund, tax-exempt securities issued by
governments or political subdivisions of governments. Each of the Money Market
Funds has reserved its freedom of action to concentrate its investments in
government securities and bank instruments described in the foregoing clause
(ii). For purposes of these limitations, (i) loan participations are considered
to be issued by both the issuing bank and the underlying corporate borrower;
(ii) utility companies will be divided according to their services; for
example, gas, gas transmission, electric and telephone will each be considered
a separate industry; and (iii) financial service companies will be classified
according to the end users of their services; for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry.
3. Make loans, except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies, (b) enter into
repurchase agreements, and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
4. Borrow, except that a Fund may borrow money from banks and may enter into
reverse repurchase agreements, in either case in an amount not to exceed 33
1/3% of the Fund's total assets and then only as a temporary measure for
extraordinary or emergency purposes (e.g., to meet Shareholder redemption
requests). A Fund will not purchase any securities for
8
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its portfolio at any time at which its borrowings equal or exceed 5% of its
total assets (taken at market value).
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISER
- --------------------------------------------------------------------------------
The First National Bank of Boston ("Bank of Boston" or the "Adviser") manages
the assets of each Fund pursuant to an Investment Advisory Agreement (the
"Advisory Agreement") with the Trust. Subject to such policies as the Board of
Trustees of the Trust may determine, the Adviser makes investment decisions for
each Fund. For its services under the Advisory Agreement, the Adviser receives
from each Fund a fee accrued daily and paid monthly at an annual rate equal to
0.40% of the average daily net assets of that Fund. However, the Adviser has
agreed for an indefinite period of time to waive all or a portion of its fees
in order to limit the total operating expenses of each of the Funds on an
annualized basis to not more than 0.65% of its average daily net assets; this
limitation would not apply to any brokerage commissions, interest expense or
taxes or to extraordinary expense items, including but not limited to
litigation expenses. Fee waivers may be terminated at any time. From time to
time the Adviser may also waive additional portions of its fees to reduce net
operating expenses to less than the amount specified above. For the fiscal year
ended May 31, 1995, the fees payable to Bank of Boston under the Advisory
Agreement with respect to each of the Funds were as follows: for 1784 Tax-Free
Money Market Fund, $1,876,167, of which $405,489 was voluntarily waived (after
giving effect to such waiver, 0.31% of such Fund's average daily net assets for
that period); and for 1784 U.S. Treasury Money Market Fund, $101,839, of which
$32,878 was voluntarily waived (after giving effect to such waiver, 0.27% of
such Fund's average daily net assets for that period). In addition, the Bank of
Boston contributed $101,116 to the 1784 Tax-Free Money Market Fund and $14,629
to the 1784 U.S. Treasury Money Market Fund to decrease the Funds' other
operating expenses and to assist the Funds in maintaining a competitive expense
ratio. The Funds may execute brokerage or other agency transactions through the
Adviser or an affiliate.
Bank of Boston, a national banking association, is the successor to a number of
banking institutions, the first of which was chartered in 1784. All of the
capital stock of Bank of Boston (except directors' qualifying shares) is owned
by Bank of Boston Corporation, a registered bank holding company. Bank of
Boston is engaged in providing a wide variety of financial services to
individuals, corporate and institutional customers, governments, and other
financial institutions throughout New England, the United States and
internationally. These services include individual and community banking,
consumer finance, mortgage origination and servicing, domestic corporate and
investment banking, leasing, international banking services, commercial real
estate lending, private banking, trust services, correspondent banking, and
securities and payments processing. Bank of Boston's principal business address
is 100 Federal Street, Boston, MA 02110. Prior to the organization of the Trust
in 1993, the Adviser had not served as the investment adviser for management
investment companies. The Adviser also manages the other funds comprising the
Trust.
Bank of Boston has been providing asset management services since 1890. Its
portfolio managers are responsible for investing in money market, equity, and
fixed income securities and they have earned national recognition and respect.
The investment management group within Bank of Boston which manages the Money
Market Funds is the same group which has managed Bank of Boston's collective
trust funds with similar investment objectives. As of December 31, 1994, Bank
of Boston and its affiliates managed more than $13 billion in assets worldwide.
Bank of Boston and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Funds, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of
9
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securities so purchased. Bank of Boston and its affiliates deal, trade and
invest for their own account in certain types of securities purchased on behalf
of the Funds. Bank of Boston and its affiliates may sell such securities to and
purchase them from other investment companies sponsored by SEI Financial
Services Company or its affiliates. The Adviser has informed the Trust that, in
making its investment decisions, it does not obtain or use material inside
information in the possession of any division or department of Bank of Boston
or in the possession of any affiliate of Bank of Boston.
The Glass-Steagall Act prohibits certain financial institutions, such as Bank
of Boston, from engaging in the business of underwriting securities of open-end
investment companies, such as the Funds. Bank of Boston takes the position,
based on the advice of counsel, that the investment advisory services it
provides under the Advisory Agreement do not constitute underwriting activities
and are consistent with the requirements of the Glass-Steagall Act and other
relevant federal and state legal and regulatory precedent. State laws on this
issue may differ from applicable federal law, and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Future changes in either federal or state statutes or
regulations relating to the permissible activities of banks, as well as future
judicial or administrative decisions and interpretations of present and future
federal and state statutes and regulations, could prevent Bank of Boston from
continuing to perform such services for the Trust. If Bank of Boston were to be
prevented from acting as the Adviser, the Trust would seek alternative means
for obtaining such services.
THE ADMINISTRATOR
- --------------------------------------------------------------------------------
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), and the Trust are parties to an
administration agreement dated as of June 1, 1993 (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
provides the Trust with administrative services other than investment advisory
services, including all regulatory reporting, necessary office space,
equipment, personnel, and facilities.
The Administrator is entitled to a fee which is calculated daily and paid
monthly at an annual rate of 0.15% of the Trust's first $300 million of average
daily net assets, 0.12% of the Trust's second $300 million of average daily net
assets and 0.10% of the Trust's average daily net assets over $600 million.
Each Money Market Fund's portion of such fee is based on the average daily net
assets of such Fund. The Administrator has agreed to waive a portion of its
fees on a month to month basis under certain circumstances for certain of the
portfolios of the Trust.
THE SHAREHOLDER SERVICING AND TRANSFER AGENT
- --------------------------------------------------------------------------------
SEI Financial Management Corporation acts as dividend disbursing agent and
shareholder servicing agent for the Trust. Compensation for these services is
paid under the Administration Agreement. SEI Financial Management Corporation
also acts as transfer agent (the "Transfer Agent") under a separate transfer
agency agreement. The principal business address of the Transfer Agent is 680
East Swedesford Road, Wayne, PA 19087.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") dated as of June 1, 1993. No compensation is paid to
the Distributor for distribution services with respect to shares of the 1784
Tax-Free Money Market Fund or Class A shares of the 1784 U.S. Treasury Money
Market Fund. Financial institutions that are the record owner of shares for the
accounts of their customers may impose separate fees for the account services
to their customers. The Money Market Funds may execute brokerage or other
agency transactions through the Distributor, for which the Distributor receives
compensation.
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From time to time the Distributor may provide incentive compensation to
employees of banks (including Bank of Boston), broker-dealers and investment
counselors, and to its own employees, in connection with the sale of shares of
the Funds or other portfolios of the Trust. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation, including merchandise, airline vouchers, trips and vacation
packages. Such promotional incentives will be offered uniformly to all program
participants and will be predicated upon the amount of shares of the Funds and
other portfolios of the Trust sold by the participant.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Shares of the 1784 Tax-Free Money Market Fund and Class A shares of the 1784
U.S. Treasury Money Market Fund ("Shares") are sold on a continuous basis and
may be purchased directly from the Trust's Distributor, either by mail or by
telephone. Shares may also be purchased through a broker-dealer which has
established a dealer agreement with the Distributor.
Purchases of Shares may be made Monday through Friday except on days when the
New York Stock Exchange or the Federal Reserve Bank of Boston is closed
("Business Days"). Current holidays for the New York Stock Exchange and/or the
Federal Reserve Bank of Boston are New Year's Day, Martin Luther King Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Thanksgiving and Christmas. Except as provided below, the minimum
initial investment is $1,000 and all subsequent purchases of Shares must be at
least $250. Minimum investment amounts may be waived at the Distributor's
discretion. No minimum purchase amount applies to subsequent purchases made by
reinvestment of dividends.
The purchase price for Shares is their net asset value (normally $1.00 per
share) next determined after the order is received and accepted by the
Distributor. Net asset value per share of each of the Funds is determined as of
12:00 noon ET on each Business Day.
A purchase order for Shares will be effective as of the Business Day the order
is received by the Distributor if the Distributor receives a purchase order in
good form and payment of federal funds before 12:00 noon ET on that day. Shares
may also be purchased through broker-dealers which have established dealer
agreements with the Distributor. Purchase orders submitted through broker-
dealers normally will be received by the Distributor on the Business Day after
they are received by the broker-dealer. When a Shareholder purchases Shares by
check, the order is considered received by the Distributor when the check is
converted into
federal funds, normally within two Business Days.
By Mail
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Investors may purchase Shares by completing and signing an Account Application
and mailing it, along with a check (or other negotiable bank instrument or
money order) payable to the Fund in which such Shares are being purchased,
e.g., "1784 Tax-Free Money Market Fund" or "1784 U.S. Treasury Money Market
Fund," to SEI Financial Management Corporation (the "Transfer Agent"), P.O. Box
1784, Wayne, PA 19087-8784. Subsequent purchases may be made at any time by
mailing a check (or other negotiable bank draft or money order) to the Transfer
Agent.
Account Applications can be obtained by calling the Distributor at 1-800-BKB-
1784.
By Telephone
- --------------------------------------------------------------------------------
If a Shareholder has previously submitted an Account Application, that
Shareholder may also purchase Shares by telephone by calling the Distributor
toll-free at 1-800-BKB-1784. Orders by telephone will not be executed until an
Account Application and payment of federal funds have been received.
Tax-Deferred Retirement Programs
- --------------------------------------------------------------------------------
The 1784 U.S. Treasury Money Market Fund is eligible for purchase by tax-
deferred programs such as IRAs, KEOGHs and 401(k) plans, and the minimum
initial investment requirement for Class A shares for an
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account established under such a program is $250. Bank of Boston offers a
number of tax-deferred retirement plans through which Class A shares of the
1784 U.S. Treasury Money Market Fund may be purchased. All Fund accounts
established under a tax-deferred retirement program must elect to have all
dividends reinvested in the Fund.
Systematic Investment Plan (SIP)
- --------------------------------------------------------------------------------
A Shareholder of any Fund may also arrange for periodic additional investments
in the Fund through automatic deductions by Direct Deposit (if available from a
Shareholder's employer) or by Automated Clearing House ("ACH") from a checking
account by completing the appropriate section of the Account Application. The
Systematic Investment Plan is subject to account minimum initial purchase
amounts and minimum maintained balance requirements. The minimum pre-authorized
investment amount is $50 per month. An Account Application may be obtained by
contacting the Distributor at 1-800-BKB-1784.
Other Information Regarding Purchases
- --------------------------------------------------------------------------------
Shares may also be purchased through financial institutions, including Bank of
Boston, which provide shareholder services or other assistance to the Trust.
Texas residents may only purchase Shares through the Distributor. Shares
purchased by persons ("Customers") through financial institutions may be held
of record by the financial institution. Financial institutions may impose cut-
off times for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Distributor. Customers should
contact their financial institution for information as to the institution's
procedures for transmitting purchase, exchange or redemption orders to the
Distributor. The Distributor's receipt of an order may be delayed by one or
more Business Days.
Customers who desire to transfer the registration of Shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change. Other Shareholders who desire to
transfer the registration of their Shares should contact the Administrator.
Purchases may be made by ACH transactions, as well as by check or wire
transfer.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution.
No certificates representing Shares will be issued.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such offer. Each Fund will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. These
procedures will include verification of a caller's identity by asking for his
or her name, address, telephone number, Social Security number, and account
number. If these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine are not followed, the Fund may be liable
for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
For all purchases, if payment is not made or a check received for purchases of
Shares does not clear, the purchase will be canceled and the investor could be
liable for any losses or fees incurred.
The net asset value per share of each Fund is determined by dividing the value
of the Fund's investments and other assets, less any liabilities, by the total
outstanding shares of the Fund. It is anticipated that the net asset value of
each share of each Fund will remain constant at $1.00 (although there can be no
assurance that any Fund will be able to maintain this stable net asset value).
Securities of the Funds are valued based on the amortized cost method described
in the Statement of Additional Information.
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REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Shareholders may redeem their Shares on any Business Day and Shares may
ordinarily be redeemed by mail or telephone, with proceeds payable by check,
ACH or wire transfer. A redemption is treated, for federal and state income tax
purposes, as a sale of the Shares redeemed; a redemption could, therefore,
result in taxable gain or loss to the Shareholder. If proceeds are paid by wire
transfer, a wire transfer charge (presently $12.00) will be imposed.
By Mail
- --------------------------------------------------------------------------------
A written request for redemption must be received by the Transfer Agent in good
form in order to constitute a valid request for redemption. All account holders
must sign the redemption request. Under certain circumstances, the Transfer
Agent may require that the signatures on the request be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange, or by another
eligible guarantor institution. Redemption requests may be mailed to SEI
Financial Management Corporation, P.O. Box 1784 Wayne, PA 19087-8784 or 680
East Swedesford Road, Wayne, PA 19087.
By Telephone
- --------------------------------------------------------------------------------
Shares may be redeemed by telephone if the Shareholder elects that option on
the Account Application (unless a written redemption request, with the
Shareholder's signature guaranteed, is required; see "Signature Guarantees"
below). Telephone redemption orders must be placed with the Transfer Agent
prior to 12:00 noon ET on any Business Day to be effective on such day. The
Shareholder may have the proceeds mailed to his or her address or wired to a
commercial bank account previously designated on the Account Application. Under
most circumstances, payments will be transmitted on the next Business Day
following receipt of a valid request for redemption. Telephone redemption
requests may be made by calling the Transfer Agent at 1-800-BKB-1784.
Shareholders may not close their account by telephone. During periods of
drastic economic or market changes or severe weather or other emergencies,
Shareholders may find it difficult to implement a telephone redemption. If such
a case should occur, another method of redemption, such as written request sent
via an overnight delivery service, should be considered.
Signature Guarantees
- --------------------------------------------------------------------------------
If a Shareholder requests a redemption for an amount in excess of $25,000, a
redemption of any amount to be payable to anyone other than the Shareholder of
record or a redemption of any amount to be sent to any address other than the
Shareholder's address of record with the applicable Fund (or in the case of ACH
or wire transfers, other than as provided in the Shareholder's Account
Application), all account holders on the Shareholder's account must sign a
written redemption request and their signatures must be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange or by another
eligible guarantor institution. The Trust and the Transfer Agent reserve the
right to amend these requirements for the applicable Fund at any time without
notice. For questions about the proper form of redemption requests, call 1-800-
BKB-1784.
Other Information Regarding Redemptions
- --------------------------------------------------------------------------------
All redemption orders for Shares are effected at the net asset value per share
next determined after receipt, by the Transfer Agent, of a valid request for
redemption in good form, as described above. Payment to Shareholders for Shares
redeemed will be made within seven days after receipt by the Transfer Agent of
the request for redemption. Each Fund will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures will include verification of a caller's identity by asking for his
or her name, address, telephone number, Social Security number, and account
number. If these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine are not followed, the Fund may be liable
for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
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Forwarding of redemption proceeds for Shares purchased, or received in exchange
for Shares purchased, by check (including certified or cashier's checks) may be
delayed for 15 or more days to ensure that payment has been collected for the
purchase of such Shares. Each Fund intends to pay cash for all Shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in Fund securities with a market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem, at net asset value, the Shares of any Shareholder
if, because of redemptions of Shares by or on behalf of the Shareholder (and
not solely because of market declines), the account of such Shareholder in the
Fund has a value of less than the minimum initial purchase amount for that Fund
(normally $1,000). Accordingly, an investor purchasing Shares in only the
minimum investment amount may be subject to such involuntary redemption if the
investor thereafter redeems any of these Shares. Before the Fund exercises its
right to redeem such Shares and to send the proceeds to the Shareholder, the
Shareholder will be given notice that the value of such shares in his or her
account is less than the minimum amount and will be allowed 60 days to make an
additional investment in the Fund in an amount which will increase the value of
the account to at least the minimum amount. Accounts established under a tax-
deferred retirement program may be subject to involuntary redemption as
described above only if such account has a value of less than $250, the minimum
initial purchase amount for such accounts.
The right of any Shareholder to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or to the extent otherwise
permitted by the Investment Company Act of 1940 if an emergency exists. See
"Purchase and Redemption of Shares" in the Statement of Additional Information
for examples of when the right of redemption may be suspended.
SYSTEMATIC WITHDRAWAL PLAN
- --------------------------------------------------------------------------------
A Shareholder may direct the shareholder servicing agent to send him or her
regular monthly, quarterly, semi-annual or annual payments, as designated on
the Account Application and based upon the value of his or her account. Each
payment under a systematic withdrawal plan must be at least $100, except in
certain limited circumstances. A withdrawal payment under the plan is treated,
for federal and state income tax purposes, as a sale of a number of Fund shares
sufficient to fund the payment; such payment could, therefore, result in
taxable gain or loss to the Shareholder.
EXCHANGES
- --------------------------------------------------------------------------------
Some or all of the Shares for which payment has been received by the
Distributor (i.e., an established account) may be exchanged at their net asset
value for shares of one or more of the other portfolios of the Trust, including
Shares of the other Money Market Fund. Exchanges will be made only after
instructions in writing or by telephone are received for an established account
by the Distributor.
In the case of Shares held of record by Bank of Boston or one of its affiliates
but beneficially owned by a Customer, to exchange such shares the Customer
should contact Bank of Boston or the affiliate, who will contact the
Distributor and effect the exchange on behalf of the Customer. If an exchange
request in good order is received by the Distributor by 12:00 noon ET on any
Business Day, the exchange usually will occur on that day. Any Shareholder or
Customer who wishes to make an exchange must have received a current prospectus
of the portfolio of the Trust in which he or she wishes to invest before the
exchange will be effected. Residents of any state may only exchange shares for
shares of another portfolio of the Trust if that portfolio is registered in
that state.
Each exchange must involve either Shares having an aggregate value of at least
$250 or all the Shares in the account, and the amount of the exchange must meet
the
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minimum investment requirements for the portfolio of the Trust into which the
exchange is being made.
Exchanges may be made by telephone only if that option has been elected by the
Shareholder on the Account Application. Shares may be exchanged by telephone by
calling the Distributor toll free at 1-800-BKB-1784.
No fees are currently charged to Shareholders directly in connection with
exchanges, although each of the Money Market Funds reserves the right, upon not
less than 60 days' written notice, to charge Shareholders a nominal fee in
accordance with rules promulgated by the SEC. Each of the Money Market Funds
also reserves the right to reject any exchange request in whole or in part. The
exchange privilege (or any aspect of it) may be changed or terminated at any
time.
Other portfolios of the Trust may impose distribution fees based on their net
assets. Class C and Class D shares of the 1784 U.S. Treasury Money Market Fund
are subject to distribution fees.
An exchange is treated, for federal or state income tax purposes, as a sale of
the Shares exchanged; an exchange could, therefore, result in taxable gain or
loss to the Shareholder.
CHECKWRITING
- --------------------------------------------------------------------------------
A Shareholder in any Fund may redeem Shares by writing checks on his or her
account for $250 or more. Once a Shareholder has signed and returned a
signature card agreement, that Shareholder will receive a supply of checks.
A check may be made payable to any person, and the Shareholder's account will
continue to earn dividends until the check clears. The checkwriting privilege
is available on the terms specified in the signature card agreement and may be
terminated or changed by the applicable Fund at any time.
Because of the difficulty of determining in advance the exact value of a Fund
account, a Shareholder may not use a check to close his or her account. These
checks are currently free, i.e., there is no charge for this service; however,
the Shareholder's account will be charged a fee for stopping payment of a check
upon a Shareholder's request or if the check cannot be honored because of
insufficient funds or for other valid reasons.
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time the Trust advertises the "current yield" and "effective
yield" (also referred to as "effective compound yield") of the Funds. Both
yield figures are based on historical earnings and are not intended to indicate
future performance. The "current yield" of a Fund refers to the income
generated by an investment in that Fund over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That
is, the amount of income generated by the investment during that week is
assumed to be generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "current yield" because of
the compounding effect of this assumed reinvestment. The Trust may also
advertise a "tax-equivalent yield" for the 1784 Tax-Free Money Market Fund; the
"tax-equivalent yield" is calculated by determining the yield that would have
to be achieved on a fully taxable investment to produce the after-tax
equivalent of the 1784 Tax-Free Money Market Fund's yield, assuming certain tax
brackets for a Shareholder.
The Trust may periodically compare performance of a Fund to that of other
mutual funds tracked by mutual fund rating services, to that of broad groups of
comparable mutual funds or to that of unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs.
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TAXES
- --------------------------------------------------------------------------------
The following is a discussion of certain United States federal income tax
considerations relevant to the purchase, ownership, and disposition of Shares
in the Money Market Funds. The discussion, which is based on current tax laws,
regulations, rulings, and judicial decisions (all of which are subject to
change at any time by legislative, judicial, or administrative action), is not
intended to be complete; therefore, prospective investors should consult their
own tax advisers as to the tax consequences to them of an investment in the
Money Market Funds. Additional Information concerning taxes is set forth in the
Statement of Additional Information.
Tax Status of the Money Market Funds
- --------------------------------------------------------------------------------
Each Money Market Fund is treated as a separate entity for federal income tax
purposes, and is not combined with the other Money Market Funds or the Trust's
other portfolios. The Trust intends to qualify each Money Market Fund each year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and to make distributions to its
Shareholders in accordance with the timing requirements set out in the Code. As
a result, it is expected that the Money Market Funds will not be required to
pay any federal income or excise taxes.
Tax Treatment of Shareholders
- --------------------------------------------------------------------------------
1784 U.S. Treasury Money Market Fund
Shareholders of the 1784 U.S. Treasury Money Market Fund generally will have to
pay federal income taxes and may be subject to state or local taxes on the
dividends and capital gain distributions they receive from the Fund, whether
paid in cash or in additional shares. Distributions from net investment income
and short-term capital gains will be taxable to Shareholders as ordinary
income, while distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) will be taxable to
Shareholders as long-term capital gains, regardless of how long the
Shareholders have held their shares.
Distributions of the Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but
generally not from capital gains realized upon the disposition of such
obligations) may be exempt from state and local taxes. The Fund intends to
advise Shareholders of the extent, if any, to which their respective
distributions consist of such interest. Shareholders are urged to consult their
tax advisers regarding the possible exclusion of such portion of their
dividends for state and local income tax purposes.
1784 Tax-Free Money Market Fund
The Trust expects that dividends paid to Shareholders by the 1784 Tax-Free
Money Market Fund from interest on Municipal Securities will be exempt from
federal income tax because the 1784 Tax-Free Money Market Fund intends to
satisfy certain requirements of the Code. One such requirement is that at the
close of each quarter of its taxable year, at least 50% of the value of the
Fund's total assets consist of obligations whose interest is exempt from
federal income tax.
Distributions of income from capital gains, from investments in taxable
securities, and from certain other transactions (including repurchase
agreements) will be taxable to the Shareholders, whether paid in cash or in
additional shares. Distributions from taxable net investment income and short-
term capital gains will be taxable to Shareholders as ordinary income, while
distributions of net capital gains will be taxable to Shareholders as long-term
capital gains, regardless of how long the Shareholders have held their shares.
Depending on the nature of the distribution and the residence of the
Shareholder, certain 1784 Tax-Free Money Market Fund distributions will be
subject to state and local income taxes.
Interest on indebtedness incurred by Shareholders to purchase or carry shares
of the 1784 Tax-Free Money
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Market Fund will not be deductible for federal income tax purposes. Dividends
from interest on Municipal Securities are taken into account in calculating the
amount of social security and railroad retirement benefits that may be subject
to federal income tax. Certain distributions of exempt-interest dividends may
also be a tax preference item for purposes of the federal individual and
corporate alternative minimum tax and all exempt-interest dividends may
increase a corporate Shareholder's alternative minimum tax. Entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by private activity bonds should consult their tax advisers
before purchasing shares of the 1784 Tax-Free Money Market Fund.
General
The Trust expects that none of the dividends received from the Money Market
Funds will be eligible for the dividends received deduction for corporations.
Any Money Market Fund dividend that is declared in October, November, or
December of a calendar year, payable to shareholders of record in such a month,
and that is paid the following January will be treated as if received by the
Shareholders on December 31 of the year in which the dividend is declared.
The Trust will make annual reports to Shareholders of the federal income tax
status of all Money Market Fund distributions.
The exchange or redemption of Shares is a taxable event to the Shareholder,
although the Trust intends to attempt to maintain a stable share price of $1.00
per share. Under certain circumstances, realized losses may be disallowed or
short-term capital losses may be converted into long-term capital losses.
The Funds will generally withhold tax payments at the rate of 30% on dividends
and other payments that are subject to such withholding and that are made to
persons who are neither citizens nor residents of the U.S., although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. Each
Fund is also required in certain circumstances to withhold 31% of taxable
dividends and certain redemption proceeds paid to any Shareholder (including a
shareholder who is neither a citizen nor a resident of the U.S.) who does not
furnish to the Fund certain information and certifications or who is otherwise
subject to backup withholding. Backup withholding will not, however, be applied
to payments that have been subject to 30% (or lower treaty rate) withholding.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust
- --------------------------------------------------------------------------------
The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated February 5, 1993. The Declaration of Trust permits the Trust to
issue an unlimited number of shares of beneficial interest of each of the
portfolios (referred to as "series") of the Trust, each of which is a separate
fund. In addition to the Money Market Funds, the Trust includes the following
funds: 1784 Institutional U.S. Treasury Money Market Fund, 1784 U.S. Government
Medium-Term Income Fund, 1784 Short-Term Income Fund, 1784 Income Fund, 1784
Tax-Exempt Medium-Term Income Fund, 1784 Connecticut Tax-Exempt Income Fund,
1784 Rhode Island Tax-Exempt Income Fund, 1784 Massachusetts Tax-Exempt Income
Fund, 1784 Growth and Income Fund, 1784 Asset Allocation Fund and 1784
International Equity Fund. All consideration received by the Trust for shares
of any fund and all assets of such fund belong to that fund and are subject to
liabilities related thereto. The Trust reserves the right to create and issue
additional series of shares, and reserves the right to create and issue shares
of additional classes of any or all series.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses and reports to Shareholders,
costs of custodian services and registering the shares of the Funds and other
series under federal and state
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securities laws, pricing, insurance expenses, brokerage costs, interest
charges, taxes, amortization of organization expenses, and any extraordinary
expenses including but not limited to litigation expenses. For the fiscal year
ended May 31, 1995, the total expenses of each of the Funds were as follows:
for the 1784 Tax-Free Money Market Fund, $2,859,695, of which $512,760 was
voluntarily waived or reimbursed by the Bank of Boston (after giving effect to
such waiver, 0.50% of such Fund's average daily net assets for that period);
and for the 1784 U.S. Treasury Money Market Fund, $236,501, of which $82,688
was voluntarily waived or reimbursed by the Bank of Boston (after giving effect
to such waiver, 0.60% of such Fund's average daily net assets for that period).
Under applicable law, Shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the risk of a
Shareholder incurring financial loss on account of such Shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations and inadequate insurance existed. The Trust believes that the
likelihood of such circumstances is remote.
Trustees of the Trust
- --------------------------------------------------------------------------------
The management and affairs of the Trust are supervised by its Board of
Trustees. The Trustees have approved contracts under which, as described above,
certain companies provide essential management, administrative and Shareholder
services to the Trust.
Voting Rights
- --------------------------------------------------------------------------------
Each Share held entitles the Shareholder of record to one vote. Each fund or
class will vote separately on matters relating solely to that fund or class. As
a Massachusetts business trust, the Trust is not required to hold annual
meetings of Shareholders but approval will be sought for certain changes in the
operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested, the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
Reporting
- --------------------------------------------------------------------------------
The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
Shareholder Inquiries
- --------------------------------------------------------------------------------
Shareholder inquiries should be directed to SEI Financial Management
Corporation, P.O. Box 1784, Wayne, Pennsylvania, 19087-8784, at 1-800-BKB-1784.
Dividends and Distributions
- --------------------------------------------------------------------------------
The net investment income (exclusive of capital gains) of each Money Market
Fund is determined and declared on each business day as a dividend for
Shareholders of record as of the close of business on that day. On redemption,
a Shareholder will receive dividends up to but not including the day a valid
redemption request is received by the Transfer Agent. Currently, capital gains
of the Money Market Funds, if any, are distributed at least annually.
Dividends are paid by the Money Market Funds in additional Shares, unless the
Shareholder has elected to take such payment in cash, on the first business day
of each month. Shareholders may change their election by providing written
notice to the Administrator at least 15 days prior to the change.
If dividend payments are returned and unclaimed within 30 days, they will be
reinvested and the Shareholder will be deemed to have elected to receive future
dividend and capital gain distributions in additional Shares.
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Counsel and Independent Accountants
- --------------------------------------------------------------------------------
Bingham, Dana & Gould, Boston, MA, serve as counsel to the Trust. Coopers &
Lybrand L.L.P., Boston, MA, serve as the independent accountants of the Trust.
Custodian
- --------------------------------------------------------------------------------
Bank of Boston, 100 Federal Street, Boston, MA 02110, acts as Custodian of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940. Under a separate agreement,
Bank of Boston also provides certain accounting services for the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS AND TECHNIQUES
- --------------------------------------------------------------------------------
The following is a description of the permitted investments and investment
techniques for the Funds.
U.S. Treasury Obligations -- U.S. Treasury obligations include bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
Reserve book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS"). STRIPS are sold as zero coupon securities.
These securities are usually structured with two classes that receive different
portions of the interest and principal payments from the underlying obligation.
The yield to maturity on the interest-only class is extremely sensitive to the
rate of principal payments on the underlying obligation. The market value of
the principal-only class generally is unusually volatile in response to changes
in interest rates. See "Zero Coupon Securities" below for more information on
these securities. Each Fund also may invest in Treasury Receipts, which are
unmatured interest coupons of U.S. Treasury bonds and notes which have been
separated and resold in a custodial receipt program administered by the U.S.
Treasury.
U.S. Government Obligations -- Certain Federal agencies such as the Government
National Mortgage Association ("GNMA") have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States (e.g., GNMA) or supported by the issuing agencies' right to borrow from
the Treasury. The issues of other agencies are supported only by the credit of
the instrumentality (e.g., Federal National Mortgage Association, "FNMA"). Each
Fund may invest in securities issued by any Federal agency or instrumentality.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by the Funds may carry variable or floating rates of interest and may involve a
conditional or unconditional demand feature permitting the holder to demand
payment of principal at any time, or at specified intervals. Such obligations
may include variable amount master demand notes. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a Federal Reserve composite index. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security; therefore, a Fund
will not invest more than 10% of its net assets in such instruments and other
illiquid securities.
The interest rate on these securities may be reset daily, weekly, quarterly, or
some other reset period and may have a floor or ceiling on interest rate
charges. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates.
A demand instrument with an unconditional demand feature may be an "eligible
security" or "first tier security," depending on whether the unconditional
demand feature is, respectively, an eligible security or first-tier security. A
demand instrument without an unconditional demand feature may be an eligible
19
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I784 FUNDS
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security or a first tier security only if it meets the requirements for those
categories and the demand instrument or the long-term debt securities of its
issuer have been rated by at least two nationally recognized statistical rating
organizations (one if it is the only organization rating such obligation or
issuer) in one of the two highest long-term rating categories or, if unrated,
determined to be of comparable quality. See "Restraints on Investments by Money
Market Funds" below.
Standby Commitments -- A Money Market Fund may acquire securities subject to a
standby commitment which permits a Fund to sell the security at a fixed price
prior to maturity. The underlying municipal securities subject to a standby
commitment may be sold at any time at the market rates. In certain cases, a
premium may be paid for a standby commitment. A premium paid will have the
effect of reducing the yield otherwise payable on the underlying security. The
purpose of engaging in transactions involving standby commitments is to
maintain flexibility and liquidity to permit the Fund to meet redemptions and
remain as fully invested as possible in municipal securities. Each Fund will
limit standby commitment transactions to institutions which the Adviser
believes present minimal credit risk, pursuant to guidelines adopted by the
Trust's Board of Trustees.
There is no limit to the percentage of Fund securities that any Fund may
purchase subject to a standby commitment but the amount paid directly or
indirectly for a standby commitment held by any Fund will not exceed 1/2 of 1%
of the value of the total assets of the Fund.
Repurchase Agreements -- A repurchase agreement is an agreement by which a
person obtains a security and simultaneously commits to return the security to
the seller at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days from the date of purchase. The
Custodian or its agent will hold the security as collateral for the repurchase
agreement. Collateral must be maintained at a value at least equal to 100% of
the purchase price. A Fund bears a risk of loss in the event the other party
defaults on its obligations and the Fund is delayed or prevented from its right
to dispose of the collateral securities or if the Fund realizes a loss on the
sale of the collateral securities. The Adviser will enter into repurchase
agreements on behalf of a Fund only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
guidelines established and periodically reviewed by the Trustees. Pursuant to
an exemptive order of the SEC, each of the Funds may enter into repurchase
agreements on a pooled basis with other portfolios of the Trust.
Forward Commitments or Purchases On a When-Issued Basis -- The Money Market
Funds may enter into forward commitments or purchase securities on when-issued
basis, which means that the price of the securities is fixed at the time of
commitment and that the delivery and payment will ordinarily take place beyond
customary settlement time. The interest rate realized on these securities is
fixed as of the purchase date and no interest accrues to the Fund before
settlement. These securities are subject to market fluctuation due to changes
in market interest rates and will have the effect of leveraging the Fund's
assets; the securities are also subject to fluctuation in value pending
settlement based upon public perception of the creditworthiness of the issuer
of these securities. Securities purchased on a when-issued or forward
commitment basis may expose a Fund to risk because such securities may
experience such fluctuations in value prior to their actual delivery.
Agreements to purchase securities on a when-issued or forward commitment basis
will only be made with the intention of taking delivery and not for speculative
purposes. A Fund may invest up to 25% of its assets in forward commitments or
commitments to purchase securities on a when-issued basis. While awaiting
delivery of securities purchased on such bases, a Fund will establish a
segregated account consisting of cash, short-term money market instruments or
high quality debt securities equal to the amount of the commitments to purchase
securities on such bases.
Securities Lending -- In order to generate additional income, a Money Market
Fund may lend the securities in which it is invested pursuant to agreements
requiring
20
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<PAGE>
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I784 FUNDS
- --------------------------------------------------------------------------------
that the loan be continuously secured by cash, U.S. Treasury Obligations, U.S.
Government Obligations or any combination of cash and such securities as
collateral equal at all times to 100% of the market value of the securities
lent. A Fund may lend up to 33 1/3% of the value of its total assets. The Fund
will continue to receive interest on the securities lent while simultaneously
earning interest on the investment of cash collateral in U.S. Treasury
Obligations or U.S. Government Obligations. Collateral is marked to market
daily to provide a level of collateral at least equal to the market value of
the securities lent. There may be risks of delay in recovery of the securities
or even loss of rights in the collateral should the borrower of the securities
fail financially. However, loans will only be made to borrowers deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from such securities loans
justifies the attendant risk.
Zero Coupon Securities -- Zero coupon securities are fixed income securities
that have been stripped of their unmatured interest coupons. A zero coupon
security pays no interest or principal to its holder during its life. A zero
coupon security is sold at a discount, frequently substantial, and redeemed at
face value at its maturity date. The amount of the discount fluctuates with the
market price of the security, and is accreted over the life of the security.
Such accretion constitutes the income earned on the security for both
accounting and tax purposes. The market prices of zero coupon securities are
generally more volatile than the market prices of securities of similar
maturity that pay interest periodically, and zero coupon securities are likely
to respond to a greater degree to interest rate changes than are non-zero
coupon securities with similar maturity and credit qualities.
Money Market Funds -- A Fund may not invest more than 5% of its assets in any
one money market fund or more than 10% of its assets in other investment
companies, including money market funds. When a Fund invests in a money market
fund, a Shareholder bears not only his or her proportionate share of the Fund's
expenses, but also indirectly his or her share of the expenses of the money
market fund, including management fees. The 1784 U.S. Treasury Money Market
Fund does not intend to invest in other money market funds.
The 1784 Tax-Free Money Market Fund may also invest in the following types of
securities:
Receipts -- Receipts represent interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
or brokerage firms and are created by depositing U.S. Treasury obligations into
a special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Investment Growth Receipts" ("TIGRs"), and "Certificates of Accrual
on Treasury Securities" ("CATS"). TIGRs and CATS are sold as zero coupon
securities. See "Zero Coupon Securities" for more information on these
securities.
Bank Obligations -- Bank obligations include certificates of deposit, time
deposits (including Eurodollar time deposits) and bankers' acceptances and
other short-term debt obligations issued by domestic banks, foreign
subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. The Fund may invest in such obligations, however, only if
the issuer (or the parent company, in the case of subsidiaries or branches) has
assets of at least $1 billion.
Bankers' Acceptances -- A banker's acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
Certificates of Deposit -- A certificate of deposit is a negotiable interest-
bearing instrument with a specific maturity. Certificates of deposit are issued
by banks and savings and loan institutions in exchange for the deposit of funds
and normally can be traded in the secondary market prior to maturity.
21
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<PAGE>
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I784 FUNDS
- --------------------------------------------------------------------------------
Time Deposits -- A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities; therefore, the Fund will not invest more
than 10% of its net assets in such time deposits and other illiquid securities.
Commercial Paper -- Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from one to 270 days.
Municipal Securities -- Municipal securities the 1784 Tax-Free Money Market
Fund may purchase include (i) debt obligations issued by or on behalf of public
authorities to obtain funds to be used for various public facilities, for
refunding outstanding obligations, for general operating expenses, and for
lending such funds to other public institutions and facilities, and (ii)
certain private activity and industrial development bonds issued by or on
behalf of public authorities to obtain funds to provide for the construction,
equipment, repair, or improvement of privately operated facilities. Municipal
notes include (but are not limited to) general obligation notes, tax
anticipation notes, revenue anticipation notes, bond anticipation notes,
certificates of indebtedness, demand notes, and construction loan notes.
Municipal bonds include (but are not limited to) general obligation bonds,
revenue or special obligation bonds, private activity and industrial
development bonds. General obligation bonds are backed by the taxing power of
the issuing municipality. Revenue bonds are backed by the revenues of a project
or facility; tolls from a toll bridge for example. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed
as security for such payment.
Municipal securities also include participations in municipal leases. These are
undivided interests in a portion of an obligation in the form of a lease or
installment purchase issued by state or local government to acquire equipment
or facilities. Municipal leases frequently have special risks not normally
associated with general obligation bonds or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by
the appropriate legislative body on a yearly or other periodic basis. Although
the obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In light of these concerns, the Trust
has adopted and follows procedures for determining whether municipal lease
securities purchased by the Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures require
that a number of factors be used in evaluating the liquidity of a municipal
lease security, including the frequency of trades and quotes for the security,
the number of dealers willing to purchase or to sell the security and the
number of other potential purchasers, the willingness of dealers to undertake
to make a market in the security, the nature of the marketplace in which the
security trades, the credit quality of the security, and other factors which
the Adviser may deem relevant.
Restraints on Investments by Money Market Funds -- Investments by the Money
Market Funds are subject to limitations imposed under regulations adopted by
the SEC. Under these regulations money market funds may acquire only
obligations that present minimal credit risks and that are "eligible
securities," which means they are (i) rated, at the time of investment, by at
least
22
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<PAGE>
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I784 FUNDS
- --------------------------------------------------------------------------------
two nationally recognized statistical rating organizations (one if it is the
only organization rating such obligation) in the highest short-term rating
category or, if unrated, determined to be of comparable quality (a "first tier
security"), or (ii) rated according to the foregoing criteria in the second
highest short-term rating category (or rated by one nationally recognized
statistical rating organization in the highest short-term rating category and
by another organization in the second highest short-term rating category) or,
if unrated, determined to be of comparable quality ("second tier security"). A
security is not considered to be unrated if its issuer has outstanding
obligations of comparable priority and security that have a short-term rating.
The Adviser will determine that an obligation presents minimal credit risks or
that unrated instruments are of comparable quality in accordance with
guidelines established by the Trustees. Under normal circumstances, the 1784
U.S. Treasury Money Market Fund intends to invest all of its investable assets
in U.S. Treasury Obligations, U.S. Government Obligations and repurchase
agreements involving U.S. Treasury Obligations or U.S. Government Obligations.
The Board of Trustees of the Trust has certain obligations, in the event that a
security ceases to be a first-tier security or ceases to be a second-tier
security, to reassess whether such security continues to present only minimal
credit risks.
Each Money Market Fund will invest only in U.S. dollar-denominated securities,
will maintain an average maturity on a dollar-weighted basis of 90 days or less
and will acquire only "eligible securities" that have or are deemed to have a
maturity of 397 days or less and that present minimal credit risks as
determined by or on behalf of the Board of Trustees of the Trust. Each Fund
will comply with the various requirements of Rule 2a-7 under the Investment
Company Act of 1940, which regulates money market funds. In particular, each
Fund will determine the effective maturity of its investments (including
certain variable rate instruments, where maturity may be deemed to be the
period remaining until the next interest rate adjustment date or until payment
of the security may be demanded) according to Rule 2a-7 as in effect from time
to time.
23
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of 1784 Funds:
We have audited the accompanying statements of net assets of the 1784 Funds
(comprising, respectively, 1784 Tax-Free Money Market Fund, 1784 U.S. Treasury
Money Market Fund, 1784 U.S. Government Medium-Term Income Fund, 1784
Massachusetts Tax-Exempt Income Fund, 1784 Short-Term Income Fund, 1784 Income
Fund, 1784 Tax-Exempt Medium-Term Income Fund, 1784 Rhode Island Tax-Exempt
Income Fund, 1784 Connecticut Tax-Exempt Income Fund, 1784 Growth and Income
Fund, 1784 International Equity Fund and 1784 Asset Allocation Fund referred
to collectively herein as the "Funds"), as of May 31, 1995, and the related
statements of operations, changes in net assets, and financial highlights for
each of the respective periods presented therein. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of May 31, 1995 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds as of May 31, 1995, the results of their operations, the changes in
their net assets, and their financial highlights for each of the respective
periods presented therein, in conformity with generally accepted accounting
principles.
Boston, Massachusetts Coopers & Lybrand L.L.P.
July 19, 1995
20
<PAGE>
May 31, 1995 1784 Money Market Funds
Statement Of Net Assets
- -------------------------------------------------------------------------------
1784 U.S. TREASURY MONEYMARKET FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Par (000) Value (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 27.5%
U.S. TREASURY BILLS
5.490%, 06/01/95 $ 2,500 $ 2,500
6.060%, 06/29/95 2,000 1,990
6.210%, 07/06/95 1,500 1,491
6.100%, 08/10/95 1,500 1,482
5.970%, 08/31/95 500 492
5.920%, 09/14/95 1,000 983
6.270%, 11/16/95 1,000 971
5.750%, 11/24/95 500 486
6.160%, 03/07/96 1,000 954
6.160%, 04/04/96 3,500 3,325
6.070%, 05/02/96 500 473
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $15,147,591) 15,147
--------
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 25.9%
Federal Home Loan Bank
Discount Note
6.200%, 06/01/95 1,000 1,000
6.000%, 10/06/95 2,000 1,958
Federal Home Loan Mortgage
Corporation Discount Note
5.830%, 07/20/95 1,000 992
Federal National Mortgage
Association Discount Note
4.900%, 06/06/95 6,000 5,996
5.600%, 06/22/95 585 583
5.760%, 07/10/95 500 497
5.800%, 07/11/95 1,000 993
Student Loan Marketing
Association Discount Note
5.610%, 06/21/95 2,000 1,993
Student Loan Marketing
Association
6.170%, 10/30/97(A) 250 251
--------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $14,262,766) 14,263
--------
REPURCHASE AGREEMENTS -- 43.6%
Lehman Government Securities
6.125%, dated 05/31/95,
matures 06/01/95,
repurchase price $5,000,850
(collateralized by U.S.
Treasury Bonds ranging in
par value $92,000-
$3,095,000, 12.00%-13.25%,
08/15/13-05/15/14: with
total market value of
$5,102,428) $ 5,000 $ 5,000
Prudential Securities 6.125%,
dated 05/31/95, matures
06/01/95, repurchase price
$10,001,701 (collateralized
by U.S. Treasury Note, par
value $9,854,000, 7.50%,
matures 01/31/96: market
value $10,200,103) 10,000 10,000
Sanwa Securities 6.10%, dated
05/31/95, matures 06/01/95,
repurchase price $9,001,525
(collateralized by various
U.S. Treasury STRIPs
ranging in par value
$1,115,000-$7,791,000,
05/15/99-08/15/15: with
total market value of
$9,180,223) 9,000 9,000
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $24,000,000) 24,000
--------
CASH EQUIVALENTS -- 3.5%
Dreyfus Treasury Cash
Management Money
Market Fund
5.951%, 06/07/95 955 955
Lehman Brothers Institutional
Treasury Instrument Money
Market Fund
5.927%, 06/07/95 960 960
--------
TOTAL CASH EQUIVALENTS
(Cost $1,914,927) 1,915
--------
</TABLE>
(continued)
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
May 31, 1995
Statement Of Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Value (000)
- -------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS -- 100.5%
(Cost $55,325,284) $55,325
-------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- (0.5%) (257)
-------
NET ASSETS:
Capital Shares (unlimited authorization -- no par
value) based on 55,076,901 outstanding shares of
beneficial interest 55,077
Accumulated Net Realized Loss
on Investments (9)
-------
TOTAL NET ASSETS: -- 100.0% $55,068
=======
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $1.00
=======
</TABLE>
- -------------------------------------------------------------------------------
(A) Variable Rate Security -- the rate reported on the Statement of Net Assets
is the rate in effect on May 31, 1995.
STRIP--Separate Trading of Registered Interest and Principal
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
May 31, 1995 1784 Money Market Funds
Statement Of Net Assets
- -------------------------------------------------------------------------------
1784 TAX-FREE MONEY MARKET FUND
- -------------------------------------------------------------------------------
(ART)
% OF TOTAL PORTFOLIO INVESTMENTS
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
Description Par (000) Value (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 85.8%
ALABAMA -- 0.3%
Phenix City, Alabama
4.200%, 10/01/25(A) $ 1,600 $ 1,600
-------
ARIZONA -- 0.5%
Maricopa County, Arizona TAN
4.700%, 07/28/95 2,740 2,742
-------
ARKANSAS -- 1.0%
Crossett Arkansas Pollution
Control Revenue, Georgia
Pacific Project
3.950%,
06/07/95(A)(B)(C)(D) 5,400 5,400
-------
CALIFORNIA -- 7.1%
California Pollution Control
Authority Revenue Bond,
San Diego Gas and Electric
4.250%, 09/01/95(A)(B)(C) 6,000 6,000
California GO
5.750%, 04/25/96 13,835 13,959
California State RAN
5.000%, 06/28/95 2,500 2,501
Los Angeles, California,
American Airlines, Series C
4.250%, 12/01/24(A)(D) 4,200 4,200
Moreno Valley, California
School District TECP
4.500%, 06/30/95 4,000 4,001
Orange County, California, TRAN
4.500%, 07/19/95 $ 7,500 $ 7,507
-------
38,168
-------
COLORADO -- 5.6%
Arapahoe County, Colorado,
Series C
4.400%, 08/31/95(C) 5,000 5,000
Colorado Health Facility
Authority Revenue, Sisters
Charity Health, Series C
3.950%, 06/07/95(A)(B)(C) 11,800 11,800
Colorado Housing Finance
Authority, Winridge Project
3.450%, 02/01/23(A) 8,000 8,000
Denver, Colorado Industrial
Revenue Bond, Children's
Hospital Association
3.600%, 10/01/18(A) 5,500 5,500
-------
30,300
-------
CONNECTICUT -- 0.4%
Connecticut State, Housing
Finance Authority, Series H-1
4.300%, 09/01/95(B)(C) 2,000 2,000
-------
FLORIDA -- 5.6%
Dade County, Florida Housing
Finance Authority
4.200%, 06/05/95(A)(C)(D) 6,600 6,600
Dade County, Florida Housing
Finance Authority
3.600%, 06/07/95(A)(B)(C) 4,000 4,000
Florida Housing Financial
Agency, Multifamily
Revenue Bond, Series Oaks-A
3.850%, 07/01/07(A)(D) 3,455 3,455
Hillsborough County, Florida
4.100%, 09/01/25(A) 10,000 10,000
St Johns County, Florida
Housing Finance Authority
Revenue Bond, Remington
Project
3.400%, 02/01/17(A) 6,200 6,200
-------
30,255
-------
</TABLE>
(continued)
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
May 31, 1995
Statement Of Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Par (000) Value (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
GEORGIA -- 1.3%
Georgia Tech Foundation
Facility Revenue Bond, Wardlaw
Project, Series B
3.550%, 02/01/12(A) $ 2,800 $ 2,800
Municipal Electric Authority,
Georgia, Series C
4.900%, 03/01/96(B)(C) 4,000 4,000
--------
6,800
--------
HAWAII -- 0.5%
Hawaii State
4.400%, 09/01/95(C) 2,710 2,710
--------
ILLINOIS -- 4.8%
Chicago, Illinois GO
4.600%, 10/31/96(B)(C) 9,525 9,525
Illinois Educational Facility
Authority
4.050%, 05/01/20(A)(D) 7,800 7,800
Illinois Health Facility,
Lutheran Institution,
Series C 4.100%,
04/01/15(A)(D) 7,500 7,500
Illinois Health Facility,
Revenue Bond, Servantor
Project, Series A
4.300%, 08/15/95 1,320 1,320
--------
26,145
--------
INDIANA -- 2.2%
Indiana State Bond Bank
5.250%, 07/10/95 12,000 12,008
--------
IOWA -- 1.7%
Salix, Iowa Pollution
Control Revenue Bond
3.550%, 05/01/23(A) 9,195 9,195
--------
KENTUCKY -- 0.8%
Boone County, Kentucky
Pollution Control Revenue
Bond, Cincinnati
Gas & Electric
4.100%, 06/01/95(A)(B)(C)(D) 4,100 4,100
--------
MAINE -- 5.9%
Jay, Maine Pollution
Control Revenue
Bond, Solid Waste Disposal,
AMT 3.950%,
06/01/96(A)(B)(C) 23,500 23,500
Jay, Maine Solid Waste Disposal
Revenue Bond, International
Paper Company, AMT
4.400%, 09/01/96(A)(B)(C) $ 3,565 $ 3,565
Maine State BANS
5.000%, 06/01/95 5,000 5,000
--------
32,065
--------
MARYLAND -- 0.5%
Maryland State Energy Finance
Administration, Solid Waste
Disposal Revenue Bond, AMT
4.400%, 09/01/95(A)(B)(C) 2,775 2,775
--------
MASSACHUSETTS -- 0.2%
Massachusetts Bay
Transit Authority
4.400%, 03/01/14(A)(B)(D) 1,000 1,000
--------
MICHIGAN -- 5.5%
Delta County, Michigan
Economic Development
4.500%, 12/01/23(A)(D) 4,700 4,700
Detroit, Michigan Downtown
Development Authority
Revenue Bond, Millender Center
Project 3.900%,
12/01/10(A)(D) 12,000 12,000
Grand Rapids, Michigan
Economic Development
Revenue, Amway
Hotel, Series A
3.850%, 08/01/17(A)(D) 9,800 9,800
Michigan Municipal Bond
Authority, Series B RAN
4.500%, 07/20/95 3,350 3,353
--------
29,853
--------
MISSISSIPPI -- 0.3%
Mississippi State
Capital Improvement,
Series A GO
11.000%, 06/01/95 1,350 1,350
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
1784 Money Market Funds
1784 Tax-free Money Market Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Par (000) Value (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
MISSOURI -- 2.4%
Kansas City Industrial
Development Authority
4.100%, 10/15/15(A) $ 7,200 $ 7,200
Missouri State, Pollution
Control Revenue
Bond, Union Electric
Company, Series B
3.750%, 06/01/95(A)(B)(C)(D) 6,000 6,000
--------
13,200
--------
NEVADA -- 0.4%
Director State of Nevada
Department of
Commerce Revenue Bond
4.200%, 09/15/97(A)(B)(C)(D) 2,100 2,100
--------
NEW HAMPSHIRE -- 3.9%
New Hampshire Higher Education
& Health Facilities
Revenue Bond, Mary Hitchcock
Project, Series 85D
3.500%, 6/07/95(A)(C) 12,600 12,600
New Hampshire
Higher Education & Health
Facilities Revenue Bond,
Mary Hitchcock Project,
Series 85H 3.500%,
07/01/21(A) 2,700 2,700
New Hampshire Higher Education
& Health Facilities
Revenue Bond, Veterans
Hospital Administration
New England, Project,
Series C
3.600%, 12/01/25(A)(D) 4,000 4,000
New Hampshire, Veterans
Hospital Administration
New England,
Series F
3.600%, 12/01/25(A) 2,000 2,000
--------
21,300
--------
NEW YORK -- 2.9%
Nassau County, New York,
TAN, Series C
5.400%, 09/28/95 5,735 5,742
New York State, Energy Research,
Lilco Project Series B
4.700%, 03/01/96(B)(C)(D) 10,000 10,000
--------
15,742
--------
NORTH CAROLINA -- 6.3%
North Carolina Medical Center
Revenue Bond, Pooled Financing
Project, Series A-2
3.500%, 07/01/26(A) $ 2,070 $ 2,070
North Carolina State Educational
Facility Revenue Bond, Bowman Grey
School Medical Project
3.950%, 09/01/20(A)(D) 11,600 11,600
Wake County, North Carolina
Pollution Control Revenue Bond,
Carolina Power & Light Project,
Series B
3.600%, 09/01/15(A)(D) 10,400 10,400
Wake County, North Carolina
Industrial Facilities &
Pollution Control Revenue Bond,
Carolina Power & Light Project,
Series C
3.600%, 10/01/15(A)(D) 9,800 9,800
--------
33,870
--------
OHIO -- 1.0%
Clermont County, Ohio Hospital
Facility Revenue, Mercy Health
Care System, Series B
3.450%, 12/01/15(A) 5,145 5,145
--------
OREGON -- 0.4%
Clackmas County, Oregon
Hospital Facility
4.200%, 10/01/95(B)(C)(D) 2,300 2,300
--------
PENNSYLVANIA -- 3.0%
Pennsylvania Intergovernmental
Bond
9.000%, 06/15/95 2,245 2,249
Quakertown, Pennsylvania
Hospital Authority Revenue
Bond
3.700%, 07/01/05(A)(D) 13,800 13,800
--------
16,049
--------
</TABLE>
(continued)
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
May 31, 1995
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Par (000) Value (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
SOUTH CAROLINA -- 3.7%
Berkeley County, South Carolina
Pollution Control Revenue
Bond, Mobay Chemical Project
4.100%, 06/01/96(A)(B)(D) $ 4,300 $ 4,300
Georgetown County, South
Carolina 4.450%,
04/15/96(B)(D) 2,000 2,000
Georgetown County, South
Carolina Pollution
Control Revenue Bond,
International Paper Company,
Series A 4.400%,
09/01/95(B)(C) 8,500 8,501
York County, South Carolina
Pollution Control Revenue
Bond, Saluda River
4.550%, 08/15/95(B) 5,065 5,065
--------
19,866
--------
TENNESSEE -- 2.4%
Shelby County, Tennesse Health
& Educational Facilities
Revenue Bond, Methodist Health
System Project, Series C
4.200%, 08/01/15(A) 4,000 4,000
Shelby County, Tennessee Health
& Educational Facilities
Revenue Bond, Methodist Health
System Project, Series C
4.200%, 08/01/95(A)(B) 3,000 3,000
Sumner County, Tennessee
Industrial Development
Bond, Allied Signal
Incorporated 3.900%,
09/10/95(A) 5,800 5,800
--------
12,800
--------
TEXAS -- 5.1%
Brazos, Texas Industrial
Development Revenue Bond,
Badische Corporate Port
Authority 4.100%,
06/07/95(A)(B)(C)(D) $ 6,300 $ 6,300
Grand Prairie, Texas Housing
Finance Authority,
Multi-Family Housing Revenue
Bond, Winridge Grand Prairie
Project 3.550%,
06/07/95(A)(C) 7,200 7,200
Grand Prairie,
Texas Housing Finance
Corp/Multi-Family Housing
Revenue Bond, Lincoln Property
Company 3.550%,
06/01/10(A) 5,000 5,000
Grapevine, Texas
Industrial Development Bond
4.000%, 03/01/10(A)(D) 5,700 5,700
Houston, Texas TRAN
4.500%, 06/29/95 3,250 3,250
--------
27,450
--------
VERMONT -- 1.1%
Vermont Education & Health
Facilities Revenue Bond,
VHA New England, Series D
3.600%, 12/01/25(A) 5,900 5,900
--------
VIRGINIA -- 2.2%
Fairfax, Virginia TECP
3.950%, 07/12/95 12,000 12,000
--------
WASHINGTON -- 1.0%
Washington State Health Care
Facility, Sisters of
Providence, Series C
4.000%, 10/01/05(A) 4,500 4,500
Washington State
Motor Vehicle Fuel
8.600%, 09/01/95 1,000 1,010
--------
5,510
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
1784 MONEY MARKET FUNDS
1784 TAX-FREE MONEY MARKET FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Par (000) Value (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
WASHINGTON, D.C. -- 5.2%
District of Columbia
9.375%, 06/01/95(B)(C) $ 5,000 $ 5,100
District of Columbia,
Series B2, GO
4.500%, 06/01/03(A)(D) 6,200 6,200
District of Columbia, TRAN
6.250%, 09/30/95(D) 16,500 16,573
--------
27,873
--------
WYOMING -- 0.6%
Unita County, Wyoming
Pollution Control Revenue
Bond, Cheveron USA Incorporated
Project 3.750%,
06/15/97(B) 3,500 3,500
--------
TOTAL MUNICIPAL BONDS
(Cost $463,070,698) 463,071
--------
CASH EQUIVALENTS -- 4.9%
Clipper Tax Exempt Trust
4.150%, 11/23/00 (A) 7,341 7,341
Clipper Blue Tax
Exempt Trust 1994-1
Certificates of
Participation,
Class A 4.880%,
4/28/00 (A) 13,929 13,929
Clipper Tax Exempt Trust
4.370%, 09/30/97 (A) 5,000 5,000
--------
TOTAL CASH EQUIVALENTS
(Cost $26,270,282) 26,270
--------
REPURCHASE AGREEMENT -- 11.6%
Paine Webber, Incorporated
6.15%, dated 05/31/95,
matures 06/01/95, repurchase price
$62,726,277 (collateralized
by U.S. Treasury STRIPs ranging
in par value from $13,000-
15,982,000, 11/15/01-
05/15/10; with total market
value of $63,970,776) 62,716 62,716
--------
TOTAL REPURCHASE AGREEMENT
(Cost $62,715,562) 62,716
--------
TOTAL INVESTMENTS -- 102.3%
(Cost $552,056,542) 552,057
--------
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Value (000)
- -------------------------------------------------------------------------------
<S> <C>
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- (2.3%) $(12,645)
--------
NET ASSETS:
Capital Shares (unlimited authorization -- no par
value) based on 539,418,498 outstanding shares of
beneficial interest 539,418
Accumulated Net Realized Loss on
Investments (1)
Distributions in excess of Net Investment
Income (5)
--------
TOTAL NET ASSETS -- 100.0% $539,412
========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $1.00
========
</TABLE>
- -------------------------------------------------------------------------------
(A) Variable rate securities -- The rate reflected on the Statement of Net
Assets is the rate in effect on May 31, 1995.
(B) Put or Demand features exist requiring the issuer to repurchase the
instrument prior to maturity.
(C) The maturity date shown is the lesser of the put, demand or maturity date.
(D) Securities are held in connection with a letter of credit issued by a
major commercial bank or other financial institution.
AMT -- Alternative Minimum Tax
RAN -- Revenue Anticipation Note
TRAN -- Tax and Revenue Anticipation Note
GO -- General Obligation
TECP -- Tax Exempt Commercial Paper
TAN -- Tax Anticipation Note
BAN -- Bond Anticipation Note
STRIP -- Separate Trading of Registered Interest and Principal
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
For The Year Ended May 31, 1995
STATEMENTS OF OPERATIONS (000)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. TREASURY TAX-FREE
MONEY MARKET MONEY MARKET
============= ============
<S> <C> <C>
INTEREST INCOME: $1,476 $17,750
------------- ------------
EXPENSES:
Investment Advisory Fees 102 1,876
Waiver of Investment Advisory Fees (33) (405)
Administrator Fees 29 537
Waiver of Administrator Fees (29) --
Reimbursement of Expenses by Adviser (15) (101)
Registration Fees 9 130
Professional Fees 3 77
Transfer Agent Fees & Expenses 48 77
Printing 2 51
Trustee Fees 1 19
Custodian Fees 2 41
Fund Accounting Fees 28 28
Waiver of Fund Accounting Fees (6) (6)
Amortization of Deferred Organizational Costs 12 12
Other Expenses 1 11
------------- ------------
Total Expenses, Net 154 2,347
------------- ------------
Net Investment Income 1,322 15,403
------------- ------------
Net Realized Loss on Investments (9) (1)
------------- ------------
Net Increase in Net Assets Resulting from Operations $1,313 $15,402
============= ============
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
For The Periods Ended May 31 1784 Money Market Funds
STATEMENTS OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. TREASURY TAX-FREE
MONEY MARKET MONEY MARKET
==================== =======================
6/1/94 6/7/93 (1) 6/1/94 6/14/93 (2)
TO TO TO TO
5/31/95 5/31/94 5/31/95 5/31/94
-------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income $ 1,322 $ 45 $ 15,403 $ 6,374
Net Realized Gain/(Loss) on
Investments Sold (9) -- (1) 4
-------- ---------- ---------- -----------
Net Increase in Net Assets
Resulting from Operations 1,313 45 15,402 6,378
-------- ---------- ---------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income (1,322) (45) (15,403) (6,374)
Realized Capital Gains -- -- (4) --
In excess of Net Realized Gains -- -- (5) --
-------- ---------- ---------- -----------
Total Distributions (1,322) (45) (15,412) (6,374)
-------- ---------- ---------- -----------
SHARE TRANSACTIONS:
Shares Issued 103,005 8,774 1,061,511 737,582
Shares Issued in Lieu of Cash
Distributions 1,028 28 2,007 417
Shares Redeemed (54,549) (3,209) (931,544) (330,555)
-------- ---------- ---------- -----------
Increase in Net Assets from Share
Transactions 49,484 5,593 131,974 407,444
-------- ---------- ---------- -----------
Total Increase in Net Assets 49,475 5,593 131,964 407,448
NET ASSETS:
Beginning of Period 5,593 -- 407,448 --
-------- ---------- ---------- -----------
NET ASSETS:
Ending of Period $ 55,068 $ 5,593 $ 539,412 $ 407,448
======== ========== ========== ===========
CAPITAL SHARES TRANSACTIONS:
Shares Issued 103,005 8,774 1,061,511 737,582
Shares Issued in Lieu of Cash
Distributions 1,028 28 2,007 417
Shares Redeemed (54,549) (3,209) (931,544) (330,555)
-------- ---------- ---------- -----------
Net Increase in Capital Share
Transactions 49,484 5,593 131,974 407,444
======== ========== ========== ===========
</TABLE>
(1)The U.S. Treasury Money Market Fund commenced operations on June 7, 1993.
(2)The Tax-Free Money Market Fund commenced operations on June 14, 1993.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Ratio Ratio of
Ratio of Expenses Net Income
Asset Dividends Net Assets Ratio of Net to Average to Average
Value Net from Net Asset Value End of Expenses Income Net Assets Net Assets
Beginning Investment Investment End Total of Period to Average to Average (Excluding (Excluding
of Period Income Income of Period Return (000) Net Assets Net Assets Waivers) Waivers)
--------- ---------- ---------- ----------- ------ --------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. TREASURY
MONEY MARKET
=============
For the year ended
May 31, 1995 $1.00 0.05 (0.05) $1.00 4.81% $ 55,068 0.60% 5.13% 0.92% 4.81 %
For the period ended
May 31, 1994(1) $1.00 0.03 (0.03) $1.00 2.64%* $ 5,593 0.65% 2.91% 6.42% (2.86)%
TAX-FREE
MONEY MARKET
============
For the year ended
May 31, 1995 $1.00 0.03 (0.03) $1.00 3.29% $539,412 0.50% 3.28% 0.61% 3.17 %
For the period ended
May 31, 1994(2) $1.00 0.02 (0.02) $1.00 2.31%* $407,448 0.27% 2.39% 0.71% 1.95 %
</TABLE>
*Returns are for the period indicated and have not been annualized.
(1)The U.S. Treasury Money Market Fund commenced operations on June 7, 1993.
All ratios for the period have been annualized.
(2)The Tax-Free Money Market Fund commenced operations on June 14, 1993. All
ratios for the period have been annualized.
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
May 31, 1995 1784 Money Market Funds
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
===============================================================================
The 1784 U.S. Treasury Money Market Fund and the 1784 Tax-Free Money Market
Fund (the "Money Market Funds") are portfolios of the 1784 Funds (the
"Trust"), an open-end investment company registered under the Investment
Company Act of 1940, as amended. The Trust is presently authorized to offer
shares in 13 separate portfolios (the "Funds"):
MONEY MARKET FUNDS:STOCK FUNDS:
1784 U.S. Treasury Money Market Fund1784 Growth and Income Fund
1784 Tax-Free Money Market Fund1784 Asset Allocation Fund
1784 Institutional U.S. Treasury Money Market Fund1784 International Equity
Fund
BOND FUNDS:
1784 Short-Term Income Fund
1784 U.S. Government Medium-Term Income Fund
1784 Income Fund
1784 Tax-Exempt Medium-Term Income Fund
1784 Massachusetts Tax-Exempt Income Fund
1784 Rhode Island Tax-Exempt Income Fund
1784 Connecticut Tax-Exempt Income Fund
The financial statements included on pages 21 to 35 are for the 1784 U.S.
Treasury Money Market and the 1784 Tax-Free Money Market Funds. The financial
statements of the Bond Funds are included on pages 36 to 67. The financial
statements of the Stock Funds are included on pages 68 to 84. The financial
statements of the Institutional U.S. Treasury Money Market Fund are not
presented herein, but are presented separately. The assets of each Fund are
segregated, and a shareholder's interest is limited to the Fund in which
shares are held.
2. SIGNIFICANT ACCOUNTING POLICIES
===============================================================================
The following is a summary of significant accounting policies followed by
the Money Market Funds.
Security Valuation -- Investment securities of the Money Market Funds are
stated at amortized cost which approximates market value. Under this valuation
method, purchase discounts and premiums are accreted and amortized ratably to
maturity and are included in interest income.
(continued)
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Security Transactions and Investment Income -- Security transactions are ac-
counted for on the trade date of the security purchase or sale. Costs used in
determining net realized capital gains and losses on the sale of securities
are those of the specific securities sold, adjusted for the accretion and am-
ortization of the purchase discounts and premiums during the respective hold-
ing period. Interest income is recorded on the accrual basis.
Repurchase Agreements -- Securities pledged as collateral for Repurchase
Agreements are held by each Fund's custodian bank until maturity of the Repur-
chase Agreements. Provisions of the Agreements and procedures adopted by the
Adviser are intended to ensure that the market value of the collateral, in-
cluding accrued interest thereon, is sufficient in the event of default by the
counterparty. If the counterparty defaults and the value of the collateral de-
clines or if the counterparty enters into insolvency proceedings, realization
of the collateral by the Fund may be delayed or limited.
Expenses -- Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses of the Trust are prorated to
the Funds on the basis of relative net assets.
Distributions to Shareholders -- Distributions from net investment income are
declared on a daily basis and are payable on the first business day of the
following month. Any net realized capital gains on sales of securities for a
Fund are distributed to its shareholders at least annually.
Federal Income Taxes -- The Trust's policy is to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income to its shareholders. Accordingly, no
provision for Federal income taxes is required in the financial statements.
Organization Costs -- These costs have been deferred in the accounts of the
Funds and are being amortized on a straight-line basis over a period of sixty
months commencing with operations. If any or all of the shares representing
initial capital of each Fund are redeemed by any holder thereof prior to the
end of the amortization period, the proceeds will be reduced by the unamor-
tized organization cost balance in the same proportion as the number of shares
redeemed bears to the initial shares outstanding immediately preceding the re-
demption.
3. INVESTMENT ADVISORY, CUSTODIAL AND ACCOUNTING SERVICES
===============================================================================
Pursuant to an investment advisory agreement dated June 1, 1993, investment
advisory services are provided to the Trust by The First National Bank of Bos-
ton (the "Adviser"). The Adviser is entitled to receive a fee of 0.40% of the
average daily net assets of the 1784 U.S. Treasury Money Market and 1784 Tax-
Free Money Market Funds. Such fee is computed daily and paid monthly.
32
<PAGE>
1784 Money Market Funds
The Trust and The First National Bank of Boston (the "Custodian") are par-
ties to a custodial agreement dated June 1, 1993 under which the Custodian
holds cash, securities and other assets of the Trust as required by the In-
vestment Company Act of 1940. The Custodian is entitled to receive an annual
fee, to be paid monthly, of 0.01% for the first $100 million in average daily
net assets, 0.0075% for the next $100 million and 0.005% for the next $800
million in net assets. In its capacity as custodian to the Trust, the Custo-
dian plays no role in determining the investment policies of the Trust or
which securities are to be purchased or sold by the Funds.
Under a separate agreement, The First National Bank of Boston also provides
certain accounting services for the Trust and is entitled to receive a fee for
these services of $30,000 per Fund per year.
The First National Bank of Boston voluntarily waives a portion of its advi-
sory, custody and accounting fees. In addition, The First National Bank of
Boston reimburses certain other expenses incurred by the Funds in order to
help the Funds maintain a competitive expense ratio.
4. ADMINISTRATIVE, TRANSFER AGENT AND DISTRIBUTION SERVICES
================================================================================
Pursuant to an administrative agreement dated June 7, 1993, SEI Financial
Management Corporation (SEI) acts as the Trust's Administrator. Under the
terms of such agreement, SEI is entitled to receive an annual fee of 0.15% of
the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Such fee is computed daily
and paid monthly. The Administrator has agreed to waive its fee in the 1784
U.S. Treasury Money Market Fund in order to help the Fund maintain a competi-
tive expense ratio.
Pursuant to an agreement dated June 1, 1993, SEI acts as the Transfer Agent
of the Trust. As such, SEI provides transfer agency, dividend disbursing,
shareholder servicing and administrative services for the Trust.
SEI Financial Services Company ("SFS"), a wholly owned subsidiary of SEI,
acts as the Trust's Distributor pursuant to a distribution agreement dated
June 1, 1993. SFS is paid no fees by the Trust.
Certain officers of the Trust are also officers of the Administrator. Such
officers are paid no fees by the Trust.
The Funds have paid legal fees to a law firm of which the Secretary of the
Trust is a member.
5. CONCENTRATION OF CREDIT RISK
================================================================================
The 1784 Tax-Free Money Market Fund invests in debt instruments of municipal
issuers. The issuers' ability to meet their obligations may be affected by
economic developments in a specific state or region.
(continued)
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The 1784 Tax-Free Money Market Fund invests in securities which include rev-
enue bonds, tax exempt commercial paper, tax and revenue anticipation notes,
and general obligation bonds. At May 31, 1995, the percentage of portfolio in-
vestments by each revenue source was as follows:
<TABLE>
<CAPTION>
1784
TAX-FREE
MONEY MARKET FUND
=================
<S> <C>
Variable Rate Notes 47%
Cash Equivalents 18%
Put Bonds 14%
General Obligations 10%
Alternative Minimum Tax Bonds 5%
Other Revenue Bonds 3%
Tax Exempt Commercial Paper 2%
Hospital Bonds 1%
<CAPTION>
-----------------
Total 100%
=================
</TABLE>
Municipalities may insure their obligations with insurance underwritten by
insurance companies which undertake to pay a holder, when due, the interest
and principal amount on an obligation if the issuer defaults on its obliga-
tion. Although bond insurance reduces the risk of loss due to default by the
issuer, there is no assurance that the insurance company will meet its obliga-
tions. Also, some municipal securities have credit enhancements (letters of
credit or guarantees issued by third party domestic or foreign banks or other
institutions).
At May 31, 1995, 25.7% of investments held by the 1784 Tax-Free Money Market
Fund had credit enhancements, of which 7.0% and 5.4% were issued by Interna-
tional Paper and Sumitomo Bank respectively. At May 31, 1995, 14.0% of the in-
vestments held by the 1784 Tax-Free Money Market Funds were insured.
On December 6, 1994, Orange County, California filed for bankruptcy. Approx-
imately 1.4% of the 1784 Tax-Free Money Market Fund's portfolio was invested
in Orange County, California, Tax and Revenue Anticipation Notes (the "Notes")
as of May 31, 1995. The Adviser has committed to the 1784 Tax-Free Money Mar-
ket Fund that, if necessary to prevent the deviation of the 1784 Tax-Free
Money Market Fund's per share net asset value calculation from the amortized
cost price per share from exceeding 0.5%, it will either (i) purchase (or
cause an affiliate to purchase) the Notes at a price equal to the amortized
cost of the Notes, including all unamortized premium and accrued and unpaid
interest thereon excluding any penalty interest, or (ii) arrange an irrevoca-
ble letter of credit from an unaffiliated third party securing the payment in
full of all principal and interest (excluding penalty interest) on the Notes.
34
<PAGE>
1784 Money Market Funds
6. LINE OF CREDIT
================================================================================
The Funds have a bank line of credit. Borrowings under the line of credit
are secured by investment securities of the borrowing Fund, which may not ex-
ceed 10% of the Fund's total assets. No borrowings were outstanding for the
period ended May 31, 1995.
7. SUBSEQUENT EVENT
================================================================================
On July 19, 1995, the Orange County, California Notes held by the 1784 Tax-
Free Money Market Fund were modified to provide for an interest rate of 5.45%,
a portion of which shall be paid monthly in cash and the remainder of which
shall accrue until maturity, and a maturity date of June 30, 1996. In addi-
tion, the Adviser agreed that, if necessary to prevent the deviation of the
1784 Tax-Free Money Market Fund's per share net asset value calculation from
the amortized cost price per share from exceeding 0.5%, it will purchase (or
cause an affiliate to purchase) all or a portion of the Notes at a price equal
to the amortized cost of the Notes, including all accrued and unpaid interest
other than penalty interest.
35
<PAGE>
May 31, 1995
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
1784 SHORT-TERM INCOME FUND
- -------------------------------------------------------------------------------
(ART)
<TABLE>
<CAPTION>
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS-- 12.4%
UNITED STATES TREASURY BILL
5.650%, 07/27/95 $ 750 $ 743
UNITED STATES TREASURY NOTES
8.500%, 11/15/95 500 506
6.000%, 06/30/96 1,000 1,001
6.125%, 07/31/96 2,000 2,006
8.250%, 07/15/98 1,000 1,064
7.125%, 02/29/00 1,200 1,251
-------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $6,459,190) 6,571
-------
AGENCY NOTES & DEBENTURES -- 8.1%
Federal Farm Credit Bank
6.380%, 07/25/96 500 502
Federal Home Loan Bank
5.995%, 10/06/95 500 501
7.950%, 10/20/95 1,000 1,007
5.339%, 10/08/97 201 197
Federal Home Loan Mortgage
4.550%, 04/01/96 1,000 988
Federal National Mortgage
Association
9.550%, 12/10/97 1,000 1,080
-------
TOTAL AGENCY NOTES & DEBENTURES
(Cost $4,234,503) 4,275
-------
MEDIUM TERM NOTE -- 1.9%
IBM Credit
5.510%, 09/09/98 $1,000 $ 974
-------
TOTAL MEDIUM TERM NOTE
(Cost $946,668) 974
-------
MUNICIPAL BONDS -- 8.7%
Massachusetts State Housing
Finance Agency Revenue Bond
5.900%, 07/01/95(A) 750 750
New York, New York GO
10.000%, 11/15/96 2,000 2,084
Richmond County, Georgia
Development Authority Revenue
6.200%, 06/01/96 1,100 1,100
Worcester, Massachusetts
BAN
6.800%, 08/31/95 650 652
-------
TOTAL MUNICIPAL BONDS
(Cost $4,587,184) 4,586
-------
CORPORATE OBLIGATIONS -- 40.7%
American Home Products
7.700%, 02/15/00 2,000 2,088
Associate Corporation, NA
8.750%, 02/01/96 1,500 1,528
Eaton Corporation
6.375%, 04/01/99 1,500 1,493
Electronic Data Systems
6.850%, 05/15/00 1,000 1,015
First Union Corporation
5.950%, 07/01/95 750 750
Ford Motor Credit Corporation
8.000%, 12/01/97 1,000 1,039
General Electric Company
7.875%, 09/15/98 1,500 1,569
General Motors Acceptance
Corporation
7.150%, 03/15/00 929 941
9.125%, 07/15/01 1,000 1,110
Manufacturers Hanover
Corporation
8.500%, 02/15/99 1,500 1,590
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
1784 Bond Funds
1784 Short-term Income Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
McGraw Hill Incorporated
9.430%, 09/01/00 $1,500 $ 1,682
National Bank of Detroit Bank
Note
7.875%, 01/21/97 1,000 1,026
Smith Barney Holdings
7.875%, 10/01/99 1,000 1,034
United States Leasing
International
7.000%, 11/01/97 1,000 1,011
Wachovia Bank
4.900%, 10/15/98 1,000 955
Weyerhaeuser Company
9.250%, 11/15/95 1,000 1,015
WMX Technologies
8.125%, 02/01/98 1,500 1,564
-------
TOTAL CORPORATE OBLIGATIONS
(Cost $20,912,891) 21,410
-------
FOREIGN BONDS -- 4.7%
Aetna Life & Casualty
9.500%, 10/11/95 495 500
Hanson Overseas
5.500%, 01/15/96 480 479
Middletown Trust
10.875%, 07/15/98 1,210 1,272
Sears Trust
8.750%, 04/15/96 200 204
-------
TOTAL FOREIGN BONDS
(Cost $2,465,190) 2,455
-------
U.S. MORTGAGE BACKED SECURITIES -- 7.5%
Federal Home Loan Mortgage
REMIC
7.500%, 05/15/97 929 939
5.000%, 02/15/00 1,000 989
7.250%, 04/25/24 1,000 1,012
Federal National Mortgage
REMIC
7.000%, 06/01/04 1,000 1,015
-------
TOTAL U.S. MORTGAGE BACKED
SECURITIES
(Cost $3,859,913) 3,955
-------
MORTGAGE BACKED SECURITIES -- 1.4%
Advanta Home Equity Loan
Trust
6.150%, 10/25/09 $ 163 $ 152
Green Tree Financial
Corporation
5.200%, 10/15/18 250 248
Security Pacific Acceptance
Corporation
7.250%, 12/15/11 157 158
University Support Services
Incorporated
8.550%, 08/20/08 189 189
-------
TOTAL MORTGAGE BACKED
SECURITIES
(Cost $737,568) 747
-------
ASSET BACKED SECURITIES -- 12.4%
Household Credit Card Trust
6.700%, 10/15/95 2,000 2,007
Premier Auto Trust
6.650%, 03/04/97 1,000 1,003
Signet Credit Card Master
Trust
5.250%, 04/15/00 1,225 1,198
Standard Credit Card Master
Trust
6.125%, 08/07/95 1,010 1,011
9.000%, 08/07/96 300 311
4.850%, 03/07/99 1,000 969
-------
TOTAL ASSET BACKED SECURITIES
(Cost $6,442,500) 6,499
-------
CASH EQUIVALENTS -- 0.2%
Dreyfus U.S. Government
Securities Money Market Fund
6.063%, 06/07/95 41 41
Lehman Brothers Institutional
U.S. Government Money Market
Fund 6.146%, 06/07/95 41 41
-------
TOTAL CASH EQUIVALENTS
(Cost $82,375) 82
-------
</TABLE>
(continued)
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
May 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
- ------------------------------------------------------------------
<CAPTION>
Description Par (000) Value (000)
- ------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 2.9%
Lehman Brothers 6.125%, dated
05/31/95, matures 06/01/95,
repurchase price $1,500,255
(collateralized by U.S.
Treasury Note, par value
$1,555,000, 4.25%, matures
05/15/96: market value
$1,534,548) $1,500 $ 1,500
-------
TOTAL REPURCHASE AGREEMENT
(Cost $1,500,000) 1,500
-------
TOTAL INVESTMENTS -- 100.9%
(Cost $52,227,982) 53,054
-------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- (0.9%) (473)
-------
NET ASSETS:
Capital Shares
(unlimited authorization --
no par value) based on
5,209,998 outstanding
shares of beneficial interest 51,727
Accumulated Net Realized Gain on
Investments 28
Net Unrealized Appreciation on
Investments 826
-------
TOTAL NET ASSETS: -- 100.0% $52,581
=======
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $10.09
=======
</TABLE>
- -------------------------------------------------------------------------------
(A) Security is held in connection with bond insurance from AMBAC.
AMBAC - American Municipal Bond Assurance Company
BAN - Bond Anticipation Note
GO - General Obligation
REMIC - Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
May 31, 1995 1784 Bond Funds
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
1784 U.S. GOVERNMENT
MEDIUM-TERM INCOME FUND
- -------------------------------------------------------------------------------
[ART APPEARS HERE]
<TABLE>
<CAPTION>
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY
OBLIGATIONS -- 30.9%
UNITED STATES TREASURY NOTES
7.625%, 05/31/96 $ 500 $ 508
8.000%, 10/15/96 10,200 10,488
7.250%, 11/15/96 15,200 15,494
6.000%, 11/30/97 2,000 2,004
7.500%, 11/15/01 1,000 1,070
7.875%, 11/15/04 3,700 4,100
7.500%, 02/15/05 6,000 6,503
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $39,806,466) 40,167
--------
U.S. GOVERNMENT MORTGAGE
BACKED BONDS -- 39.3%
Federal Home Loan Mortgage
Pool # 555006,
7.500%, 11/01/19 4,799 4,804
Federal Home Loan Mortgage
REMIC
5.000%, 02/15/00 3,000 2,968
7.000%, 07/15/03 1,400 1,399
6.250%, 08/15/03 3,735 3,591
7.000%, 03/15/05 $ 5,700 $ 5,743
7.500%, 09/15/11 6,625 6,659
7.000%, 06/15/22 4,000 4,002
5.000%, 08/15/22 5,000 4,381
7.250%, 04/25/24 5,000 5,062
Government National Mortgage
Association
7.000%, 10/15/23 963 950
9.500%, 4/20/25 4,986 5,222
7.125%, 1/15/29 6,440 6,386
--------
TOTAL U.S. GOVERNMENT MORTGAGE
BACKED BONDS
(Cost $49,643,277) 51,167
--------
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 21.4%
Federal Farm Credit Bank
5.420%, 08/04/98 3,000 2,933
8.650%, 10/01/99 1,900 2,071
Federal National Mortgage
Association
9.550%, 12/10/97 9,000 9,717
7.550%, 06/10/04 1,500 1,542
Government Export
6.000%, 03/15/05 5,833 5,740
Tennessee Valley Authority
6.000%, 01/15/97 5,925 5,910
--------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(Cost $27,472,900) 27,913
--------
U.S. GOVERNMENT GUARANTEED
BOND -- 1.8%
Sulphur Carriers
8.300%, 10/15/09 2,175 2,348
--------
TOTAL U.S. GOVERNMENT
GUARANTEED BOND
(Cost $2,299,867) 2,348
--------
</TABLE>
(continued)
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
May 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Description Par (000) Value (000)
- ---------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE
AGREEMENT -- 5.8%
Lehman Government Securities
6.125%, dated 05/31/95,
matures 06/01/95, repurchase
price $7,501,276 (collateralized
by U.S. Treasury Note, par
value $6,875,000, 8.50%,
matures 11/15/00; market value
$7,652,396) $7,500 $ 7,500
--------
TOTAL REPURCHASE AGREEMENT
(Cost $7,500,000) 7,500
--------
CASH EQUIVALENTS -- 0.2%
Dreyfus U.S. Government Cash
Management Money Market
Fund
6.064%, 06/07/95 106 106
Lehman Brothers Institutional
Government Obligation Money
Market Fund
6.146%, 06/07/95 106 106
--------
TOTAL CASH EQUIVALENTS
(Cost $212,350) 212
--------
TOTAL INVESTMENTS -- 99.4%
(Cost $126,934,860) 129,307
--------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- 0.6% 774
--------
NET ASSETS:
Capital Shares (unlimited authorization -- no
par value) based on 13,598,545 outstanding
shares of beneficial interest 133,687
Accumulated Net Realized Loss on
Investments (5,978)
Net Unrealized Appreciation on Investments 2,372
--------
TOTAL NET ASSETS: -- 100.0% $130,081
========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $9.57
========
</TABLE>
- -------------------------------------------------------------------------------
REMIC -- Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
May 31, 1995 1784 Bond Funds
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
1784 INCOME FUND
- -------------------------------------------------------------------------------
[ART APPEARS HERE]
% OF TOTAL PORTFOLIO INVESTMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 7.5%
United States Treasury Bond
7.625%, 02/15/25 $ 3,000 $ 3,370
United States Treasury Notes
7.875%, 01/15/98 2,000 2,093
9.250%, 08/15/98 1,000 1,094
4.750%, 08/31/98 2,000 1,927
6.750%, 06/30/99 1,800 1,845
7.500%, 02/15/05 4,000 4,335
--------
TOTAL U. S. TREASURY OBLIGATIONS
(Cost $14,110,788) 14,664
--------
U.S. GOVERNMENT MORTGAGE-BACKED BONDS -- 13.8%
Financial Assistance
9.375%, 07/21/03 10,190 12,012
Government National
Mortgage Association
7.000%, 10/15/23 1,852 1,828
9.500%, 3/20/25 7,740 8,105
7.125%, 1/15/29 5,242 5,198
--------
TOTAL U.S. GOVERNMENT MORTGAGE-
BACKED BONDS (Cost $25,547,677) 27,143
--------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 17.3%
Federal Home Loan Bank
7.690%, 12/16/96 $ 2,500 $ 2,562
Federal Home Loan nMortgage
Corporation
8.530%, 02/02/05 5,000 5,445
7.750%, 09/01/05 1,468 1,481
6.500%, 03/15/09 4,904 4,472
5.000%, 08/15/22 5,000 4,381
Federal National Mortgage
Association REMICS
7.000%, 03/25/19 1,299 1,299
7.000%, 10/25/23 4,806 4,503
Federal National Mortgage
Association REMIC
7.000%, 06/17/04 5,000 5,073
6.500%, 10/25/05 2,075 2,006
6.000%, 12/25/16 3,000 2,756
--------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(Cost $32,385,796) 33,978
--------
NON AGENCY MORTGAGE-BACKED OBLIGATIONS -- 5.0%
Capstead Securities IV Series
1992-5, Class E
8.500%, 10/25/21 2,000 2,081
Merrill Lynch Mortgage
Investors Series 1994G, Class A3
8.350%, 05/15/14 5,000 5,350
Merrill Lynch Mortgage
Investors Series 89H,
Class B
10.000%, 01/15/10 2,300 2,494
--------
TOTAL NON AGENCY MORTGAGE-
BACKED OBLIGATIONS
(Cost $9,170,450) 9,925
--------
ASSET BACKED SECURITIES -- 5.7%
Discover Card Master Trust
Series 1993-1, Class B
5.300%, 10/16/01 5,000 4,836
Discover Card Master Trust
Series 1993-2, Class B
5.750%, 11/16/01 1,275 1,239
Prime Credit Card Master
Trust Series 1992-1,
Class A1
7.050%, 12/15/97 5,000 5,115
--------
TOTAL ASSET BACKED SECURITIES
(Cost $10,767,679) 11,190
--------
</TABLE>
(continued)
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
May 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE OBLIGATIONS -- 42.9%
American Home Products
7.900%, 02/15/05 $3,000 $ 3,229
Associate Corporation of
North America
8.625%, 06/15/97 2,700 2,822
5.875%, 08/15/97 2,700 2,680
Bankers Trust New York
6.000%, 10/15/08 5,000 4,363
Chase Manhattan
8.000%, 02/04/97 5,000 5,144
6.750%, 08/15/08 5,000 4,781
Chemical Banking
6.500%, 01/15/09 5,000 4,731
Dean Witter Discover
6.290%, 03/02/99 5,000 5,006
Disney, Walt
5.800%, 10/27/08 3,000 2,738
General Electric
7.875%, 09/15/98 5,000 5,231
General Motors
9.125%, 07/15/01 5,000 5,548
General Motors Acceptance
8.250%, 02/28/02 5,000 5,319
IBM Credit
6.641%, 04/14/97 1,000 999
MBIA
8.200%, 10/01/22 2,000 2,118
Midland Bank
7.650%, 05/01/25 5,000 5,200
NCNB
10.200%, 07/15/15 1,800 2,259
Public Service Electric & Gas
8.100%, 05/26/09 3,500 3,846
Santander Financial
7.875%, 04/15/05 5,000 5,225
Standard Credit Card Master
Trust
8.500%, 08/07/97 5,000 5,117
4.650%, 03/07/99 5,000 4,879
Travelers
7.875%, 05/15/25 3,000 3,086
--------
TOTAL CORPORATE OBLIGATIONS
(Cost $80,276,538) 84,321
--------
FOREIGN BOND -- 3.0%
Bank China
8.250%, 03/15/14 6,200 5,952
--------
TOTAL FOREIGN BOND
(Cost $5,626,950) 5,952
--------
REPURCHASE AGREEMENT -- 3.8%
Lehman Government
Securities 6.125%, dated
05/31/95, matures 06/01/95,
repurchase price $7,501,276
(collateralized by U.S.
Treasury Note, par value
$7,420,000, 6.75%, matures
02/28/97; market value
$7,649,537) $7,500 $ 7,500
--------
TOTAL REPURCHASE AGREEMENT
(Cost $7,500,000) 7,500
--------
CASH EQUIVALENTS -- 0.1%
Dreyfus U.S. Government
Cash Management Money
Market Fund
6.064%, 06/07/95 63 63
Lehman Brothers Institutional
Government Obligations
Money Market Fund
6.146%, 06/07/95 63 63
--------
TOTAL CASH EQUIVALENTS
(Cost $125,695) 126
--------
TOTAL INVESTMENTS -- 99.1%
(Cost $185,511,573) 194,799
--------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- 0.9% 1,716
--------
NET ASSETS:
Capital Shares (unlimited authorization -- no
par value) based on 18,908,017 outstanding
shares of beneficial interest 188,224
Accumulated Net Realized Loss on
Investments (996)
Net Unrealized Appreciation on Investments 9,287
--------
TOTAL NET ASSETS: -- 100.0% $196,515
========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $10.39
========
</TABLE>
- -------------------------------------------------------------------------------
REMIC -- Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
May 31, 1995 1784 Bond Funds
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
1784 TAX-EXEMPT MEDIUM- TERM INCOME FUND
- -------------------------------------------------------------------------------
[ART APPEARS HERE]
% OF TOTAL PORTFOLIO INVESTMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 95.4%
ALASKA -- 1.8%
Alaska Industrial Development
& Expansion Authority
Revenue Bond, Series B
5.850%, 04/01/05 $1,000 $ 1,009
Alaska Student Loan Marketing
Association,
Series A
6.700%, 07/01/01 2,100 2,215
--------
3,224
--------
ARIZONA -- 0.6%
Arizona State Transportation
Board Highway Revenue
Bond
6.500%, 07/01/11(E) 1,000 1,118
--------
CALIFORNIA -- 5.7%
California State GO
7.000%, 08/01/05(C) 1,525 1,744
6.400%, 02/01/06(C) 1,000 1,096
5.500%, 04/01/06(C) 1,500 1,536
5.750%, 03/01/08 3,000 3,049
San Bernadino County,
California Medical Center
Financing Project, COP
5.000%, 08/01/01 $1,500 $ 1,434
San Diego County, California
Sales Tax Revenue Bond,
Series A
7.375%, 04/01/06 1,000 1,119
--------
9,978
--------
CONNECTICUT -- 4.5%
Connecticut State Housing
Finance Authority Revenue
Bond, Housing Mortgage
Finance Project, Series B
7.300%, 11/15/03 3,435 3,654
Connecticut State Housing
Finance Authority Revenue
Bond, Housing Mortgage
Finance Program,
Series A AMT
7.400%, 11/15/98 2,110 2,197
Connecticut State Resource
Recovery Bond, Wallingford
Resources, Series 1-Sub AMT
6.625%, 11/15/01 1,990 2,067
--------
7,918
--------
FLORIDA -- 1.4%
Florida School Boards
Association Lease Revenue
Bond, Orange County School
Board Project
7.000%, 07/01/03(C) 1,200 1,303
Jacksonville, Florida Electric
Authority Revenue Bond,
St. John's Project, Series B
6.750%, 10/01/05 1,000 1,103
--------
2,406
--------
GEORGIA -- 1.2%
Georgia State, Series E GO
5.500%, 07/01/07 1,000 1,041
Municipal Electric Authority of
Georgia Revenue Bond, 6th
Crossover Project
7.000%, 01/01/08(C) 1,000 1,142
--------
2,183
--------
</TABLE>
(continued)
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
May 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
HAWAII -- 1.8%
Hawaii State, Series CJ GO
5.700%, 01/01/03 $3,000 $ 3,150
--------
IOWA -- 1.2%
Iowa Student Loan Liquidity
Revenue Bond, Series A
6.350%, 03/01/01 2,000 2,118
--------
LOUISIANA -- 1.9%
Louisiana State Offshore
Terminal Authority Revenue
Bond, Series E
7.450%, 09/01/04 3,000 3,304
--------
MAINE -- 0.5%
Maine Municipal Bond Bank,
Series A
5.375%, 11/01/07 1,000 999
--------
MARYLAND -- 3.1%
Frederick, Maryland GO
5.900%, 12/01/03(C) 1,000 1,059
Maryland State, GO
5.600%, 03/15/08 4,275 4,408
--------
5,467
--------
MASSACHUSETTS -- 19.6%
Boston, Massachusetts Water &
Sewer Commission, Series A
6.100%, 11/01/06 3,950 4,191
Boston, Massachusetts,
Series A GO
7.100%, 02/01/01(C) 1,000 1,106
Massachusetts Educational Loan
Authority Revenue Bond,
Issue D, Series A AMT
6.800%, 01/10/02(C) 1,750 1,862
Massachusetts Municipal
Wholesale Electric Power
Supply System Revenue
Bond, Series B
6.625%, 07/01/04 2,050 2,255
Massachusetts Municipal
Wholesale Electric Power
Supply System Revenue
Bond, Series D
6.000%, 07/01/05 1,625 1,700
Massachusetts State GO
6.875%, 07/01/10 2,400 2,715
Massachusetts State Health &
Educational Facilities
Authority Revenue Bond,
Dana Farber Cancer Project,
Series G-1
6.250%, 12/01/08 $1,000 $ 1,026
Massachusetts State Health &
Educational Facilities
Authority Revenue Bond,
Faulkner Hospital, Series C
5.750%, 07/01/03 2,400 2,406
Massachusetts State Health &
Educational Facilities
Authority Revenue Bond,
New England Medical Center
Hospitals, Series F
6.500%, 07/01/12(C) 1,000 1,069
Massachusetts State Health &
Educational Facilities
Authority Revenue Bond,
Series A
6.200%, 01/01/03 1,140 1,164
6.250%, 01/01/05 1,060 1,084
Massachusetts State Housing
Finance Agency Series A
AMT
5.900%, 07/01/03(C) 1,750 1,805
Massachusetts State Housing
Finance Agency, Multi-Family
Housing Project, Series A
5.600%, 07/01/07 600 600
5.700%, 07/01/08 600 600
Massachusetts State Housing
Finance Agency, Series E
6.250%, 11/15/12 1,500 1,524
Massachusetts State Industrial
Finance Agency Revenue
Bond, Refusetech
Incorporated Project, Series A
6.150%, 07/01/02 1,595 1,637
Massachusetts State Industrial
Finance Agency Revenue
Bond, Refusetech
Incorporated Project, Series A
6.300%, 07/01/05 750 773
Massachusetts State Special
Obligation Revenue Bond,
Series A
7.000%, 06/01/02 1,000 1,119
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
1784 Bond Funds
1784 Tax-exempt Medium-term Income Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
MASSACHUSETTS (continued)
Massachusetts State,
Series C GO
6.300%, 11/01/04 $1,000 $ 1,091
5.000%, 08/01/06 1,250 1,231
New England Educational Loan
Marketing Corporation,
Massachusetts Student Loan,
Series A AMT
5.700%, 07/01/05 3,550 3,563
--------
34,521
--------
MICHIGAN -- 0.8%
Michigan State Hospital Finance
Authority Revenue Bond,
Oakwood Hospital
Obligation Group A
5.400%, 11/01/07(C) 1,500 1,508
--------
NEW JERSEY -- 2.4%
Union County, New Jersey
Utilities Authority Solid Waste
Revenue Bond,
Series A AMT
7.100%, 06/15/06 4,000 4,150
--------
NEW YORK -- 7.3%
New York, New York,
Series B GO
5.625%, 08/15/08 3,000 3,064
New York, New York,
Series C GO
6.500%, 08/01/05 2,500 2,581
New York, New York, Series C
GO
6.375%, 08/01/06(C) 2,000 2,230
New York, New York,
Series F GO
6.500%, 02/15/07 2,865 2,955
New York, New York,
Series H GO
6.875%, 02/01/02 2,000 2,120
--------
12,950
--------
NORTH CAROLINA --1.8%
North Carolina Municipal
Power Agency No. 1,
Catawba Electric
5.900%, 01/01/03 3,000 3,120
--------
OHIO -- 1.9%
Cleveland, Ohio Water Works
Revenue Bond, Series F
6.500%, 01/01/21(C)(E) 2,000 2,230
Ohio State Building Authority
Revenue Bond, Adult
Correctional Facilities
5.700%, 10/01/06(C) 1,000 1,045
--------
3,275
--------
PENNSYLVANIA -- 3.3%
Beaver County, Pennsylvania
Hospital Authority Revenue
Bond, Medical Center Beaver
Pennsylvania
6.600%, 07/01/04(C) 1,250 1,378
Pennsylvania State GO
6.000%, 11/15/02 1,630 1,738
6.100%, 11/15/04(C) 1,000 1,076
Pennsylvania State Higher
Education Assistance Agency
Revenue Bond, Series A
6.800%, 12/01/00(C) 1,490 1,585
--------
5,777
--------
PUERTO RICO -- 3.4%
Puerto Rico Commonwealth
Highway & Transportation
Authority Highway Revenue
Bond, Series V
6.375%, 07/01/07(C) 2,210 2,373
Puerto Rico Municipal Finance
Agency Revenue Bond,
Series A
5.600%, 07/01/05(C) 2,000 2,070
Puerto Rico Public Buildings
Authority Revenue Bond,
Series K
6.875%, 07/01/21 1,265 1,459
--------
5,902
--------
RHODE ISLAND -- 8.3%
Pawtucket, Rhode Island GO
5.625%, 04/15/07(C) 3,100 3,149
Providence, Rhode Island GO
6.750%, 01/15/09(C) 1,415 1,523
</TABLE>
The accompanying notes are an integral part of the financial statements.
(continued)
45
<PAGE>
May 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
RHODE ISLAND (continued)
Rhode Island Depositors Economic
Protection Corporation, Special
Obligation, Series B
5.800%, 08/01/09(C) $1,000 $ 1,024
Rhode Island Housing &
Mortgage Finance Agency, Multi-
Family Housing Project, Series A
5.700%, 07/01/07(C) 1,000 998
Rhode Island Housing &
Mortgage Finance Homeownership
Opportunity, Series 15-B
6.100%, 10/01/05(A)(B) 500 518
6.200%, 10/02/06(A)(B) 1,110 1,159
Rhode Island State Construction
Capital Development Loan, Series B GO
6.250%, 05/15/05 1,940 2,042
Rhode Island State Health & Educational
Facilities Authority Revenue Bond,
Westerly Hospital
5.200%, 07/01/04 485 449
Rhode Island State Student Loan Marketing
Association, Series A
6.550%, 12/01/00 1,600 1,696
6.750%, 12/01/01 2,000 2,140
--------
14,698
--------
SOUTH CAROLINA -- 2.1%
Medical University South Carolina
Hospital Facilities, Series A
7.125%, 07/01/04 500 548
South Carolina State Public Services
Authority Revenue Bond, Series A
6.250%, 01/01/00(C)(D) 3,000 3,168
--------
3,716
--------
TEXAS -- 3.0%
Dallas-Fort Worth, Texas Regional Airport
Revenue Bond, Series A
5.800%, 11/01/07(C) 2,000 2,069
Texas National Research Laboratory
Commission, Super Conducting
Super Collider Project
6.850%, 12/01/05 $ 400 $ 414
Texas State Public Financing Authority,
Series A GO
5.700%, 10/01/07(A)(B) 1,500 1,538
5.750%, 10/01/08(A)(B) 1,280 1,314
-------
5,335
-------
VERMONT -- 1.8%
Vermont Educational & Health Buildings
Finance Agency, Medical Center Hospital
of Vermont
5.750%, 09/01/07(C) 1,800 1,829
Vermont State Student Loan Assistance
Corporation, Series A-3 AMT
6.050%, 06/15/01(C) 1,300 1,362
-------
3,191
-------
VIRGINIA -- 1.8%
Norfolk, Virginia Industrial Development
Authority Revenue Bond, Daughters
Charity-Depaul Project
6.500%, 12/01/07 3,000 3,214
-------
WASHINGTON -- 7.2%
Washington State Public Power Supply Systems
Nuclear Project No. 2 Revenue Bond, Series A
5.500%, 07/01/04 5,000 5,030
6.100%, 07/01/06 1,030 1,097
7.500%, 07/01/07 1,000 1,086
5.250%, 07/01/08 1,250 1,197
6.300%, 07/01/09 2,000 2,053
Washington State, Series R92-A GO
6.625%, 09/01/06 2,000 2,158
-------
12,621
-------
</TABLE>
46
The accompanying notes are an integral part of the financial statements.
<PAGE>
1784 Bond Funds
1784 Tax-exempt Medium-term Income Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
WASHINGTON, D.C. -- 4.2%
District Columbia, Series A GO
5.625%, 06/01/02(C) $4,000 $ 4,089
District Columbia, Series B GO
5.300%, 06/01/05(C) 1,000 983
6.000%, 06/01/08(C) 2,305 2,366
--------
7,438
--------
WISCONSIN -- 2.8%
Wisconsin State, Series A GO
5.750%, 05/01/03 3,305 3,466
5.800%, 05/01/07 1,355 1,408
--------
4,874
--------
TOTAL MUNICIPAL BONDS
(Cost $161,148,875) 168,155
--------
CASH EQUIVALENTS -- 1.8%
Fidelity Tax Exempt Money
Market Fund
3.942%, 06/07/95 1,605 1,605
Lehman Brothers Institutional
Tax Free Money Market
Fund
3.935%, 06/07/95 1,607 1,607
--------
TOTAL CASH EQUIVALENTS
(Cost $3,212,387) 3,212
--------
REPURCHASE AGREEMENT -- 4.5%
Lehman Brothers 6.125%, dated
05/31/95, matures 06/01/95,
repurchase price $8,001,361
(collateralized by various U.S.
Treasury Notes, total par
value $7,430,000,
7.875% -- 8.00%,
05/15/01 -- 08/15/01; total
market value $8,161,961) 8,000 8,000
--------
TOTAL REPURCHASE AGREEMENT
(Cost $8,000,000) 8,000
--------
TOTAL INVESTMENTS -- 101.7%
(Cost $172,361,262) 179,367
--------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- 0.7% (3,022)
--------
NET ASSETS:
Capital Shares (unlimited authorization -- no
par value) based on 17,392,732 outstanding
shares of beneficial interest 168,916
Accumulated Net Realized Gain on
Investments 423
Net Unrealized Appreciation on Investments 7,006
--------
TOTAL NET ASSETS: -- 100.0% $176,345
========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $10.14
========
</TABLE>
- -------------------------------------------------------------------------------
(A) Put and Demand features exist requiring the issuer to repurchase the in-
strument prior to maturity.
(B) The maturity date shown is the lesser of the put, demand or maturity date.
(C) Securities are held in connection with bond insurance from AMBAC, FGIC,
FSA or MBIA.
(D) When issued security.
(E) Pledged as collateral for when issued security.
AMBAC -- American Municipal Bond Assurance Company
AMT -- Alternative Minimum Tax
COP -- Certificates of Participation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GO -- General Obligation
MBIA -- Municipal Bond Investors Assurance
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
May 31, 1995 1784 Bond Funds
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
- --------------------------------------------------------------------------------
(ART)
<TABLE>
<CAPTION>
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 95.1%
GUAM -- 1.3%
Guam Limited Obligation
Revenue Bond, Series A
7.100%, 11/15/09(A) $1,000 $ 1,060
-------
MASSACHUSETTS -- 92.6%
Boston, Massachusetts GO,
Series A
5.650%, 02/01/09(B) 1,500 1,508
Chelsea, Massachusetts School
Project Loan, GO
6.000%, 06/15/02(B) 2,000 2,118
6.000%, 06/15/04(B) 650 691
5.700%, 06/15/06(B) 1,000 1,030
Lawrence, Massachusetts GO
5.375%, 09/15/05 410 406
6.250%, 02/15/09(B) 1,475 1,560
Lowell, Massachusetts GO
7.625%, 02/15/10 1,650 1,931
Lynn, Massachusetts Water &
Sewer Commission Revenue Bond
5.250%, 12/01/05(B) 475 477
Massachusetts Bay
Transportation Authority
Revenue Bond, Series C
6.200%, 03/01/10 $ 925 $ 1,009
Massachusetts Bay
Transportation Authority
Revenue Bond, Series A
5.500%, 03/01/07 1,500 1,504
5.600%, 03/01/08 1,885 1,897
7.000%, 03/01/10(B) 3,000 3,302
Massachusetts Educational Loan
Authority Revenue Bond,
Series A, AMT
7.450%, 01/01/02 915 969
Massachusetts Municipal
Wholesale Electric Copower
Supply System Revenue Bond,
Series B
6.750%, 07/01/05 1,000 1,099
6.750%, 07/01/17 1,500 1,704
Massachusetts Municipal
Wholesale Electric Revenue
Bond, Series D
6.000%, 07/01/05 1,000 1,046
Massachusetts State GO
7.500%, 12/01/07 505 583
Massachusetts State GO,
Series A
7.500%, 06/01/04 1,500 1,761
7.625%, 06/01/08 1,250 1,461
Massachusetts State GO,
Series B
6.250%, 08/01/01 2,150 2,301
5.500%, 11/01/07 1,000 1,013
6.500%, 08/01/08 5,315 5,870
Massachusetts State GO,
Series C
7.000%, 06/01/03(B) 1,900 2,104
Massachusetts State Health &
Educational Facilities
Authority Revenue Bond,
Beth Israel Hospital, Series E
7.000%, 07/01/14 500 531
Massachusetts State Health &
Educational Facilities
Authority Revenue Bond,
Brigham & Woman's Hospital,
Issue D
6.250%, 07/01/01 500 528
6.750%, 07/01/13 1,500 1,575
</TABLE>
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
1784 Bond Funds
1784 Massachusetts Tax-exempt Income Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
MASSACHUSETTS (continued)
Massachusetts State Health &
Educational Facilities
Authority Revenue Bond,
Brigham & Women's
Hospital, Series C
7.125%, 06/01/09 $1,000 $ 1,058
Massachusetts State Health &
Educational Facilities
Authority Revenue Bond,
Children's Hospital, Series E
6.250%, 10/01/09 1,000 1,036
Massachusetts State Health &
Educational Facilities Authority
Revenue Bond, Dana Farber
Cancer Project, Series G-1
6.250%, 12/01/09 1,175 1,200
Massachusetts State Health &
Educational Facilities
Authority Revenue Bond, Harvard
University, Series M
5.750%, 12/01/11 1,000 1,029
Massachusetts State Health &
Educational Facilities
Authority Revenue Bond, Jordan
Hospital, Series B
6.875%, 10/01/15 1,020 1,053
Massachusetts State Health &
Educational Facilities
Authority Revenue Bond,
New England Deaconess
Hospital, Series C
7.200%, 04/01/11 830 883
Massachusetts State Housing
Financing Agency, Housing
Projects Revenue Bond, Series A
6.300%, 10/01/13 2,000 2,020
Massachusetts State Housing
Financing Agency, Housing
Revenue Bond, Series 14
7.700%, 12/01/14(B) 2,000 2,103
Massachusetts State Housing
Financing Agency, Housing
Revenue Bond, Series A
5.850%, 12/01/08(B) 1,245 1,262
Massachusetts State Housing
Financing Agency, Residential
Development Revenue Bond,
Series A
6.875%, 11/15/11(B) $1,750 $ 1,855
Massachusetts State Industrial
Finance Agency Resource
Recovery Revenue Bond, Refusetech
Project, Series A
5.350%, 07/01/00(B) 1,000 1,024
6.150%, 07/01/02 900 924
6.300%, 07/01/05 1,000 1,030
Massachusetts State Industrial
Finance Agency Revenue Bond,
Babson College, Series A
6.375%, 10/01/09(B) 1,000 1,061
Massachusetts State Special
Obligation Revenue Bond,
Series A
5.500%, 06/01/07 2,000 2,000
Massachusetts State Water
Pollution Abatement Trust
Revenue Bond, Pooled Loan
Program, Series 2
6.125%, 02/01/07 730 787
Massachusetts State Water
Resource Authority Revenue Bond,
Series A
7.250%, 04/01/01 2,500 2,791
5.875%, 11/01/04 2,500 2,647
6.500%, 12/01/19 1,500 1,676
Massachusetts State Water
Resource Authority Revenue Bond,
Series C
6.000%, 12/01/11 2,000 2,095
Nantucket Islands Land Bank,
Massachusetts GO, Series E
7.000%, 07/01/05 1,505 1,652
Nantucket, Massachusetts GO
6.800%, 12/01/11 1,425 1,537
Rockport, Massachusetts GO
6.800%, 12/15/02(B) 1,100 1,202
Southbridge, Massachusetts GO
6.375%, 01/01/12(B) 500 519
</TABLE>
(continued)
49
The accompanying notes are an integral part of the financial statements.
<PAGE>
May 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
MASSACHUSETTS (continued)
Woods Hole, Martha's
Vineyard & Nantucket,
Massachusetts Steamships
Revenue Bonds, Series B
6.400%, 03/01/12 $1,000 $ 1,105
Worcester, Massachusetts GO
6.250%, 10/01/08(B) 430 454
-------
75,981
-------
PUERTO RICO -- 1.2%
Commonwealth of Puerto Rico GO,
Series A
6.000%, 07/01/06 1,000 1,034
-------
TOTAL MUNICIPAL BONDS
(Cost $76,905,002) 78,075
-------
CASH EQUIVALENTS -- 0.2%
Fidelity Tax Exempt Money
Market Fund
3.942%, 06/07/95 62 62
Lehman Brothers Institutional
Tax Free Money Market Fund
3.935%, 06/07/95 62 62
-------
TOTAL CASH EQUIVALENTS
(Cost $123,568) 124
-------
REPURCHASE AGREEMENT -- 6.8%
Lehman Government Securities
6.125%, dated 05/31/95, matures
06/01/95, repurchase price
$5,600,953 (collateralized
by U.S. Treasury Note, par
value $5,305,000, 7.50%,
matures 05/15/02; market
value $5,715,187) 5,600
-------
TOTAL REPURCHASE AGREEMENT
(Cost $5,600,000) 5,600
-------
TOTAL INVESTMENTS -- 102.1%
(Cost $82,628,570) 83,799
-------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- (2.1%) (1,741)
-------
<CAPTION>
- --------------------------------------------------------------------------------
Description Value (000)
- --------------------------------------------------------------------------------
<S> <C>
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value) based on
8,288,587 outstanding shares of
beneficial interest $82,715
Accumulated Net
Realized Loss on Investments (1,827)
Net Unrealized Appreciation on
Investments 1,170
-------
TOTAL NET ASSETS: -- 100.0% $82,058
=======
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $9.90
=======
</TABLE>
- -------------------------------------------------------------------------------
(A) Securities are held in connection with a letter of credit issued by a
major commercial bank or other financial institution.
(B) Securities are held in connection with bond insurance from AMBAC, FGIC,
FSA or MBIA.
AMBAC -- American Municipal Bond Assurance Company
AMT -- Alternative Minimum Tax
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GO -- General Obligation
MBIA -- Municipal Bond Investors Assurance
50
The accompanying notes are an integral part of the financial statements.
<PAGE>
May 31, 1995 1784 Bond Funds
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
- --------------------------------------------------------------------------------
(ART)
% OF TOTAL PORTFOLIO INVESTMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 94.3%
GUAM -- 1.6%
Guam Power Authority
Revenue Series A
5.900%, 10/01/08(B) $ 500 $ 519
--------
PUERTO RICO -- 3.7%
Puerto Rico Highway &
Transportation Authority Series V
6.375%, 07/01/07 1,135 1,203
--------
RHODE ISLAND -- 89.0%
Cumberland, Rhode Island GO
5.900%, 10/01/06(B) 500 524
6.350%, 12/15/06 500 534
Foster & Gloucester, Rhode Island GO
6.900%, 09/01/11(B) 500 541
Kent County, Rhode Island Water Authority
General Revenue Series A
6.000%, 07/15/08(B) 500 518
Pawtucket, Rhode Island GO
5.750%, 04/15/08(B) 500 509
Providence, Rhode Island GO
6.750%, 01/15/07(B) $ 500 $ 534
6.750%, 01/15/08(B) 1,015 1,085
Providence, Rhode Island Housing
Development Barbara Jordan
Apartments Series A
6.500%, 07/01/09(B) 495 514
Rhode Island Clean Water
Finance Agency Safe Drinking
Water Project Series A
6.500%, 01/01/09(B) 500 539
Rhode Island Clean Water
Protection Series A
6.600%, 10/01/08(B) 500 544
6.750%, 10/01/13(B) 500 536
Rhode Island Convention
Center Authority Series A
5.400%, 05/15/08(B) 500 495
Rhode Island Depositors
Economic Protection
6.500%, 08/01/07(B) 500 547
Rhode Island Housing &
Mortgage Finance Authority
7.700%, 10/01/10 500 528
6.700%, 10/01/15 2,000 2,075
7.000%, 03/01/17(B) 2,840 2,876
Rhode Island Housing &
Mortgage Finance Authority AMT
7.500%, 10/01/11(B) 1,000 1,038
Rhode Island Port Authority &
Economic Development Shepard Building
Project Series B
6.500%, 06/01/08(B) 500 543
6.750%, 06/01/15(B) 515 553
Rhode Island State Construction
Capital Development Loan Series B GO
6.250%, 05/15/05 1,000 1,053
Rhode Island State Health &
Educational Building Higher Education
Facility New England Institute
5.900%, 03/01/10(B) 400 402
</TABLE>
51
The accompanying notes are an integral part of the financial statements.
<PAGE>
1784 Bond Funds
1784 Rhode Island Tax-exempt Income Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
RHODE ISLAND (continued)
Rhode Island State Health &
Educational Building Higher
Education Facility Roger
Williams Project
6.500%, 11/15/08(B) $ 500 $ 529
7.000%, 11/15/09(B) 545 601
7.200%, 11/15/14(B) 1,500 1,646
7.750%, 07/01/16 1,000 1,041
Rhode Island State Health &
Educational Building Higher
Education Facility Salve
Regina Project
6.200%, 03/15/08(B) 1,000 1,041
Rhode Island State Health &
Educational Building Higher
Education Facility Kent
Hospital Project
7.000%, 07/01/10(B) 500 552
Rhode Island State Health &
Educational Building Higher
Education Facility Miriam
Hospital Project Series A
7.250%, 04/01/11 500 524
Rhode Island State Industrial
Facilities
6.000%, 11/01/14 2,850 2,909
Rhode Island State Industrial
Facilities AMT
6.500%, 03/01/14(A) 500 490
Rhode Island State Student
Loan Series A
6.550%, 12/01/00(A) 500 530
Rhode Island State Student
Loan Series B AMT
6.750%, 12/01/01(A) 500 535
6.850%, 12/01/02(A) 500 538
Villa Excelsior Housing
Development Series A
6.650%, 07/01/12(B) 495 511
Warwick, Rhode Island Series A GO
6.600%, 11/15/06(B) 500 541
Westerly, Rhode Island GO
5.850%, 09/15/08(B) 450 462
--------
Total Rhode Island 28,938
--------
TOTAL MUNICIPAL BONDS
(Cost $29,689,045) 30,660
--------
CASH EQUIVALENTS -- 1.7%
Fidelity Tax Exempt Money
Market Fund
3.942%, 06/07/95 $ 270 $ 270
Lehman Brothers Institutional
Tax Free Money Market Fund
3.935%, 06/07/95 271 271
-------
TOTAL CASH EQUIVALENTS
(Cost $541,493) 541
-------
TOTAL INVESTMENTS -- 96.0%
(Cost $30,230,538) 31,201
-------
TOTAL OTHER ASSETS AND LIABILITIES, NET -- 4.0% 1,294
-------
NET ASSETS:
Capital Shares (unlimited authorization -- no par value)
based on 3,207,826 outstanding shares of
beneficial interest 31,713
Accumulated Net Realized Loss on Investments (188)
Net Unrealized Appreciation on Investments 970
-------
TOTAL NET ASSETS: -- 100.0% $32,495
=======
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $10.13
=======
</TABLE>
- -------------------------------------------------------------------------------
(A) Securities are held in connection with a letter of credit issued by a
major commercial bank or other financial institution.
(B) Securities are held in connection with bond insurance from AMBAC, Capital
Guaranty, Connie Lee, FGIC, FHA, FSA or MBIA.
AMBAC -- American Municipal Bond Assurance Company
AMT -- Alternative Minimum Tax
FGIC -- Financial Guaranty Insurance Company
FHA -- Financial Housing Authority
FSA -- Financial Security Assurance
GO -- General Obligation
MBIA -- Municipal Bond Investors Assurance
52
The accompanying notes are an integral part of the financial statements.
<PAGE>
May 31, 1995 1784 Bond Funds
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
1784 CONNECTICUT TAX-EXEMPTINCOME FUND
- -------------------------------------------------------------------------------
(ART)
% OF TOTAL PORTFOLIO INVESTMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 94.7%
CONNECTICUT -- 82.8%
Bridgeport, Connecticut GO
6.125%, 03/01/05 $2,000 $ 2,088
8.750%, 08/15/05(B) 500 631
Bristol, Connecticut
Resource Recovery, Solid
Waste Revenue
6.500%, 07/01/14 3,000 3,105
Connecticut State Airport Revenue
Bond, Bradley International Airport
7.650%, 10/01/12(B) 2,000 2,305
Connecticut State Clean Water
Funding Revenue Bond
5.600%, 06/01/09 750 756
7.000%, 01/01/11 300 327
Connecticut State Development Bond
6.550%, 06/15/09(B) 500 549
Connecticut State Development
Bond, Duncaster Project
6.700%, 09/01/07 3,050 3,333
Connecticut State Development
Bond, Jewish Community Center AMT
6.400%, 09/01/07(A) $ 400 $ 428
Connecticut State Development
Bond, New England Power Project
7.250%, 10/15/15 500 538
Connecticut State Development
Bond, Pfizer Project
6.550%, 02/15/13 250 269
Connecticut State Development
Bond, Series A
6.000%, 11/15/08 500 518
Connecticut State Health &
Education Facilities Bond,
Noble Nursing Home
6.000%, 11/01/09(B) 1,000 1,038
Connecticut State Health &
Educational Facilities Bond
5.000%, 07/01/00 400 381
Connecticut State Health &
Educational Facilities Bond,
Bridgeport Hospital, Series A
6.500%, 07/01/05(B) 250 276
6.550%, 07/01/06(B) 400 441
6.500%, 07/01/12(B) 500 530
Connecticut State Health &
Educational Facilities Bond,
Choate Rosemary Hall, Series A
6.800%, 07/01/15(B) 750 823
Connecticut State Health &
Educational Facilities Bond,
Danbury Hospital, Series E
6.500%, 07/01/05(B) 500 547
Connecticut State Health &
Educational Facilities Bond,
Highland Nursing Home
7.050%, 11/01/09(B) 1,000 1,125
Connecticut State Health &
Educational Facilities Bond,
Newington Children's
Hospital, Series A
5.850%, 07/01/07(B) 1,110 1,167
Connecticut State Health &
Educational Facilities Bond,
Sacred Heart University,
Series A
6.600%, 07/01/07(A) 300 314
</TABLE>
(continued)
53
The accompanying notes are an integral part of the financial statements.
<PAGE>
May 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Description Par (000) Value (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
CONNECTICUT (continued)
Connecticut State Health &
Educational Facilities Bond,
University of Hartford,
Series D
6.750%, 07/01/12 $ 250 $ 243
Connecticut State Health &
Educational Facilities Bond,
Wadsworth Nursing Home
7.125%, 11/01/14(B) 500 556
Connecticut State Health Revenue
Bond, New Britian Hospital
6.000%, 07/01/09(B) 500 519
Connecticut State Higher Education
Revenue Bond, Family Education
Loan Program, Series A AMT
7.000%, 11/15/05 685 732
Connecticut State Higher Education
Revenue Bond, Series A
6.500%, 11/15/00 285 298
Connecticut State Housing Finance
Bond, Housing Mortgage Finance
Program, Series B
7.200%, 11/15/01(A) 500 529
6.050%, 11/15/03 500 523
6.350%, 11/15/06 400 419
Connecticut State Housing Finance
Bond, Housing Mortgage Finance
Program, Series B1
7.550%, 11/15/08 1,100 1,192
Connecticut State Housing Finance
Bond, Housing Mortgage Finance
Program, Subseries B1
6.000%, 05/15/08 300 303
Connecticut State Housing Finance
Bond, Housing Mortgage Finance
Project, Series B4 Sub B4
7.300%, 11/15/03 5,500 5,848
Connecticut State Resource
Recovery Bond, Bridgeport
Resources
7.625%, 01/01/09 600 632
Connecticut State Resource
Recovery Bond, Greater
Bridgeport System AMT
6.750%, 11/15/99 $ 260 $ 277
Connecticut State Resource
Recovery Bond, Series A AMT
7.125%, 11/15/08(A) 250 259
8.000%, 11/15/08 1,500 1,658
8.000%, 11/15/15 1,500 1,652
Connecticut State Resource
Recovery Bond, Series B
7.300%, 11/15/12(B) 800 847
Connecticut State Resource
Recovery Bond, Wallingford
Resources, Series 1-Sub AMT
6.700%, 11/15/02 800 834
Connecticut State Special Tax
Bond, Series A 5.400%, 09/01/09 500 497
Connecticut State Special Tax
Bond, Transportation
Infrastructure, Series B
6.100%, 09/01/08(B) 500 534
6.250%, 10/10/09 500 526
Connecticut State, Certificates of
Participation, Middletown
Courthouse Facilities Project
6.250%, 12/15/08(B) 1,500 1,586
Connecticut State, Series A GO
6.500%, 03/15/07 750 811
Connecticut State, Series C GO
5.800%, 08/15/08 1,500 1,556
New Haven, Connecticut
Revenue Bond, Air Right
Packaging Facility
6.625%, 12/01/05(B) 1,600 1,770
6.500%, 12/01/15(B) 2,000 2,115
South Central Connecticut
Regional Water Authority Bond,
11th Series 5.750%,
08/01/12(B) 500 508
South Central Connecticut
Regional Water Authority
Revenue Bond, 13th Series A
6.000%, 08/01/09(B) 985 1,029
6.000%, 08/01/10(B) 1,045 1,092
-------
50,834
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
1784 Bond Funds
1784 Connecticut Tax-exempt Income Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
GUAM -- 3.0%
Guam Government Limited
Obligation Highway, Series A
6.250%, 05/01/07(B) $ 750 $ 799
Guam Power Authority
Revenue Bond, Series A
5.900%, 10/01/08(B) 1,000 1,039
-------
1,838
-------
PUERTO RICO -- 8.9%
Puerto Rico Commonwealth, Highway &
Transportation Revenue Bond, Series X
5.300%, 07/01/04 700 689
Puerto Rico Industrial, Medical &
Environmental Revenue Bond,
Abbott Chemicals Project
6.500%, 07/01/09 500 501
Puerto Rico Municipal Finance Agency,
Revenue Bond, Series A
6.000%, 07/01/09(B) 2,650 2,735
Puerto Rico Telephone Revenue Bond,
Series L
5.750%, 01/01/08 1,000 1,023
6.000%, 01/01/12 500 509
-------
5,457
-------
TOTAL MUNICIPAL BONDS
(Cost $55,974,255) 58,129
-------
CASH EQUIVALENTS -- 1.2%
Fidelity Tax Exempt Money
Market Fund
3.942%, 06/07/95 368 368
Lehman Brothers Institutional
Tax Free Money Market Fund
3.935%, 06/07/95 372 372
-------
TOTAL CASH EQUIVALENTS
(Cost $739,804) 740
-------
REPURCHASE AGREEMENT -- 3.3%
Lehman Brothers
6.125%, dated 05/31/95, matures
06/01/95, repurchase price $2,000,340
(collateralized by U.S. Treasury Note,
par value $1,995,000, 6.125%, matures
07/31/96; market value $2,040,494) $2,000 $ 2,000
-------
TOTAL REPURCHASE AGREEMENT
(Cost $2,000,000) 2,000
-------
TOTAL INVESTMENTS -- 99.2%
(Cost $58,714,059) 60,869
-------
TOTAL OTHER ASSETS AND LIABILITIES, NET -- 0.8% 500
-------
NET ASSETS:
Capital Shares (unlimited authorization -- no par
value) based on 5,975,179 outstanding shares of
beneficial interest 59,485
Accumulated Net Realized Loss on Investments (271)
Net Unrealized Appreciation on Investments 2,155
-------
TOTAL NET ASSETS: -- 100.0% $61,369
=======
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE $10.27
=======
</TABLE>
- -------------------------------------------------------------------------------
(A) Securities are held in connection with a letter of credit issued by a
major commercial bank or other financial institution.
(B) Securities are held in connection with bond insurance from AMBAC, CGIC,
FGIC, FSA or MBIA.
AMBAC -- American Municipal Bond Assurance Company
AMT -- Alternative Minimum Tax
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GO -- General Obligation
MBIA -- Municipal Bond Investors Assurance
55
The accompanying notes are an integral part of the financial statements.
<PAGE>
For the Year or Period Ended May 31, 1995
STATEMENTS OF OPERATIONS (000)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT
SHORT-TERM MEDIUM-TERM
INCOME (1) INCOME INCOME (1)
========== =============== ==========
<S> <C> <C> <C>
INTEREST INCOME: $1,948 $ 7,966 $11,330
---------- --------------- ----------
EXPENSES:
Investment Advisory Fees 144 837 1,109
Waiver of Investment Advisory Fees (58) (158) (588)
Reimbursement of Expenses by Adviser (15) (77) (77)
Administrator Fees 32 130 170
Waiver of Administrator Fees (32) -- --
12b-1 Fees 72 294 361
Waiver of 12b-1 Fees (72) (294) (361)
Registration Fees 19 20 60
Transfer Agent Fees & Expenses 48 58 53
Waiver of Transfer Agent Fees (46) -- --
Professional Fees 6 21 24
Fund Accounting Fees 28 30 26
Waiver of Fund Accounting Fees (5) (6) --
Custodian Fees 4 13 15
Printing 4 16 16
Amortization of Deferred Organizational
Costs 2 12 2
Trustee Fees 1 4 6
Other Expenses 5 5 7
---------- --------------- ----------
Total Expenses, Net 137 905 823
---------- --------------- ----------
Net Investment Income 1,811 7,061 10,507
---------- --------------- ----------
Net Realized Gain (Loss) on Investments 28 (4,071) (996)
Net Unrealized Appreciation on
Investments 826 7,084 9,287
---------- --------------- ----------
Net Realized and Unrealized Gain
on Investments 854 3,013 8,291
---------- --------------- ----------
Net Increase in Net Assets
Resulting from Operations $2,665 $10,074 $18,798
========== =============== ==========
</TABLE>
(1)The Short Term Income and Income Funds commenced operations on July 1, 1994.
(2)The Connecticut Tax-Exempt Income and Rhode Island Tax-Exempt Income Funds
commenced operations on August 1, 1994.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
1784 Bond Funds
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAX-EXEMPT MASSACHUSETTS RHODE ISLAND CONNECTICUT
MEDIUM-TERM TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
INCOME INCOME INCOME (2) INCOME (2)
=========== ============= ============ ===========
<S> <C> <C> <C>
$ 5,839 $3,466 $1,351 $2,425
----------- ------------- ------------ -----------
742 448 164 301
(140) (85) (87) (163)
(68) (79) (22) (1)
113 69 25 46
-- (9) (25) (46)
251 151 55 102
(251) (151) (55) (102)
29 14 19 22
53 55 45 45
-- -- (42) (42)
13 12 6 9
28 30 25 25
(6) (6) (4) (4)
10 7 3 6
9 8 4 7
12 12 2 2
3 3 2 2
2 5 4 4
----------- ------------- ------------ -----------
800 484 119 213
----------- ------------- ------------ -----------
5,039 2,982 1,232 2,212
----------- ------------- ------------ -----------
777 (1,525) (188) (271)
7,776 3,348 970 2,155
----------- ------------- ------------ -----------
8,553 1,823 782 1,884
----------- ------------- ------------ -----------
$13,592 $4,805 $2,014 $4,096
=========== ============= ============ ===========
</TABLE>
57
<PAGE>
For The Periods Ended May 31
STATEMENTS OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT
SHORT-TERM MEDIUM-TERM
INCOME INCOME INCOME
========== ==================== ==========
7/1/94 (3) 6/1/94 6/7/93 (1) 7/1/94 (3)
to to to to
5/31/95 5/31/95 5/31/94 5/31/95
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income $ 1,811 $ 7,061 $ 5,051 $ 10,507
Net Realized Gain (Loss) on
Investments Sold 28 (4,071) (1,907) (996)
Net Unrealized Appreciation
(Depreciation)
on Investment Securities 826 7,084 (4,712) 9,287
---------- -------- ---------- ----------
Net Increase in Net Assets
Resulting from Operations 2,665 10,074 (1,568) 18,798
---------- -------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income (1,811) (7,061) (5,051) (10,507)
---------- -------- ---------- ----------
Total Distributions (1,811) (7,061) (5,051) (10,507)
CAPITAL SHARE TRANSACTIONS:
Shares Issued 62,624 67,712 123,752 203,201
Shares Issued in Lieu of Cash
Distributions 701 1,160 740 502
Shares Redeemed (11,598) (34,191) (25,486) (15,479)
---------- -------- ---------- ----------
Increase in Net Assets from Share
Transactions 51,727 34,681 99,006 188,224
---------- -------- ---------- ----------
Total Increase in Net Assets 52,581 37,694 92,387 196,515
NET ASSETS:
Beginning of Period -- 92,387 -- --
---------- -------- ---------- ----------
NET ASSETS:
End of Period $ 52,581 $130,081 $ 92,387 $196,515
========== ======== ========== ==========
CAPITAL SHARES TRANSACTIONS:
Shares Issued 6,309 7,316 12,385 20,419
Shares Issued in Lieu of Cash
Distributions 71 126 75 51
Shares Redeemed (1,170) (3,711) (2,592) (1,562)
---------- -------- ---------- ----------
Net Increase in Capital
Shares Transactions 5,210 3,731 9,868 18,908
========== ======== ========== ==========
</TABLE>
(1)The U.S. Government Medium-Term Income Fund commenced operations on June 7,
1993.
(2)The Tax-Exempt Medium-Term Income and Massachusetts Tax-Exempt Income Funds
commenced operations on June 14, 1993.
(3)The Short-Term Income and Income Funds commenced operations on July 1,
1994.
(4)The Connecticut Tax-Exempt Income and Rhode Island Tax-Exempt Income Funds
commenced operations on August 1, 1994.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
1784 Bond Funds
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAX-EXEMPT MASSACHUSETTS RHODE ISLAND CONNECTICUT
MEDIUM-TERM TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
INCOME INCOME INCOME INCOME
======================== ======================== ============ ===========
6/1/94 6/14/93 (2) 6/1/94 6/14/93 (2) 8/1/94 (4) 8/1/94 (4)
to to to to to to
5/31/95 5/31/94 5/31/95 5/31/94 5/31/95 5/31/95
-------- ----------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 5,039 $ 1,393 $ 2,982 $ 1,787 $ 1,232 $ 2,212
777 (354) (1,525) (302) (188) (271)
7,776 (770) 3,348 (2,178) 970 2,155
-------- ----------- -------- ----------- ------------ -----------
13,592 269 4,805 (693) 2,014 4,096
-------- ----------- -------- ----------- ------------ -----------
(5,039) (1,393) (2,982) (1,787) (1,232) (2,212)
-------- ----------- -------- ----------- ------------ -----------
(5,039) (1,393) (2,982) (1,787) (1,232) (2,212)
164,271 62,863 52,814 73,456 35,663 67,123
327 221 677 601 12 83
(33,171) (25,595) (22,918) (21,915) (3,962) (7,721)
-------- ----------- -------- ----------- ------------ -----------
131,427 37,489 30,573 52,142 31,713 59,485
-------- ----------- -------- ----------- ------------ -----------
139,980 36,365 32,396 49,662 32,495 61,369
36,365 -- 49,662 -- -- --
-------- ----------- -------- ----------- ------------ -----------
$176,345 $ 36,365 $ 82,058 $ 49,662 $32,495 $61,369
======== =========== ======== =========== ============ ===========
17,066 6,177 5,541 7,168 3,612 6,749
33 22 70 59 1 8
(3,381) (2,524) (2,386) (2,164) (405) (782)
-------- ----------- -------- ----------- ------------ -----------
13,718 3,675 3,225 5,063 3,208 5,975
======== =========== ======== =========== ============ ===========
</TABLE>
59
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Net Net Ratio
Asset Realized and Dividends Net Assets Ratio of Net
Value Net Unrealized from Net Asset Value End of Expenses Income
Beginning Investment Gains or (Losses) Investment End Total of Period to Average to Average
of Period Income on Investments Income of Period Return (000) Net Assets Net Assets
--------- ---------- ----------------- ---------- ----------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM
INCOME (3)
====================
For the period ended
May 31, 1995 $10.00 0.56 0.09 (0.56) $10.09 6.74 %* $52,581 0.48% 6.31%
U.S. GOVERNMENT
MEDIUM-TERM
INCOME
====================
For the year ended
May 31, 1995 $ 9.36 0.58 0.21 (0.58) $ 9.57 8.79 % $130,081 0.80% 6.24%
For the period ended
May 31, 1994(1) $10.00 0.59 (0.64) (0.59) $ 9.36 (0.65)%* $ 92,387 0.31% 6.08%
INCOME (3)
====================
For the period ended
May 31, 1995 $10.00 0.62 0.39 (0.62) $10.39 10.69 %* $196,515 0.55% 7.01%
TAX-EXEMPT
MEDIUM-TERM
INCOME
====================
For the year ended
May 31, 1995 $ 9.90 0.48 0.24 (0.48) $10.14 7.58 % $176,345 0.80% 5.02%
For the period ended
May 31, 1994 (2) $10.00 0.49 (0.10) (0.49) $ 9.90 3.93 %* $ 36,365 0.32% 5.06%
MASSACHUSETTS
TAX-EXEMPT
INCOME
====================
For the year ended
May 31, 1995 $ 9.81 0.47 0.09 (0.47) $ 9.90 6.00 % $ 82,058 0.80% 4.93%
For the period ended
May 31, 1994 (2) $10.00 0.50 (0.19) (0.50) $ 9.81 3.04 %* $ 49,662 0.33% 5.10%
<CAPTION>
Ratio Ratio of
of Expenses Net Income
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ---------- ---------
<S> <C> <C> <C>
SHORT-TERM
INCOME (3)
====================
For the period ended
May 31, 1995 1.27% 5.52% 84.54%
U.S. GOVERNMENT
MEDIUM-TERM
INCOME
====================
For the year ended
May 31, 1995 1.27% 5.77% 142.14%
For the period ended
May 31, 1994(1) 1.35% 5.04% 144.77%
INCOME (3)
====================
For the period ended
May 31, 1995 1.23% 6.33% 80.53%
TAX-EXEMPT
MEDIUM-TERM
INCOME
====================
For the year ended
May 31, 1995 1.26% 4.56% 74.74%
For the period ended
May 31, 1994 (2) 1.61% 3.77% 98.83%
MASSACHUSETTS
TAX-EXEMPT
INCOME
====================
For the year ended
May 31, 1995 1.35% 4.38% 34.59%
For the period ended
May 31, 1994 (2) 1.41% 4.02% 13.99%
</TABLE>
*Returns are for the period indicated and have not been annualized.
(1)The U.S. Government Medium-Term Income Fund commenced operations on June 7,
1993. All ratios for the period have been annualized.
(2)The Tax-Exempt Medium-Term Income and Massachusetts Tax-Exempt Medium Term
Income Funds commenced operations on June 14, 1993. All ratios for the
period have been annualized.
(3)The Short-Term Income and Income Funds commenced operations on July 1,
1994. All ratios for the period have been annualized.
(4)The Connecticut Tax-Exempt Income and Rhode Island Tax-Exempt Income Funds
commenced operations on August 1, 1994. All ratios for the period have
been annualized.
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
1784 Bond Funds
56
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Net Ratio
Asset Realized and Dividends Net Assets Ratio of Net
Value Net Unrealized from Net Asset Value End of Expenses Income
Beginning Investment Gains or (Losses) Investment End Total of Period to Average to Average
of Period Income on Investments Income of Period Return (000) Net Assets Net Assets
--------- ---------- ----------------- ---------- ----------- ------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RHODE ISLAND
TAX-EXEMPT
INCOME (4)
- ------------------
- ------------------
For the period ended
May 31, 1995 $10.00 0.45 0.13 (0.45) $10.13 6.09%* $32,495 0.54% 5.56%
CONNECTICUT
TAX-EXEMPT
INCOME (4)
- ------------------
- ------------------
For the period ended
May 31, 1995 $10.00 0.45 0.27 (0.45) $10.27 7.45%* $61,369 0.52% 5.44%
<CAPTION>
Ratio Ratio of
of Expenses Net Income
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ---------- ---------
<S> <C> <C> <C>
RHODE ISLAND
TAX-EXEMPT
INCOME (4)
- ------------------
- ------------------
For the period ended
May 31, 1995 1.60% 4.50% 57.51%
CONNECTICUT
TAX-EXEMPT
INCOME (4)
- ------------------
- ------------------
For the period ended
May 31, 1995 1.40% 4.56% 35.56%
</TABLE>
61
<PAGE>
May 31, 1995
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
===============================================================================
The 1784 Short-Term Income, 1784 U.S. Government Medium-Term Income, 1784
Income, 1784 Tax-Exempt Medium-Term Income, 1784 Massachusetts Tax-Exempt In-
come, 1784 Rhode Island Tax-Exempt Income and 1784 Connecticut Tax-Exempt In-
come Funds (the "Bond Funds") are portfolios of the 1784 Funds (the "Trust"),
an open-end investment company registered under the Investment Company Act of
1940, as amended. The Trust is presently authorized to offer shares in 13 sep-
arate portfolios (the "Funds"):
MONEY MARKET FUNDS: STOCK FUNDS:
1784 U.S. Treasury Money Market Fund 1784 Growth and Income Fund
1784 Tax-Free Money Market Fund 1784 Asset Allocation Fund
1784 Institutional U.S. Treasury Money 1784 International Equity Fund
Market Fund
BOND FUNDS:
1784 Short-Term Income Fund
1784 U.S. Government Medium-Term Income Fund
1784 Income Fund
1784 Tax-Exempt Medium-Term Income Fund
1784 Massachusetts Tax-Exempt Income Fund
1784 Rhode Island Tax-Exempt Income Fund
1784 Connecticut Tax-Exempt Income Fund
The financial statements included on pages 36 to 67 are for the Bond Funds.
The financial statements of the U.S. Treasury Money Market and Tax-Free Money
Market Funds are included on pages 21 to 35. The financial statements of the
Stock Funds are included on pages 68 to 84. The financial statements of the
Institutional U.S. Treasury Money Market Fund are not presented herein, but
are presented separately. The assets of each Fund are segregated, and a share-
holder's interest is limited to the Fund in which shares are held.
2. SIGNIFICANT ACCOUNTING POLICIES
===============================================================================
The following is a summary of significant accounting policies followed by
the Bond Funds.
Security Valuation -- Investment securities of the Bond Funds which are listed
on a securities exchange for which market quotations are available are valued
by an independent pricing service at the last quoted sales price for such se-
curities on each business day. If there is no such reported sale, these secu-
rities and unlisted securities for which market quotations are readily avail-
able are valued at the most recent bid price using procedures determined in
good faith by the Board of Trustees. Debt obligations with sixty days or less
remaining until maturity may be valued at their amortized cost. Un-
62
<PAGE>
1784 BOND FUNDS
der this valuation method, purchase discounts and premiums are accreted and
amortized ratably to maturity and are included in interest income.
Security Transactions and Investment Income -- Security transactions are ac-
counted for on the trade date of the security purchase or sale. Costs used in
determining net realized capital gains and losses on the sale of securities
are those of the specific securities sold, adjusted for the accretion and am-
ortization of the purchase discounts and premiums during the respective hold-
ing period, which is calculated using the effective interest method. Interest
income is recorded on the accrual basis.
Repurchase Agreements -- Securities pledged as collateral for Repurchase
Agreements are held by each Fund's custodian bank until maturity of the Repur-
chase Agreements. Provisions of the Agreements and procedures adopted by the
Adviser are intended to ensure that the market value of the collateral, in-
cluding accrued interest thereon, is sufficient in the event of default by the
counterparty. If the counterparty defaults and the value of the collateral de-
clines or if the counterparty enters into insolvency proceedings, realization
of the collateral by the Fund may be delayed or limited.
Expenses -- Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses of the Trust are prorated to
the Funds on the basis of relative net assets.
Distributions to Shareholders -- Distributions from net investment income are
declared on a daily basis and are payable on the first business day of the
following month. Any net realized capital gains on sales of securities for a
Fund are distributed to its shareholders at least annually.
Federal Income Taxes -- The Trust's policy is to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income to its shareholders. Accordingly, no
provision for Federal income taxes is required in the financial statements.
Organization Costs -- These costs have been deferred in the accounts of the
Funds and are being amortized on a straight-line basis over a period of sixty
months commencing with operations. If any or all of the shares representing
initial capital of each Fund are redeemed by any holder thereof prior to the
end of the amortization period, the proceeds will be reduced by the unamor-
tized organization cost balance in the same proportion as the number of shares
redeemed bears to the initial shares outstanding immediately preceding the
redemption.
3. INVESTMENT ADVISORY, CUSTODIAL AND ACCOUNTING SERVICES
===============================================================================
Pursuant to an investment advisory agreement dated June 1, 1993, investment
advisory services are provided to the Trust by The First National Bank of Bos-
ton (the "Adviser"). The Adviser is entitled
(continued)
63
<PAGE>
NOTES tO FINANCIAL STATEMENTS (continued)
to receive a fee of 0.74% of the average daily net assets of the U.S. Govern-
ment Medium-Term Income, Tax-Exempt Medium-Term Income, Massachusetts Tax-Ex-
empt Income, Connecticut Tax-Exempt Income and Rhode Island Tax-Exempt Income
Funds and 0.50% of the average daily net assets of the Short Term Income Fund.
Such fee is computed daily and paid monthly.
The Trust and The First National Bank of Boston (the "Custodian") are par-
ties to a custodial agreement dated June 1, 1993 under which the Custodian
holds cash, securities and other assets of the Trust as required by the In-
vestment Company Act of 1940. The Custodian is entitled to receive an annual
fee, to be paid monthly, of 0.01% for the first $100 million in assets,
0.0075% for the next $100 million and 0.005% for the next $800 million in as-
sets. In its capacity as custodian to the Trust, the Custodian plays no role
in determining the investment policies of the Trust or which securities are to
be purchased or sold in the Funds.
Under a separate agreement, The First National Bank of Boston also provides
certain accounting services for the Trust and is entitled to receive a fee for
these services of $30,000 per Fund on an annual basis.
The First National Bank of Boston voluntarily waives a portion of its advi-
sory, custody and accounting fees. In addition, The First National Bank of
Boston reimburses certain other expenses incurred by the Funds in order to
help the Funds maintain a competitive expense ratio.
4. ADMINISTRATIVE, TRANSFER AGENT AND DISTRIBUTION SERVICES
===============================================================================
Pursuant to an administrative agreement dated June 7, 1993, SEI Financial
Management Corporation ("SEI") acts as the Trust's Administrator. Under the
terms of such agreement, SEI is entitled to receive an annual fee of 0.15% of
the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Such fee is computed daily
and paid monthly. The Administrator has agreed to waive its fee in the 1784
Short-Term Income, 1784 Connecticut Tax-Exempt Income and 1784 Rhode Island
Tax-Exempt Income Funds in order to help the fund maintain a competitive ex-
pense ratio.
Pursuant to an agreement dated June 1, 1993, SEI acts as the Transfer Agent
of the Trust. As such, SEI provides transfer agency, dividend disbursing,
shareholder servicing and administrative services for the Trust.
SEI Financial Services Company ("SFS"), a wholly owned subsidiary of SEI,
acts as the Trust's Distributor pursuant to a distribution agreement dated
June 1, 1993. The Distributor is entitled to receive a fee, calculated daily
and paid monthly, at an annual rate of 0.25% of the average daily net assets
of the Trust. The Distributor has agreed to waive the 12b-1 fee until at least
October 1, 1995.
Certain officers of the Trust are also officers of the Administrator. Such
officers are paid no fees by the Trust.
The Funds have paid legal fees to a law firm of which the Secretary of the
Trust is a member.
64
<PAGE>
1784 Bond Funds
5. INVESTMENT TRANSACTIONS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The cost of security purchases and the proceeds from the sale of securities,
other than temporary cash investments for the period ended May 31, 1995, are
as presented below for the Bond Funds. At May 31, 1995 the 1784 U.S. Govern-
ment Medium-Term Income Fund, the 1784 Income Fund, the 1784 Massachusetts
Tax-Exempt Income Fund, the 1784 Rhode Island Tax-Exempt Income Fund and the
1784 Connecticut Tax-Exempt Income Fund had capital loss carryforwards for
federal tax purposes of approximately $5,978,000, $594,000, $926,000, $87,000
and $181,000, respectively, resulting from security sales. For tax purposes,
the losses in the Funds can be carried forward for a maximum of eight years to
offset any net realized capital gains. The carryforward for the 1784 U.S. Gov-
ernment Medium-Term Income Fund expires as follows: 2002--$68,000; 2003--
$5,910,000. The carryforwards for the 1784 Massachusetts Tax-Exempt Income,
the 1784 Rhode Island Tax-Exempt Income and the 1784 Connecticut Tax-Exempt
Income Funds expire in 2003. On May 31, 1995, the total cost of securities and
the net realized gains or losses on securities sold for federal income tax
purposes was not materially different from amounts reported for financial re-
porting purposes.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND INVESTMENT TAX-
TRANSACTIONS (000): EXEMPT
SHORT- MEDIUM-
TERM U.S. GOVERNMENT TERM MASSACHUSETTS RHODE ISLAND CONNECTICUT
FOR THE YEAR OR INCOME MEDIUM-TERM INCOME INCOME TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
PERIOD FUND INCOME FUND FUND FUND INCOME FUND INCOME FUND INCOME FUND
ENDED MAY 31, 1995 ======= =============== ======== ======== ============= ============ ===========
<S> <C> <C> <C> <C> <C> <C> <C>
Purchases
U.S. Government
Securities $14,547 $110,260 $128,233 $ -- $ -- $ -- $ --
Other 50,419 73,087 177,660 184,134 18,891 40,711 72,205
Sales
U.S. Government
Securities 8,787 92,184 56,785 -- -- -- --
Other 13,554 53,741 70,421 57,936 50,507 13,653 15,835
Aggregate gross
unrealized gains 844 2,874 9,294 7,229 1,605 992 2,176
Aggregate gross
unrealized losses 18 502 7 223 435 22 21
------- --------------- -------- -------- ------------- ------------ -----------
Net unrealized gains $ 826 $ 2,372 $ 9,287 $ 7,006 $ 1,170 $ 970 $ 2,155
</TABLE>
- -------------------------------------------------------------------------------
6. CONCENTRATION OF CREDIT RISK
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The 1784 Tax-Exempt Medium-Term Income Fund, 1784 Massachusetts Tax-Exempt
Income Fund 1784 Connecticut Tax-Exempt Income Fund and 1784 Rhode Island Tax-
Exempt Income Fund invest in debt instruments of municipal issuers. The is-
suers' ability to meet their obligations may be affected by
(continued)
65
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
economic developments in a specific state or region. The 1784 Massachusetts
Tax-Exempt Income Fund, 1784 Connecticut Tax-Exempt Income Fund and 1784 Rhode
Island Tax-Exempt Income Fund each invest primarily in obligations of munici-
palities located in Massachusetts, Connecticut and Rhode Island, respectively.
The Bond Funds invest in securities which include revenue bonds, tax exempt
commercial paper, tax and revenue anticipation notes, and general obligation
bonds. At May 31, 1995, the percentage of portfolio investments by each reve-
nue source was as follows:
<TABLE>
<CAPTION>
TAX-EXEMPT MASSACHUSETTS RHODE ISLAND CONNECTICUT
MEDIUM TERM TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
INCOME INCOME INCOME INCOME
=========== ============= ============ ===========
<S> <C> <C> <C> <C>
Cash Equivalents 6% 7% 2% 5%
Education Bonds 3% 3% 15% 2%
General Obligation 34% 37% 17% 9%
Hospital Bonds 8% 9% 7% 17%
Housing Bonds 6% 9% 21% 15%
Industrial
Development/Pollution
Control Bonds 8% 13% 14% 13%
Other Revenue Bonds 11% 3% 10% 18%
Transportation Bonds 4% 13% 4% 8%
Utility Bonds 8% 5% 2% 4%
Alternative Minimum Tax
Bonds 12% 1% 8% 9%
----------- ------------- ------------ -----------
Total 100% 100% 100% 100%
</TABLE>
Many municipalities insure their obligations with insurance underwritten by
insurance companies which undertake to pay a holder, when due, the interest
and principal amount on an obligation if the issuer defaults on its obliga-
tion. Although bond insurance reduces the risk of loss due to default by the
issuer, there is no assurance that the insurance company will meet its obliga-
tions. Also, some of the securities have credit enhancements (letters of
credit or guarantees issued by third party domestic or foreign banks or other
institutions). At May 31, 1995, 28.9%, 28.5%, 58.8% and 40.7% of investments
held by the 1784 Tax-Exempt Income, 1784 Massachusetts Tax-Exempt Income, 1784
Rhode Island Tax-Exempt Income and 1784 Connecticut Tax-Exempt Income Funds,
respectively, had credit enhancements. In the 1784 Massachusetts Tax-Exempt
Income Fund 8.8% were issued by American Municipal Bond Assurance Company. In
the 1784 Rhode Island Tax-Exempt Income Fund 8.1% were issued by American Mu-
nicipal Bond Assurance Company and 8.1% were issued by Municipal Bond Invest-
ors Assurance. In the 1784 Connecticut Tax-Exempt Income Fund 17.6% were is-
sued by Municipal Bond Investors Assurance and 6.9% were issued by American
Municipal Bond Assurance Company.
66
<PAGE>
1784 Bond Funds
The ratings of long-term debt holdings as a percentage of total value of in-
vestments at May 31, 1995 are as follows:
<TABLE>
<CAPTION>
SHORT-
STANDARD & TERM U.S. GOVERNMENT TAX-EXEMPT MASSACHUSETTS RHODE ISLAND CONNECTICUT
POOR'S INCOME MEDIUM-TERM INCOME MEDIUM-TERM TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
RATINGS FUND INCOME FUND FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
(UNAUDITED): ====== =============== ====== =========== ============= ============ ===========
<S> <C> <C> <C> <C> <C> <C> <C>
AAA 37% 91% 52% 38% 31% 55% 45%
AA+ -- -- 1% 2% -- 11% 1%
AA 4% -- 2% 19% 1% 9 15%
AA- 4% -- 4% 4% 2% 3 13%
A+ 8% -- 4% 3% 36% -- 3%
A 23% -- 14% 10% 15% 5% 5%
A- 13% -- 12% 13% 2% -- 1%
BBB+ 2% -- 6% 4% 5% -- --
BBB -- -- 3% 1% 2% 3% --
BBB- -- -- -- -- -- -- 1%
Not Rated 9% 9% 2% 6% 6% 14% 16%
------ --------------- ------ ----------- ------------- ------------ -----------
100% 100% 100% 100% 100% 100% 100%
</TABLE>
7. LINE OF CREDIT
================================================================================
The Funds have a bank line of credit. Borrowings under the line of credit
are secured by investment securities of the borrowing Fund, which may not ex-
ceed 10% of the Fund's total assets for the 1784 U.S. Government Medium-Term
Income Fund, the 1784 Tax-Exempt Medium-Term Income Fund and the 1784 Massa-
chusetts Tax-Exempt Income Fund, and 15% of the Fund's total assets for the
1784 Short-Term Income Fund, the 1784 Income Fund, the 1784 Connecticut Tax-
Exempt Income Fund and the 1784 Rhode Island Tax-Exempt Income Fund. No
borrowings were outstanding for the period ended May 31, 1995.
67
<PAGE>
May 31, 1995
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
1784 GROWTH AND INCOME FUND
- -------------------------------------------------------------------------------
(ART)
% OF TOTAL PORTFOLIO INVESTMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 94.3%
BASIC INDUSTRIES -- 10.0%
AB Asea ADR(A) 30,000 $ 2,543
AK Steel Holding 65,000 1,771
Bemis 80,000 2,280
Cyprus Amax Minerals 70,000 1,855
Du Pont, E I De Nemours 50,000 3,394
International Paper 24,312 1,912
Newmont Mining 50,000 2,088
Nucor 75,000 3,579
T.J. International 60,000 1,020
Willamette Industries 50,000 2,513
---------
22,955
---------
BEVERAGES -- 3.0%
Coca Cola 79,056 4,891
Tsingtao Brewery, Series H 5,000,000 2,069
---------
6,960
---------
CAPITAL GOODS/MACHINERY CONSTRUCTION -- 7.2%
Easco 95,000 1,413
Fluor 50,000 2,475
General Electric 40,000 2,320
Giddings & Lewis 80,000 1,390
Hardinge 100,000 1,994
IHC Caland(A) 100,000 2,675
Nordson 74,961 4,235
---------
16,502
---------
CONSUMER DURABLES -- 3.3%
AB Electrolux ADR(A) 25,000 $ 1,163
Newell 100,000 2,487
Rentokil Group 400,000 1,670
Sealed Air(A) 50,000 2,231
---------
7,551
---------
CONSUMER NON-DURABLES/ WHOLESALE TRADE -- 1.0%
Gillette 28,221 2,381
---------
ENERGY -- 9.2%
Amerada Hess 35,000 1,776
Arakis Energy Common 100,000 1,263
Atlantic Richfield 35,000 4,064
Box Energy(A) 75,000 675
Exxon 50,000 3,569
Royal Dutch Petroleum ADR 22,592 2,864
Schlumberger 75,000 4,874
Texaco 27,184 1,862
---------
20,947
---------
ENTERTAINMENT -- 2.7%
Disney, Walt 90,000 5,006
Gaylord Entertainment 50,000 1,168
---------
6,174
---------
FINANCIAL -- 8.2%
American International Group 23,796 2,707
Camden Property Trust 42,000 961
Equity Inns 95,000 1,021
Felcor Suite Hotels 140,000 3,535
MBNA 50,000 1,688
Mid-America Apartment Communities 75,000 1,884
RFS Hotel Investments 281,000 4,232
Storage USA 50,000 1,419
Winston Hotels 150,000 1,425
---------
18,872
---------
HEALTH CARE -- 7.5%
Abbott Laboratories(A) 84,633 3,384
Biogen 20,000 830
Genentech(A) 20,000 970
Medtronic 20,000 1,505
Merck 60,000 2,828
Pyxis(A) 120,000 2,895
Roche Holdings ADR 50,000 3,077
Value Health(A) 50,000 1,613
---------
17,102
---------
</TABLE>
68
The accompanying notes are an integral part of the financial statements.
<PAGE>
1784 Stock Funds
1784 Growth and Income Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
MERCHANDISE STORES -- 10.9%
Ava Alg Handels Verbrauchen 3,500 $ 1,395
Bed Bath & Beyond(A) 225,000 5,231
Home Depot 142,300 5,923
Hornbach Holdings 6,000 7,261
Wal Mart Stores 209,802 5,245
----------
25,055
----------
MISCELLANEOUS CONSUMER SERVICES -- 1.2%
Cintas(A) 30,000 1,035
Loewen Group 50,000 1,656
----------
2,691
----------
RESTAURANTS -- 8.0%
Brinker International 50,000 844
Cooker Restaurant(A) 91,800 792
Lone Star Steakhouse & Saloon(A) 220,000 6,903
Outback Steakhouse(A) 70,000 2,091
Papa John's International(A) 75,000 2,559
Wetherspoon 600,000 5,015
----------
18,204
----------
TECHNOLOGY -- 17.8%
Bay Networks(A) 86,250 3,148
Cambridge Technology Partners(A) 50,000 1,613
Intel 50,000 5,613
Microsoft(A) 55,000 4,658
Motorola 50,245 3,008
Nokia ADR(A) 40,000 1,860
Oracle System(A) 50,000 1,738
Sap AG 11,325 13,418
Silicon Graphics(A) 30,000 1,166
Texas Instrument 40,000 4,625
----------
40,847
----------
UTILITIES -- 4.3%
AT&T 75,000 3,806
GN Store Nord(A) 25,000 1,993
Paging Network(A) 42,222 1,172
Vodafone Group 85,000 2,858
----------
9,829
----------
TOTAL COMMON STOCK
(Cost $178,104,832) 216,070
----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Shares/Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 3.9%
Lehman Government Securities
6.125%, dated 05/31/95, matures
06/01/95, repurchase price $9,001,531
(collateralized by U.S. Treasury Note,
par value $9,230,000, 3.875%, matures
10/31/95; market value $9,182,228) $9,000 $ 9,000
--------
TOTAL REPURCHASE AGREEMENT
(Cost $9,000,000) 9,000
--------
CASH EQUIVALENTS -- 0.2%
Dreyfus U.S. Government Securities
Money Market Fund 6.064%, 06/07/95 195 195
Lehman Brothers Institutional Government
Obligations Money Market Fund 6.146%, 06/07/95 195 195
--------
TOTAL CASH EQUIVALENTS
(Cost $390,464) 390
--------
TOTAL INVESTMENTS -- 98.4%
(Cost $188,638,627) 225,460
--------
TOTAL OTHER ASSETS AND LIABILITIES, NET -- 1.6% 3,740
--------
NET ASSETS:
Capital Shares (unlimited authorization--no par value)
based on 18,846,936 outstanding shares
of beneficial interest 193,728
Accumulated Net Realized Loss on Investments (1,839)
Net Unrealized Appreciation on Investments 36,822
Undistributed Net Investment Income 489
--------
TOTAL NET ASSETS: -- 100.0% $229,200
========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $12.16
========
</TABLE>
- -------------------------------------------------------------------------------
(A) Non-income producing security.
ADR -- American Depository Receipt
69
The accompanying notes are an integral part of the financial statements.
<PAGE>
May 31, 1995
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
1784 ASSET ALLOCATION
- -------------------------------------------------------------------------------
(ART)
<TABLE>
<CAPTION>
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 55.3%
AUTOMOTIVE -- 1.6%
Ford Motor 4,800 $ 140
--------
BASIC INDUSTRIES -- 4.7%
Du Pont, EI De Nemours 2,800 189
Nucor(A) 2,000 96
Willamette Industries 2,400 121
--------
406
--------
BROADCASTING, NEWSPAPERS &
ADVERTISING -- 2.4%
Capital Cities ABC(A) 2,100 203
--------
CAPITAL GOODS/MACHINERY
CONSTRUCTION -- 4.1%
Fluor(A) 2,500 124
General Electric(A) 4,000 232
--------
356
--------
CONSUMER NON-DURABLE -- 9.2%
Nestle ADR 4,000 207
Pepsico(A) 4,000 196
Philip Morris(A) 2,600 189
Sysco(A) 7,500 203
--------
795
--------
ENERGY -- 8.1%
Exxon 2,500 179
Royal Dutch Petroleum ADR 1,400 177
Schlumberger LTD 2,600 169
Texaco 2,500 171
--------
696
--------
FINANCIAL -- 7.8%
American International Group 1,800 205
Bankamerica 2,800 146
Federal National Mortgage
Association(A) 2,000 186
Wachovia 3,600 136
--------
673
--------
HEALTH CARE -- 6.4%
Abbott Laboratories(A) 4,800 191
Bristol-Myers Squibb(A) 2,600 173
Merck(A) 4,000 189
--------
553
--------
TECHNOLOGY -- 5.7%
Ericsson LTD 1,800 132
Raytheon(A) 2,800 217
Thermo Electron(A) 4,000 144
--------
493
--------
TRANSPORTATION & RAILROADS -- 3.3%
CSX 2,000 153
Union Pacific(A) 2,400 133
--------
286
--------
UTILITIES -- 2.0%
AT&T Corporation(A) 3,400 173
--------
TOTAL COMMON STOCK
(Cost $4,132,636) 4,774
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
70
<PAGE>
1784 Stock Funds
1784 Asset Allocation
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 17.2%
U.S. Treasury Bill
5.650%, 07/27/95 $250 $ 248
U.S. Treasury Bonds
8.125%, 08/15/19 100 116
7.125%, 02/15/23 150 157
U.S. Treasury Notes
4.250%, 11/30/95 200 198
6.000%, 06/30/96 80 80
6.500%, 09/30/96 100 101
5.125%, 06/30/98 300 292
5.000%, 01/31/99 100 97
5.500%, 04/15/00 200 196
-------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $1,504,181) 1,485
-------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 9.1%
Federal Home Loan Mortgage
Corporation Discount Note
6.000%, 08/14/95 796 786
-------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(Cost $786,363) 786
-------
MEDIUM TERM NOTES -- 1.2%
Federal National Mortgage
Association
7.720%, 12/16/96 100 102
-------
TOTAL MEDIUM TERM NOTES
(Cost $99,837) 102
-------
U.S. GOVERNMENT MORTGAGE-BACKED BONDS -- 2.3%
Government National Mortgage
Association
7.500%, 06/15/23 192 194
-------
TOTAL U.S. GOVERNMENT MORTGAGE- BACKED BONDS
(Cost $201,615) 194
-------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Shares/Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE OBLIGATIONS -- 9.5%
Allstate
5.875%, 06/15/98 $100 $ 98
Associate Corporation of
North America
9.700%, 05/01/97 100 106
Chase Manhattan
8.000%, 06/15/99 200 210
Ford Motor Credit
6.750%, 05/15/05 100 98
North Carolina National
Bank
8.500%, 11/01/96 100 103
Signet Credit Card Master
Trust
5.250%, 04/15/00 100 98
Standard Credit Card Master
Trust
8.500%, 08/07/97 100 102
------
TOTAL CORPORATE OBLIGATIONS
(Cost $812,419) 815
------
CASH EQUIVALENTS -- 5.4%
Dreyfus U.S.
Government Cash
Management Money
Market Fund
6.064%, 06/07/95 233 233
Lehman Brothers
Institutional U.S.
Government Money
Market Fund
6.146%, 06/07/95 231 231
------
TOTAL CASH EQUIVALENTS
(Cost $464,119) 464
------
TOTAL INVESTMENTS -- 100.0%
(Cost $8,001,170) 8,620
------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- 0.0% 2
------
NET ASSETS:
Capital Shares (unlimited authorization--no
par value) based on 784,198 outstanding
shares of beneficial interest 7,871
Accumulated Net Realized Gain on Investments 81
Net Unrealized Appreciation on Investments 619
Undistributed Net Investment Income 51
------
TOTAL NET ASSETS: -- 100.0% $8,622
======
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $10.99
======
</TABLE>
- -------------------------------------------------------------------------------
(A) Non-income producing security
ADR -- American Depository Receipt
The accompanying notes are an integral part of the financial statements.
71
<PAGE>
May 31, 1995
Statement of Net Assets
- -------------------------------------------------------------------------------
1784 INTERNATIONAL EQUITY FUND
- -------------------------------------------------------------------------------
(ART)
<TABLE>
<CAPTION>
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN COMMON STOCKS -- 93.8%
ARGENTINA -- 1.5%
Cia Naviera Perez Companc,
Series B* 144,834 $ 619
Comercial del Plata SA* 246,100 598
Telecom Argentina SA ADR* 12,450 615
YPF SA ADR 24,200 490
---------
2,322
---------
AUSTRALIA -- 3.8%
Brambles Industries 100,700 993
Broken Hill Proprietary 82,720 1,050
Mayne Nickless 235,700 1,033
News Corporation 170,000 903
QBE Insurance Group 168,400 691
Western Mining 169,600 905
---------
5,575
---------
BRAZIL -- 0.6%
Compania Energie de Minas
ADR* 21,827 505
White Martins SA 412,171,200 364
---------
869
---------
CHILE -- 0.7%
Compania de Telefonos de
Chile ADR 6,800 602
Empresa Nacional de
Electridad SA 15,200 382
---------
984
---------
CHINA -- 0.3%
Yizheng Chemical Fibre,
Series H 1,306,700 486
---------
COLOMBIA -- 0.2%
Carulla SA ADR 24,650 293
---------
DENMARK -- 0.9%
Tele Danmark Series B AS 23,800 1,350
---------
FRANCE -- 8.1%
Accor* 8,800 1,128
Alcatel Alsthom* 12,600 1,145
Castorama Dubois Investisse* 9,700 1,550
Groupe Danone 4,600 758
L'Oreal* 5,200 1,366
LVMH* 5,600 1,062
Lyonnaise Des Eaux Dumez* 5,700 583
Promodes* 8,100 1,874
Roussel-Uclaf 6,900 986
Television
Francaise TF1* 17,000 1,580
---------
12,032
---------
GERMANY -- 4.6%
Degussa 6,100 1,908
Deutsche Bank AG 2,350 1,149
Deutsche Pfandbrief &
Hypobank* 2,750 1,339
Deutsche Pfandbrief &
Hypobank Rights* 2,750 57
GEA AG 800 301
Gehe AG* 3,300 1,448
Hochtief AG* 1,150 679
---------
6,881
---------
HONG KONG -- 4.9%
China Light & Power 185,400 1,014
Hong Kong
Telecommunications* 586,100 1,239
HSBC Holdings 59,800 777
Hutchison Whampoa 200,000 1,011
Shangri-La Asia* 360,000 435
Sun Hung Kai Properties 139,900 1,013
Swire Pacific, Series A 115,600 893
Television Broadcasts 238,700 910
---------
7,292
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
72
<PAGE>
1784 Stock Funds
1784 International Equity Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
HUNGARY -- 0.2%
Gedeon Richter 14,000 $ 246
---------
INDIA -- 0.7%
Mahindra & Mahindra GDR* 50,000 575
Reliance Industries 22,300 413
---------
988
---------
INDONESIA -- 0.9%
PT Indorama Synthetics* 146,000 446
PT Inti Indorayon Utama* 180,000 483
PT Semen Cibinong* 156,500 492
---------
1,421
---------
IRELAND -- 0.7%
Cement Roadstone 158,000 1,001
---------
ITALY -- 3.5%
Edison SPA* 188,600 825
Luxottica Group ADR* 19,700 709
Sasib SPA* 362,900 1,643
Stet Societa' Finanziara
Telefonica SPA* 686,400 1,979
---------
5,156
---------
JAPAN -- 24.3%
Canon Sales 105,000 2,742
Citizen Watch 191,000 1,288
Daiichi Pharmaceutical 80,000 1,229
Dainippon Ink & Chemical 293,000 1,398
Daiwa Industries* 73,000 756
Hoya* 60,000 1,708
Inax* 63,000 656
Kao Corporation 90,000 1,084
Keyence Corporation 16,000 1,682
Kyocera Corporation 36,000 2,733
NGK Spark Plug 93,000 988
Nikon 250,000 2,306
Nippon Comsys 132,700 1,646
Nippon Express 159,000 1,345
Sangetsu 21,000 621
Sanyo Electric* 361,000 1,851
Secom 32,000 2,019
Sharp 150,000 2,127
Shimano* 65,000 1,198
TDK 33,000 1,489
Tokio Marine & Fire Insurance 156,000 1,788
Toppan Printing 135,000 1,834
York Benimaru 36,000 1,446
---------
35,934
---------
KOREA -- 0.7%
Korea Fund 49,200 1,082
---------
MALAYSIA -- 1.7%
Genting Berhad* 69,000 728
Renong Berhad* 488,000 903
Sime Darby Berhad 316,000 897
---------
2,528
---------
MEXICO -- 1.1%
Cifra Sa de C.V. ADR* 274,400 338
Desc de C.V. SA* 28,900 364
Grupo Industrial Durango* 40,000 240
Grupo Mexico, Class B* 80,000 348
Telefonos De Mexico ADR* 12,300 346
---------
1,636
---------
NETHERLANDS -- 6.2%
Getronics 24,256 1,049
Koninklijke Ahold 62,200 2,142
Philips Electronics 59,600 2,370
Ranstad Holdings* 25,400 1,576
Wolters Kluwer 25,900 2,168
---------
9,305
---------
NEW ZEALAND -- 0.4%
Carter Holt Harvey* 221,000 556
---------
NORWAY -- 0.3%
Norsk Hydro 9,700 397
---------
PHILLIPPINES -- 0.8%
Manila Electric, Series B 73,500 638
Philippine Long Distance
Telephone ADR 7,600 546
---------
1,184
---------
POLAND -- 0.5%
Elektrim* 127,400 441
Mostostal Export D.R.* 33,000 160
Mostostal Export S.A.* 17,000 81
---------
682
---------
PORTUGAL -- 0.5%
Banco Comercial Portugues 27,000 357
Jeronimo Martins* 7,000 353
---------
710
---------
SINGAPORE -- 3.2%
City Developments* 160,900 1,074
Development Bank of Singapore 91,100 1,065
Fraser & Neave 65,600 786
</TABLE>
The accompanying notes are an integral part of the financial statements.
(continued)
73
<PAGE>
May 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
SINGAPORE (continued)
Keppel Corporation* 129,500 $ 1,181
Sembawang Corporation 85,500 589
---------
4,695
---------
SOUTH AFRICA -- 0.2%
De Beers Consolidated Mines
ADR 13,000 325
---------
SPAIN -- 2.2%
Empresa Nacional de Electridad
SA 32,700 1,562
Gas Natural, Series E 15,900 1,749
---------
3,311
---------
SWEDEN -- 0.9%
Atlas Copco, Series A 77,300 1,126
Atlas Copco, Series B 15,000 219
---------
1,345
---------
SWITZERLAND -- 4.0%
Brown Boveri 2,300 2,347
Nestle SA 1,280 1,291
Roche Holding Genusscheine* 370 2,277
---------
5,915
---------
THAILAND -- 2.0%
Bangkok Bank 55,800 610
Electricity Generating Public* 200,000 729
Land & House 17,000 342
Siam Cement 6,000 385
TPI Polene* 55,000 368
United Communication Industry 16,100 244
United Communication Industry,
Series F 20,600 295
---------
2,973
---------
TURKEY -- 0.1%
Arcelik A.S. 720,000 213
---------
UNITED KINGDOM -- 12.8%
BOC Group 117,400 1,483
British Airport Authority 189,600 1,458
British Petroleum 170,000 1,198
BTR 274,100 1,484
EMAP 150,000 1,070
Farnell Electronic 135,100 1,350
Granada Group 156,200 1,461
Reuters Holdings 168,000 1,257
Rexam 161,700 1,210
Royal Bank of Scotland 198,000 1,273
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Shares/Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
Security Services 94,400 $ 1,326
Williams Holdings 284,200 1,508
WPP Group 683,300 1,335
Zeneca Group 111,000 1,652
---------
19,065
---------
VENEZUELA -- 0.3%
Corimon SA ADR* 28,800 191
Mavesa S.A. ADR* 64,565 242
---------
433
---------
TOTAL FOREIGN COMMON STOCKS
(Cost $131,620,511) 139,185
---------
FOREIGN PREFERRED STOCKS -- 2.1%
BRAZIL -- 0.8%
Banco Brandesco SA 53,813 463
Brasmotor SA 940 208
Telecom Brasileiras SA* 14,821 529
---------
1,200
---------
GERMANY -- 1.3%
Friedrich Grohe AG 2,500 829
GEA AG 3,300 1,090
---------
1,919
---------
TOTAL FOREIGN PREFERRED
STOCKS
(Cost $2,552,211) 3,119
---------
CONVERTIBLE BONDS -- 0.3%
TAIWAN -- 0.3%
United Micro Electronics
1.250%, 06/08/04 $ 275 468
---------
TOTAL CONVERTIBLE BONDS
(Cost $380,875) 468
---------
CASH EQUIVALENT -- 0.0%
UNITED STATES -- 0.0%
Dreyfus U.S. Government
Securitites Money
Market Fund
6.064%, 06/07/95 16 16
Lehman Brothers Institutional
U.S. Government
Money Market Fund
6.146%, 06/07/95 18 18
---------
34
---------
TOTAL MONEY MARKET
(Cost $33,707) 34
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
74
<PAGE>
1784 Stock Funds
1784 International Equity Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 7.4%
Lehman Government Securities
6.125%, dated May 31, 1995,
due June 1, 1995, repurchase
price $11,001,872
(collateralized by U.S.
Treasury Notes ranging in par
value from $490 to $10,390;
02/28/97; total market value
of $11,217,798) $11,000 $ 11,000
--------
TOTAL REPURCHASE AGREEMENT
(Cost $11,000,000) 11,000
--------
TOTAL INVESTMENTS -- 103.6%
(Cost $145,587,304) 153,806
--------
OTHER ASSETS AND LIABILITIES --
(3.6%)
Unrealized depreciation on forward foreign
currency contracts (342)
Other assets and liabilities (5,025)
TOTAL OTHER ASSETS AND LIABILITIES,
NET (5,367)
--------
NET ASSETS:
Capital shares (unlimited authorization--no
par value) based on 14,264,740 outstanding
shares of beneficial interest 139,572
Accumulated Net Realized Gain on
Investments 159
Accumulated Net Realized Gain on
Foreign Currency Transactions 5
Net Unrealized Depreciation on Forward
Foreign Currency Contracts, Currency and
Transactions of Other Assets and Liabilities
in Foreign Currency (335)
Net Unrealized Appreciation on Investments 8,219
Undistributed Net Investment Income 819
--------
TOTAL NET ASSETS: -- 100.0% $148,439
========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $ 10.41
========
</TABLE>
- -------------------------------------------------------------------------------
ADR -- American Depository Receipts
* -- Non-income producing security
The accompanying notes are an integral part of the financial statements.
75
<PAGE>
For The Periods Ended May 31, 1995 1784 Stock Funds
STATEMENTS OF OPERATIONS (000)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH ASSET INTERNATIONAL
AND INCOME ALLOCATION EQUITY(1)
========== ========== =============
<S> <C> <C> <C>
INCOME:
Dividend Income $ 3,013 $ 112 $ 939
Interest Income 742 195 332
Less: Foreign Taxes Withheld -- -- (96)
---------- ---------- -------------
Total Income 3,755 307 1,175
---------- ---------- -------------
EXPENSES:
Investment Advisory Fees 1,393 55 398
Waiver of Investment Advisory Fees -- (32) (199)
Reimbursement of Expenses by Adviser (52) (29) (22)
Administrator Fees 215 9 44
Waiver of Administrator Fees -- (9) --
12b-1 Fees 491 19 100
Waiver of 12b-1 Fees (491) (19) (100)
Transfer Agent Fees & Expenses 58 51 29
Fund Accounting Fees 28 30 21
Waiver of Fund Accounting Fees (6) (6) --
Registration Fees 41 2 42
Trustee Fees 7 -- 3
Printing 19 1 11
Amortization of Deferred Organizational
Costs 12 12 1
Professional Fees 28 2 14
Custodian Fees 18 1 9
Other Expenses 7 6 5
---------- ---------- -------------
Total Expenses, Net 1,768 93 356
---------- ---------- -------------
Net Investment Income 1,987 214 819
---------- ---------- -------------
Net Realized Gain (Loss) from Security
Transactions (66) 87 159
Net Realized Gain from Forward Foreign
Currency Contracts and Foreign Currency
Transactions -- -- 5
Net Unrealized Appreciation on Investments 32,385 775 8,219
Net Unrealized Depreciation on Forward
Foreign Currency Contracts, Foreign
Currencies and Translation of Other
Assets and Liabilities in Foreign
Currency -- -- (335)
---------- ---------- -------------
Net Realized and Unrealized Gain on
Investments and Foreign Currency 32,319 862 8,048
---------- ---------- -------------
Net Increase in Net Assets Resulting from
Operations $34,306 $1,076 $8,867
========== ========== =============
</TABLE>
(1)The International Equity Fund commenced operations on January 3, 1995.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
76
<PAGE>
For The Periods Ended May 31 1784 Stock Funds
STATEMENTS OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH ASSET INTERNATIONAL
AND INCOME ALLOCATION EQUITY
==================== ==================== =============
6/1/94 6/7/93 (1) 6/1/94 6/14/93 (2) 1/3/95 (3)
to to to to to
5/31/95 5/31/94 5/31/95 5/31/94 5/31/95
-------- ---------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income $ 1,987 $ 1,150 $ 214 $ 103 $ 819
Net Realized Gain
(Loss) from Security
Transactions (66) (220) 87 2 159
Net Realized Gain from
Forward Foreign
Currency Contracts and
Foreign Currency
Transactions -- -- -- -- 5
Net Unrealized
Appreciation
(Depreciation) on
Investments 32,385 4,437 775 (156) 8,219
Net Unrealized
Depreciation on
Foreign Forward
Currency Contracts,
Foreign Currencies and
Translation of Other
Assets and Liabilities
in Foreign Currency -- -- -- -- (335)
-------- ---------- ------- ----------- -------------
Net Increase (Decrease)
in Net Assets
Resulting from
Operations 34,306 5,367 1,076 (51) 8,867
-------- ---------- ------- ----------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net Investment Income (1,640) (1,008) (198) (70) --
Realized Capital Gains (1,553) -- (6) -- --
-------- ---------- ------- ----------- -------------
Total Distributions (3,193) (1,008) (204) (70) --
SHARE TRANSACTIONS:
Shares Issued 118,880 120,535 2,666 8,242 141,128
Shares Issued in Lieu
of Cash Distributions 1,935 94 174 60 --
Shares Redeemed (44,443) (3,271) (2,018) (1,253) (1,556)
-------- ---------- ------- ----------- -------------
Increase in Net Assets
from Share Transactions 76,370 117,358 822 7,049 139,572
-------- ---------- ------- ----------- -------------
Total Increase in Net
Assets 107,542 121,717 1,694 6,928 148,439
NET ASSETS:
Beginning of Period 121,717 -- 6,928 -- --
-------- ---------- ------- ----------- -------------
NET ASSETS:
End of Period $229,200 $121,717 $8,622 $ 6,928 $148,439
======== ========== ======= =========== =============
CAPITAL SHARES
TRANSACTIONS:
Shares Issued 11,148 11,816 263 823 14,422
Shares Issued in Lieu
of Cash Distributions 186 9 18 6 --
Shares Redeemed (4,001) (311) (201) (125) (157)
-------- ---------- ------- ----------- -------------
Net Increase in Capital
Shares Transactions 7,333 11,514 80 704 14,265
======== ========== ======= =========== =============
Undistributed Net
Investment Income $489 $142 $51 $33 $819
======== ========== ======= =========== =============
</TABLE>
(1)The Growth and Income Fund commenced operations on June 7, 1993.
(2)The Asset Allocation Fund commenced operations on June 14, 1993.
(3)The International Equity Fund commenced operations on January 3, 1995.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
77
<PAGE>
1784 Stock Funds
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Net Net Ratio
Asset Realized and Dividends Net Assets Ratio of Net
Value Net Unrealized from Net Distributions Asset Value End of Expenses Income
Beginning Investment Gains or (Losses) Investment from Capital End Total of Period to Average to Average
of Period Income on Investments Income Gains of Period Return (000) Net Assets Net Assets
--------- ---------- ----------------- ---------- ------------- ----------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH AND
INCOME
==========
For the year
ended May 31,
1995 $10.57 0.11 1.67 (0.10) (0.09) $12.16 17.09% $229,200 0.94% 1.05%
For the period
ended May 31,
1994 (1) $10.00 0.12 0.56 (0.11) (0.00) $10.57 6.80 %* $121,717 0.35% 1.23%
ASSET
ALLOCATION
==========
For the year
ended May 31,
1995 $ 9.84 0.28 1.15 (0.27) (0.01) $10.99 14.84% $ 8,622 1.25% 2.88%
For the period
ended May 31,
1994 (2) $10.00 0.19 (0.20) (0.15) (0.00) $ 9.84 (0.15)%* $ 6,928 1.25% 2.62%
INTERNATIONAL
EQUITY
=============
For the period
ended May 31,
1995(3) $10.00 0.06 0.35 (0.00) (0.00) $10.41 4.73%* $148,439 0.89% 2.06%
<CAPTION>
Ratio Ratio of
of Expenses Net Income
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ---------- ---------
<S> <C> <C> <C>
GROWTH AND
INCOME
==========
For the year
ended May 31,
1995 1.23% 0.76% 38.94%
For the period
ended May 31,
1994 (1) 1.36% 0.22% 31.55%
ASSET
ALLOCATION
==========
For the year
ended May 31,
1995 2.51% 1.62% 67.23%
For the period
ended May 31,
1994 (2) 3.61% 0.26% 28.19%
INTERNATIONAL
EQUITY
=============
For the period
ended May 31,
1995(3) 1.70% 1.25% 11.03%
</TABLE>
* Returns are for the period indicated and have not been annualized.
(1)The Growth and Income Fund commenced operations on June 7, 1993. All ratios
for the period have been annualized.
(2)The Asset Allocation Fund commenced operations on June 14, 1993. All ratios
for the period have been annualized.
(3)The International Equity Fund commenced operations on January 3, 1995. All
ratios for the period have been annualized.
The accompanying notes are an integral part of the financial statements.
78
u----------
<PAGE>
May 31, 1995
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
===============================================================================
The 1784 Growth and Income, 1784 Asset Allocation and 1784 International Eq-
uity Funds (the "Stock Funds") are portfolios of the 1784 Funds (the "Trust"),
an open-end investment company registered under the Investment Company Act of
1940, as amended. The Trust is presently authorized to offer shares in 13 sep-
arate portfolios (the "Funds"):
MONEY MARKET FUNDS: STOCK FUNDS:
1784 Tax-Free Money Market Fund 1784 Growth and Income Fund
1784 U.S. Treasury Money Market Fund 1784 Asset Allocation Fund
1784 Institutional U.S. Treasury Money 1784 International Equity Fund
Market Fund
BOND FUNDS:
1784 U.S. Government Medium-Term Income Fund
1784 Short-Term Income Fund
1784 Income Fund
1784 Tax-Exempt Medium-Term Income Fund
1784 Massachusetts Tax-Exempt Income Fund
1784 Rhode Island Tax-Exempt Income Fund
1784 Connecticut Tax-Exempt Income Fund
The financial statements included on pages 68 to 84 are for the Stock Funds.
The financial statements of the Tax-Free Money Market and U.S. Treasury Money
Market Funds are included on pages 21 to 35. The financial statements of the
Bond Funds are included on pages 36 to 67. The financial statements of the In-
stitutional U.S. Treasury Money Market Fund are not presented herein, but are
presented separately. The assets of each Fund are segregated, and a sharehold-
er's interest is limited to the Fund in which shares are held.
2. SIGNIFICANT ACCOUNTING POLICIES
===============================================================================
The following is a summary of significant accounting policies followed by
the Stock Funds.
Security Valuation -- Investment securities of the Stock Funds which are
listed on a securities exchange for which market quotations are available are
valued by an independent pricing service at the last quoted sales price for
such securities on each business day. If there is no such reported sale, these
securities and unlisted securities for which market quotations are readily
available are valued at the most recent bid price using procedures determined
in good faith by the Board of Trustees. Debt obligations with sixty days or
less remaining until maturity may be valued at their amortized cost.
(continued)
79
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Under this valuation method, purchase discounts and premiums are accreted and
amortized ratably to maturity and are included in interest income.
Foreign Currency Translation -- The books and records of the 1784 Interna-
tional Equity Fund are maintained in U.S. dollars. Foreign currency amounts
are translated into U.S. dollars on the following basis:
I. market value of investments securities, assets and other liabilities at the
current rate of exchange; and
II. purchases and sales of investment securities, income and expenses at the
relevant rates of exchange prevailing on the respective dates of such transac-
tions.
The Fund does not isolate that portion of gains and losses on investment secu-
rities which is due to changes in the foreign exchange rates from that which
is due to changes in market prices of such securities.
The Fund reports gains and losses on foreign currency related transactions as
realized and unrealized components of gains and losses for financial reporting
purposes, whereas such gains and losses are treated as ordinary income for
Federal income tax purposes.
Forward Foreign Currency Contracts -- The 1784 International Equity Fund en-
ters into forward foreign currency contracts as hedges against either specific
transactions or portfolio positions. The aggregate principal amounts of the
contracts are not recorded as the Fund does not intend to hold to maturity.
All commitments are "marked-to-market" daily at the applicable foreign ex-
change rate and any resulting unrealized gains or losses are recorded current-
ly. The Fund realizes gains and losses at the time forward contracts are ex-
tinguished. Unrealized gains or losses on outstanding positions in forward
foreign currency contracts held at the close of the year will be recognized as
ordinary income for federal income tax purposes.
Security Transactions and Investment Income -- Security transactions are ac-
counted for on the trade date of the security purchase or sale. Costs used in
determining net realized capital gains and losses on the sale of securities
are those of the specific securities sold, adjusted for the accretion and am-
ortization of the purchase discounts and premiums during the respective hold-
ing period, which is calculated using the effective interest method. Interest
income is recorded on the accrual basis. Dividend income is recorded on ex-
date.
Repurchase Agreements -- Securities pledged as collateral for Repurchase
Agreements are held by each Fund's custodian bank until maturity of the Repur-
chase Agreements. Provisions of the Agreements and procedures adopted by the
Adviser are intended to ensure that the market value of the collateral, in-
cluding accrued interest thereon, is sufficient in the event of default by the
counterparty. If the counterparty defaults and the value of the collateral de-
clines or if the counterparty enters into insolvency proceedings, realization
of the collateral by the Fund may be delayed or limited.
80
<PAGE>
1784 STOCK FUNDS
Expenses -- Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses of the Trust are prorated to
the Funds on the basis of relative net assets.
Distributions to Shareholders -- Distributions from net investment income are
declared and paid on a quarterly basis. Any net realized capital gains on
sales of securities for a Fund are distributed to its shareholders at least
annually.
Federal Income Taxes -- The Trust's policy is to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income to its shareholders. Accordingly, no
provision for Federal income taxes is required in the financial statements.
The Funds may be subject to taxes imposed by countries in which they invest
with respect to their investments in issuers existing or operating in such
countries. Such taxes are generally based on either income earned or repatri-
ated. The Funds accrue such taxes when the related income is earned.
Organization Costs -- These costs have been deferred in the accounts of the
Funds and are being amortized on a straight-line basis over a period of sixty
months commencing with operations. If any or all of the shares representing
initial capital of each Fund are redeemed by any holder thereof prior to the
end of the amortization period, the proceeds will be reduced by the unamor-
tized organization cost balance in the same proportion as the number of shares
redeemed bears to the initial shares outstanding immediately preceding the re-
demption.
3. INVESTMENT ADVISORY, CUSTODIAL AND ACCOUNTING SERVICES
===============================================================================
Pursuant to an investment advisory agreement dated June 1, 1993, investment
advisory services are provided to the Trust by The First National Bank of Bos-
ton (the Adviser). The Adviser is entitled to receive a fee of 0.74% of the
average daily net assets of the Growth and Income and Asset Allocation Funds.
Such fee is computed daily and paid monthly. The International Equity Fund has
entered into separate investment advisory agreements (each an "Advisory Agree-
ment") with The First National Bank of Boston and with Kleinwort Benson In-
vestment Management Americas Inc. ("Kleinwort Benson" and together with Bank
of Boston the "Advisers"). The Advisory Agreement with Bank of Boston is dated
as of November 28, 1994; the Advisory Agreement with Kleinwort Benson is dated
as of November 28, 1994. The Advisers are entitled to receive an aggregate an-
nual fee of 1.00% of the average daily net assets of the International Equity
Fund. Such fee is computed daily and paid monthly. The Adviser has voluntarily
agreed to waive a portion of its fee and reimburse the Trust for other ex-
penses as necessary to assist the International Equity Fund in maintaining an
expense ratio of not more than 1.25% of the average daily net assets on an
annualized basis.
(continued)
81
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The Trust and Bank of Boston (the "Custodian") are parties to a custodial
agreement dated June 1, 1993 under which the Custodian holds cash, securities
and other assets of the Trust as required by the Investment Company Act of
1940. The Custodian is entitled to receive an annual fee, to be paid monthly,
of 0.01% for the first $100 million in assets, 0.0075% for the next $100 mil-
lion and 0.005% for the next $800 million in assets. In its capacity as custo-
dian to the Trust, the Custodian plays no role in determining the investment
policies of the Trust or which securities are to be purchased or sold in the
Funds.
Under a separate agreement, The Bank of Boston also provides certain ac-
counting services for the Trust and is entitled to receive a fee of $30,000
per Fund for the Growth and Income and Asset Allocation Funds and $50,000 for
the International Equity Fund on an annual basis.
The Bank of Boston voluntarily waives a portion of its advisory, custody and
accounting fees. In addition, The Bank of Boston reimburses certain other ex-
penses incurred by the Funds in order to help the Funds maintain a competitive
expense ratio.
4. ADMINISTRATIVE, TRANSFER AGENT AND DISTRIBUTION SERVICES
===============================================================================
Pursuant to an administrative agreement dated June 7, 1993, SEI Financial
Management Corporation ("SEI") acts as the Trust's Administrator. Under the
terms of such agreement, SEI is entitled to receive an annual fee of 0.15% of
the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Such fee is computed daily
and paid monthly. The Administrator has agreed to waive a portion of its fee
from the 1784 Asset Allocation Fund in order to help the Fund maintain a com-
petitive expense ratio.
Pursuant to an agreement dated June 1, 1993, SEI acts as the Transfer Agent
of the Trust. As such, SEI provides transfer agency, dividend disbursing,
shareholder servicing and administrative services for the Trust.
SEI Financial Services Company ("SFS"), a wholly owned subsidiary of SEI,
acts as the Trust's Distributor pursuant to a distribution agreement dated
June 1, 1993. The Distributor is entitled to receive a fee, calculated daily
and paid monthly, at an annual rate of 0.25% of the average daily net assets
of the Trust. The Distributor has agreed to waive the 12b-1 fee until at least
October 1, 1995.
Certain officers of the Trust are also officers of the Administrator. Such
officers are paid no fees by the Trust.
The Funds have paid legal fees to a law firm of which the Secretary of the
Trust is a member.
5. INVESTMENT TRANSACTIONS
===============================================================================
The cost of security purchases and the proceeds from the sale of securities,
other than temporary cash investments for the year ended May 31, 1995, are as
presented below for the Stock Funds. On
82
<PAGE>
1784 Stock Funds
May 31, 1995, the total cost of securities and the net realized gains or
losses on securities sold for Federal income tax purposes was not materially
different from amounts reported for financial reporting purposes.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND INVESTMENT TRANSACTIONS (000): GROWTH AND ASSET INTERNATIONAL
FOR THE YEAR OR PERIOD ENDED MAY 31, 1995 INCOME FUND ALLOCATION FUND EQUITY FUND
=========== =============== =============
<S> <C> <C> <C>
Purchases $122,661 $3,388 $156,864
Sales 40,859 3,626 8,770
Aggregate gross unrealized gains 46,125 696 10,090
Aggregate gross unrealized losses 8,159 77 1,961
----------- --------------- -------------
Net unrealized gain (loss) $ 37,966 $ 619 $ 8,129
- ------------------------------------------------------------------------------------
</TABLE>
6. FORWARD FOREIGN CURRENCY CONTRACTS
================================================================================
The 1784 International Equity Fund entered into forward foreign currency ex-
change contracts as hedges against portfolio positions. Such contracts, which
protect the value of the Fund's investment securities against the decline in
the value of the hedged currency, do not eliminate fluctuations in the under-
lying prices of the securities. They simply establish an exchange rate at a
future date. Also, although such contracts tend to minimize the risk of loss
due to a decline in the value of a hedged currency, at the same time they tend
to limit any potential gain that might be realized should the value of such
foreign currency increase.
The following forward foreign currency contracts were outstanding at May 31,
1995:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN CURRENCY SALES:
IN UNREALIZED
CONTRACT TO EXCHANGE APPRECIATION /
MATURITY DELIVER FOR (DEPRECIATION)
DATE (000) (000) (000)
======== =================================== ======== ==============
<S> <C> <C> <C> <C>
6/21/95 DEM 9,024 $ 6,499 $ 102
6/21/95 JPY 822,800 9,264 (516)
6/21/95 NLG 9,085 5,833 72
-------- --------------
$21,596 $(342)
======== ==============
</TABLE>
- -------------------------------------------------------------------------------
Currency Legend
DEM German Marks
JPY Japanese Yen
NLG Netherlands Guilders (continued)
83
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued) 1784 STOCK FUNDS
7. LINE OF CREDIT
===============================================================================
The 1784 Growth and Income and 1784 Asset Allocation Funds have a bank line
of credit. Borrowings under the line of credit are secured by investment secu-
rities of the borrowing Fund, which may not exceed 10% of the Fund's net as-
sets. No borrowings were outstanding for the period ended May 31, 1995.
84
<PAGE>
NOTICE TO SHAREHOLDERS OF THE 1784 FUNDS (UNAUDITED)
FOR TAXPAYERS FILING ON A CALENDAR YEAR BASIS, THIS NOTICE IS FOR INFORMATIONAL
PURPOSES ONLY.
Dear 1784 Funds Shareholders:
For the fiscal year ended May 31, 1995, each Fund is designating long term
capital gains, qualifying dividends and exempt income with regard to distribu-
tions paid during the year as follows:
<TABLE>
<CAPTION>
(A)* (B)*
Long Term Ordinary (C) (E)**
Capital Gains Income Total (D)** Tax (F)**
Distributions Distributions Distributions Qualifying Exempt Foreign
Fund (Tax Basis) (Tax Basis) (Tax Basis) Dividends (1) Interest Tax Credit
- ---- ------------- ------------- ------------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Money Market 0% 100% 100% 0% 0% 0%
Tax-Free Money Market 0% 100% 100% 0% 88% 0%
Short-Term Income 0% 100% 100% 0% 0% 0%
U.S. Government Medium Term Income 0% 100% 100% 0% 0% 0%
Income 0% 100% 100% 0% 0% 0%
Tax-Exempt Medium-Term Income 0% 100% 100% 0% 95% 0%
Massachusetts Tax-Exempt Income 0% 100% 100% 0% 89% 0%
Connecticut Tax-Exempt Income 0% 100% 100% 0% 97% 0%
Rhode Island Tax-Exempt Income 0% 100% 100% 0% 97% 0%
Growth and Income 49% 51% 100% 100% 0% 0%
Asset Allocation 3% 97% 100% 50% 0% 0%
International Equity 0% 0% 0% 0% 0% 0%
</TABLE>
(1)Qualifying dividends represent dividends which qualify for the corporate
received deduction.
*Items (A) and (B) are based on a percentage of the Fund's total
distribution.
**Items (D), (E) and (F) are based on a percentage of ordinary income
distributions of the Fund.
Please consult your tax adviser for proper treatment of this information.
85
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Trustees of 1784 Institutional
U.S. Treasury Money Market Fund:
We have audited the accompanying statement of net assets of the 1784 Institu-
tional U.S. Treasury Money Market Fund as of May 31, 1995, and the related
statement of operations for the year then ended, the statements of changes in
net assets and financial highlights for the year then ended and the period
from June 14, 1993 (commencement of operations) to May 31, 1994. These finan-
cial statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995 by correspondence with the custodian and brokers. An audit also in-
cludes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presenta-
tion. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
1784 Institutional U.S. Treasury Money Market Fund as of May 31, 1995, the re-
sults of its operations for the year then ended, the changes in its net assets
and the financial highlights for the year then ended and the period from June
14, 1993 (commencement of operations) to May 31, 1994, in conformity with gen-
erally accepted accounting principles.
Boston, Massachusetts Coopers & Lybrand L.L.P.
July 19, 1995
5
<PAGE>
MAY 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 23.7%
UNITED STATES TREASURY BILLS
5.490%, 06/01/95 $11,000 $ 11,000
6.100%, 08/10/95 5,000 4,941
5.760%, 08/31/95 9,000 8,870
5.920%, 09/14/95 4,000 3,931
5.900%, 09/21/95 10,000 9,818
6.270%, 11/16/95 8,000 7,771
5.750%, 11/24/95 9,500 9,239
6.160%, 03/07/96 10,000 9,541
6.020%, 04/04/96 22,000 20,919
6.070%, 05/02/96 8,000 7,570
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $93,600,255) 93,600
--------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 22.3%
Federal Home Loan Bank Discount Notes
6.100%, 06/01/95 9,000 9,000
5.210%, 06/09/95 10,000 9,987
Federal National Mortgage Association
Discount Note
4.900%, 06/06/95 31,000 30,975
5.600%, 06/22/95 8,000 7,973
5.760%, 07/10/95 18,500 18,382
5.80%, 07/11/95 9,000 8,941
Student Loan Marketing
Association Discount Note
5.610%, 06/21/95 3,000 2,990
--------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(Cost $88,247,878) 88,248
--------
FLOATING RATE INSTRUMENTS -- 5.9%
Student Loan Marketing Association
6.220%, 11/01/96 (A) 5,000 5,017
5.970%, 07/19/96 (A) 5,000 5,001
5.990%, 11/24/97 (A) 10,000 10,002
6.170%, 01/21/98 (A) 3,000 3,014
6.020%, 02/22/99 (A) 500 499
--------
TOTAL FLOATING RATE INSTRUMENTS
(Cost $23,533,019) 23,533
--------
<CAPTION>
- -------------------------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 46.8%
Lehman Government Securities
6.125%, dated 05/31/95, matures
06/01/95, repurchase price
$25,004,253 (collateralized by
various U.S. Treasury Notes ranging
in par value $3,800,000-13,050,000,
11.25%-11.75%, 11/15/14-02/15/15; with
total market value of $25,491,117) $25,000 $ 25,000
Prudential Securities 6.125%,
dated 05/31/95, matures 06/01/95,
repurchase price $70,011,910
(collateralized by various U.S.
Treasury Notes ranging in par value
$10,520,000-18,140,000, 4.00%-8.875%,
12/31/95-2/15/99; U.S. Treasury STRIP,
par value $20,483,000, matures 08/15/01:
with total market value of $71,400,415) 70,000 70,000
Sanwa Securities 6.100%, dated 05/31/95,
matures 06/01/95, repurchase price
$90,015,250 (collateralized by various
U.S. Treasury Notes ranging in par value
$8,175,000-$21,577,000, 6.750%-6.875%,
5/31/99-3/31/00; U.S. Treasury STRIPS
ranging in par value $45,000-1,702,000,
08/15/95-8/15/97; with total market value
of $91,800,374) 90,000 90,000
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $185,000,000) 185,000
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
1784 institutional u.s. treasury money market fund
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Description Par (000) Value (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENTS -- 1.8%
Dreyfus Treasury Cash
Management Money Market
Fund
5.951%, 06/07/95 $ 7,080 $ 7,080
--------
TOTAL CASH EQUIVALENTS
(Cost $7,079,597) 7,080
--------
TOTAL INVESTMENTS -- 100.5%
(Cost $397,460,749) 397,461
--------
TOTAL OTHER ASSETS AND LIABILITIES,
NET -- (0.5%) (1,876)
--------
NET ASSETS:
Capital Shares (unlimited authorization--no
par value) based on 395,600,055 outstanding
shares of beneficial interest 395,600
Accumulated Net Realized Loss on Investments (15)
--------
TOTAL NET ASSETS: 100.0% $395,585
========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $1.00
========
</TABLE>
(A) Variable Rate Security - the rate reported on the Statement of Net Assets
is the rate in effect on May 31, 1995.
STRIP--Separate Trading of Registered Interest and Principal.
7
<PAGE>
FOR THE YEAR ENDED MAY 31, 1995
STATEMENT OF OPERATIONS (000)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1784 INSTITUTIONAL
U.S. TREASURY
MONEY MARKET
==================
<S> <C>
INTEREST INCOME: $13,974
-------
EXPENSES:
Investment Advisory Fees 516
Waiver of Investment Advisory Fees (231)
Administrator Fees 294
Reimbursement of Expenses by Adviser (47)
Registration Fees 46
Transfer Agent Fees & Expenses 44
Professional Fees 41
Fund Accounting Fees 30
Waiver of Fund Accounting Fees (6)
Printing 28
Custodian Fees 23
Amortization of Deferred Organizational Costs 12
Trustee Fees 11
Other Expenses 4
-------
Total Expenses, Net 765
-------
Net Investment Income 13,209
-------
Net Realized Gain on Investments 4
-------
Net Increase in Net Assets Resulting from Operations $13,213
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
FOR THE PERIODS ENDED MAY 31 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1784 INSTITUTIONAL
U.S. TREASURY
MONEY MARKET
=========================
6/1/94 6/14/93/(1)/
to to
5/31/95 5/31/94
----------- ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income $ 13,209 $ 4,039
Net Realized Gain (Loss) on Investments Sold 4 (19)
----------- ------------
Net Increase in Net Assets Resulting from Operations 13,213 4,020
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income (13,209) (4,039)
Realized Capital Gains 0 0
----------- ------------
Total Distributions (13,209) (4,039)
----------- ------------
SHARE TRANSACTIONS:
Shares Issued 3,035,609 1,502,183
Shares Issued in Lieu of Cash Distributions 5,500 2,666
Shares Redeemed (2,827,096) (1,323,358)
----------- ------------
Increase in Net Assets from Share Transactions 214,013 181,491
----------- ------------
Total Increase in Net Assets 214,017 181,472
NET ASSETS:
Beginning of Period 181,568 96
----------- ------------
NET ASSETS:
End of Period $ 395,585 $ 181,568
=========== ============
CAPITAL SHARES TRANSACTIONS:
Shares Issued 3,035,609 1,502,183
Shares Issued in Lieu of Cash Distributions 5,500 2,666
Shares Redeemed (2,827,096) (1,323,358)
----------- ------------
Net Increase in Capital Share Transactions 214,013 181,491
=========== ============
</TABLE>
(1) The Institutional U.S. Treasury Money Market Fund commenced operations on
June 14, 1993.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Ratio Ratio of
Net Net Ratio of Expenses Net Income
Asset Dividends Net Assets Ratio of Net to Average to Average
Value Net from Net Asset Value End of Expenses Income Net Assets Net Assets
Beginning Investment Investment End Total of Period to Average to Average (Excluding (Excluding
of Period Income Income of Period Return (000) Net Assets Net Assets Waivers) Waivers)
--------- ---------- ---------- ----------- ------ --------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
U.S. TREASURY
MONEY MARKET
=============
For the year ended
May 31, 1995 $1.00 0.05 (0.05) $1.00 5.05% $395,585 0.30% 5.12% 0.41% 5.01%
For the period ended
May 31, 1994(1) $1.00 0.03 (0.03) $1.00 2.99%* $181,568 0.22% 3.16% 0.55% 2.83%
</TABLE>
*Returns are for the period indicated and have not been annualized.
(1)The Institutional U.S. Treasury Money Market Fund commenced operations on
June 14, 1993. All ratios for the period have been annualized.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
MAY 31, 1995 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
================================================================================
The 1784 Institutional U.S. Treasury Money Market Fund is a portfolio of the
1784 Funds (the "Trust"), an open-end investment company registered under the
Investment Company Act of 1940, as amended. The Trust is presently authorized
to offer shares in 13 separate portfolios (the "Funds"):
MONEY MARKET FUNDS:STOCK FUNDS:
1784 U.S. Treasury Money Market Fund1784 Growth and Income Fund
1784 Tax-Free Money Market Fund1784 Asset Allocation Fund
1784 Institutional U.S. Treasury Money Market Fund1784 International Equity Fund
BOND FUNDS:
1784 Short-Term Income Fund
1784 U.S. Government Medium-Term Income Fund
1784 Income Fund
1784 Tax-Exempt Medium-Term Income Fund
1784 Massachusetts Tax-Exempt Income Fund
1784 Rhode Island Tax-Exempt Income Fund
1784 Connecticut Tax-Exempt Income Fund
The financial statements of the 1784 Institutional U.S. Treasury Money
Market Fund are included herein. The financial statements of the remaining
Funds are presented separately. The assets of each Fund are segregated, and a
shareholder's interest is limited to the Fund in which shares are held.
2. SIGNIFICANT ACCOUNTING POLICIES
================================================================================
The following is a summary of significant accounting policies followed by
the 1784 Institutional U.S. Treasury Money Market Fund (the "Fund").
Security Valuation -- Investment securities of the Fund are stated at amor-
tized cost which approximates market value. Under this valuation method, pur-
chase discounts and premiums are accreted and amortized ratably to maturity
and are included in interest income.
Security Transactions and Investment Income -- Security transactions are ac-
counted for on the trade date of the security purchase or sale. Costs used in
determining net realized capital gains and losses on the sale of securities
are those of the specific securities sold, adjusted for the accretion and am-
ortization of the purchase discounts and premiums during the respective hold-
ing period. Interest income is recorded on the accrual basis.
11
<PAGE>
Repurchase Agreements -- Securities pledged as collateral for Repurchase
Agreements are held by each Fund's custodian bank until maturity of the Repur-
chase Agreements. Provisions of the Agreements and procedures adopted by the
Adviser are intended to ensure that the market value of the collateral, in-
cluding accrued interest thereon, is sufficient in the event of default by the
counterparty. If the counterparty defaults and the value of the collateral de-
clines or if the counterparty enters into insolvency proceedings, realization
of the collateral by the Fund may be delayed or limited.
Expenses -- Expenses that are directly related to the Fund are charged di-
rectly to the Fund. Other operating expenses of the Trust are prorated to the
Funds on the basis of relative net assets.
Distributions to Shareholders -- Distributions from net investment income are
declared on a daily basis and are payable on the first business day of the
following month. Any net realized capital gains on sales of securities for a
Fund are distributed to its shareholders at least annually.
Federal Income Taxes -- The Trust's policy is to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income to its shareholders. Accordingly, no
provision for Federal income taxes is required in the financial statements.
Organization Costs -- These costs have been deferred in the accounts of the
Funds and are being amortized on a straight-line basis over a period of sixty
months commencing with operations. If any or all of the shares representing
initial capital of each Fund are redeemed by any holder thereof prior to the
end of the amortization period, the proceeds will be reduced by the unamor-
tized organization cost balance in the same proportion as the number of shares
redeemed bears to the initial shares outstanding immediately preceding the re-
demption.
3. INVESTMENT ADVISORY, CUSTODIAL AND ACCOUNTING SERVICES
================================================================================
Pursuant to an investment advisory agreement dated June 1, 1993, investment
advisory services are provided to the Trust by The First National Bank of Bos-
ton (the "Adviser"). The Adviser is entitled to receive a fee of 0.20% of the
average daily net assets of the Institutional U.S. Treasury Money Market Fund.
Such fee is computed daily and paid monthly.
The Trust and The First National Bank of Boston (the "Custodian") are par-
ties to a custodial agreement dated June 1, 1993, under which the Custodian
holds cash, securities and other assets of the Trust as required by the In-
vestment Company Act of 1940. The Custodian is entitled to receive an annual
fee, to be paid monthly, of 0.01% for the first $100 million in average daily
net assets, 0.0075% for the next $100 million and 0.005% for the next $800
million in average daily net assets. In its capac-
12
<PAGE>
1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ity as custodian to the Trust, the Custodian plays no role in determining the
investment policies of the Trust or which securities are to be purchased or
sold by the Funds.
Under a separate agreement, The First National Bank of Boston also provides
certain accounting services for the Trust and is entitled to receive a fee for
these services of $30,000 per Fund per year.
The First National Bank of Boston voluntarily waives a portion of its advi-
sory, custody and accounting fees. In addition, The First National Bank of
Boston reimburses certain other expenses incurred by the Funds in order to
help the Funds maintain a competitive expense ratio.
4. ADMINISTRATIVE, TRANSFER AGENT AND DISTRIBUTION SERVICES
================================================================================
Pursuant to an administrative agreement dated June 7, 1993, SEI Financial
Management Corporation ("SEI") acts as the Trust's Administrator. Under the
terms of such agreement, SEI is entitled to receive an annual fee of 0.15% of
the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Such fee is computed daily
and paid monthly.
Pursuant to an agreement dated June 1, 1993, SEI acts as the Transfer Agent
of the Trust. As such, SEI provides transfer agency, dividend disbursing,
shareholder servicing and administrative services for the Trust.
SEI Financial Services Company ("SFS"), a wholly owned subsidiary of SEI,
acts as the Trust's Distributor pursuant to a distribution agreement dated
June 1, 1993. SFS is paid no fees by the Trust.
Certain officers of the Trust are also officers of the Administrator. Such
officers are paid no fees by the Trust.
The Funds have paid legal fees to a law firm of which the Secretary of the
Trust is a member.
5. LINE OF CREDIT
================================================================================
The Fund has a bank line of credit. Borrowings under the line of credit are
secured by investment securities of the Fund, which may not exceed 10% of the
Fund's total assets. No borrowings were outstanding for the period ended May
31, 1995.
13
<PAGE>
NOTICE TO SHAREHOLDERS OF THE 1784 INSTITUTIONAL U.S. TREASURY
MONEY MARKET FUND (UNAUDITED)
FOR TAXPAYERS FILING ON A CALENDAR YEAR BASIS, THIS NOTICE IS FOR INFORMATIONAL
PURPOSES ONLY.
Dear 1784 Funds Shareholders:
For the fiscal year ended May 31, 1995, the 1784 Institutional U.S. Treasury
Money Market Fund is designating long term capital gains, qualifying dividends
and exempt income with regard to distributions paid during the year as fol-
lows:
<TABLE>
<CAPTION>
(A)* (B)*
Long Term Ordinary (C) (E)**
Capital Gains Income Total (D)** Tax (F)**
Distributions Distributions Distributions Qualifying Exempt Foreign
(Tax Basis) (Tax Basis) (Tax Basis) Dividends (1) Interest Tax Credit
------------- ------------- ------------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Institutional U.S. Treasury Money Market 0% 100% 100% 0% 0% 0%
</TABLE>
(1)Qualifying dividends represent dividends which qualify for the corporate
received deduction.
*Items (A) and (B) are based on a percentage of the Fund's total
distribution.
**Items (D), (E) and (F) are based on a percentage of ordinary income
distributions of the Fund.
Please consult your tax adviser for proper treatment of this information.
14
Statement of
Additional Information
October 2, 1995
1784 FUNDS
1784 GROWTH AND INCOME FUND
1784 ASSET ALLOCATION FUND
1784 INTERNATIONAL EQUITY FUND
1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
1784 SHORT-TERM INCOME FUND
1784 INCOME FUND
1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
1784 CONNECTICUT TAX-EXEMPT INCOME FUND
1784 TAX-FREE MONEY MARKET FUND
1784 U.S. TREASURY MONEY MARKET FUND
1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
This Statement of Additional Information is not a prospectus and is authorized
for distribution to prospective investors only if preceded or accompanied by a
current prospectus for one or more of the 1784 Growth and Income Fund, 1784
Asset Allocation Fund, 1784 International Equity Fund, 1784 U.S. Government
Medium-Term Income Fund, 1784 Short-Term Income Fund, 1784 Income Fund, 1784
Tax-Exempt Medium-Term Income Fund, 1784 Massachusetts Tax-Exempt Income Fund,
1784 Rhode Island Tax-Exempt Income Fund, 1784 Connecticut Tax-Exempt Income
Fund, 1784 Tax-Free Money Market Fund, 1784 U.S. Treasury Money Market Fund and
1784 Institutional U.S. Treasury Money Market Fund (each, a "Fund" and
collectively, the "Funds"), each of which is a separate portfolio of 1784 Funds
(the "Trust"). This Statement of Additional Information is intended to provide
additional information regarding the activities and operations of the Funds and
should be read in conjunction with the Trust's prospectuses dated October 2,
1995 by which shares of the Funds are offered. Prospectuses may be obtained
without charge through the Distributor, SEI Financial Services Company, 680 E.
Swedesford Road, Wayne, PA 19087.
<PAGE>
TABLE OF CONTENTS
Page
The Trust 3
Investment Objectives and Policies 3
Description of Permitted Investments 4
Investment Limitations 36
The Advisers 39
The Administrator 40
The Distributor 41
Trustees and Officers of the Trust 42
Computation of Yield 44
Calculation of Total Return 45
Purchase and Redemption of Shares 45
Systematic Withdrawal Plan 46
Determination of Net Asset Value 46
Taxes 48
Fund Transactions; Trading Practices and Brokerage 52
Servicemarks 54
Description of Shares 54
Shareholder Liability 55
Limitation of Trustees' Liability 55
Financial Information 55
<PAGE>
THE TRUST
1784 FUNDS (the "Trust") is an open-end management investment company
established under Massachusetts law as a Massachusetts business trust under a
Declaration of Trust dated February 5, 1993. The Declaration of Trust permits
the Trust to offer separate portfolios ("funds") of shares of beneficial
interest ("shares") and different classes of shares of each fund. Each share of
each fund represents an equal proportionate interest in that fund. See
"Description of Shares." This Statement of Additional Information relates to the
following funds of the Trust:
1784 Growth and Income Fund, 1784 Asset Allocation Fund and 1784
International Equity Fund (each, an "Equity Fund" and collectively,
the "Equity Funds"),
1784 U.S. Government Medium-Term Income Fund, 1784 Short-Term Income Fund and
1784 Income Fund (each, a "Fixed Income Fund" and collectively, the "Fixed
Income Funds"),
1784 Tax-Exempt Medium-Term Income Fund, 1784 Massachusetts Tax-Exempt Income
Fund, 1784 Rhode Island Tax-Exempt Income Fund and 1784 Connecticut Tax-Exempt
Income Fund (each, together with the 1784 Tax-Free Money Market Fund, a
"Tax-Exempt Fund" and collectively, the "Tax-Exempt Funds"),
1784 Tax-Free Money Market Fund, 1784 U.S. Treasury Money Market Fund and 1784
Institutional U.S. Treasury Money Market Fund (each, a "Money Market Fund" and
collectively, the "Money Market Funds") (each of the Equity Funds, the Fixed
Income Funds, the Tax-Exempt Funds and the Money Market Funds, a "Fund" and
collectively, the "Funds").
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each of the 1784 GROWTH AND INCOME FUND and the 1784
INTERNATIONAL EQUITY FUND is long-term growth of capital with a secondary
objective of income. The investment objective of the 1784 ASSET ALLOCATION FUND
is to achieve a favorable total rate of return through current income and
capital appreciation consistent with preservation of capital, derived from
investing in fixed income and equity securities.
The investment objective of the 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND is
current income consistent with preservation of capital. The investment objective
of each of the 1784 SHORT-TERM INCOME FUND and the 1784 INCOME FUND is to
maximize current income. Preservation of capital is a secondary objective of
each of the Income and Short-Term Income Funds.
The investment objective of the 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND is
current income, exempt from federal income taxes, consistent with preservation
of capital. The investment objective of the 1784 MASSACHUSETTS TAX-EXEMPT INCOME
FUND is current income, exempt from both federal and Massachusetts personal
income taxes, consistent with the preservation of capital. The investment
objective of the 1784 CONNECTICUT TAX-EXEMPT INCOME FUND is current income
exempt from both federal and Connecticut personal income taxes. The investment
objective of the 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND is current income
exempt from federal income tax, from Rhode Island personal income tax and from
the Rhode Island business corporation tax. Preservation of capital is a
secondary objective of each of the Connecticut and Rhode Island Funds.
The investment objective of each of the 1784 U.S. TREASURY MONEY MARKET FUND and
the 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND is to preserve principal
value and maintain a high degree of liquidity while providing current income.
The investment objective of the 1784 TAX-FREE MONEY MARKET FUND is to preserve
principal value and maintain a high degree of liquidity while providing current
income exempt from federal income taxes.
There can be no assurance that any Fund will achieve its investment objective.
Each Fund's investment objective may be changed only with the consent of holders
of a majority of that Fund's outstanding shares. The investment policies of each
of the Funds are described in the prospectus by which shares of that Fund are
offered. Information in this Statement of Additional Information supplements and
is not intended to limit the information contained in the applicable prospectus
concerning the investment policies and permitted investments and investment
techniques of the Funds.
<PAGE>
DESCRIPTION OF PERMITTED INVESTMENTS
VARIABLE AMOUNT MASTER DEMAND NOTES
Each Fund (other than the 1784 Institutional U.S. Treasury Money Market Fund and
the 1784 U.S. Treasury Money Market Fund, which intend to invest only in U.S.
Treasury and other U.S. Government securities, repurchase agreements involving
such securities, and, in the case of the 1784 Institutional U.S. Treasury Money
Market Fund, to the extent permitted by the Investment Company Act of 1940 (the
"1940 Act"), securities of registered investment companies which invest solely
in the foregoing types of securities) may invest in variable amount master
demand notes which may or may not be backed by bank letters of credit. These
notes permit the investment of fluctuating amounts at varying market rates of
interest pursuant to direct arrangements between the Trust, as lender, on behalf
of a Fund and the borrower. Such notes provide that the interest rate on the
amount outstanding varies on a daily, weekly or monthly basis depending upon a
stated short-term interest rate index. Both the lender and the borrower have the
right to reduce the amount of outstanding indebtedness at any time. There is no
secondary market for the notes. It is not generally contemplated that such
instruments will be traded.
GNMA SECURITIES
Each Fund may invest in securities issued by the Government National Mortgage
Association ("GNMA"), a wholly-owned U.S. Government corporation which
guarantees the timely payment of principal and interest. The market value and
interest yield of these instruments can vary due to market interest rate
fluctuations and early prepayments of underlying mortgages. These securities
represent ownership in a pool of federally insured mortgage loans. GNMA
certificates consist of underlying mortgages with a maximum maturity of 30
years. However, due to scheduled and unscheduled principal payments, GNMA
certificates have a shorter average maturity and, therefore, less principal
volatility than a comparable 30-year bond. Since prepayment rates vary widely,
it is not possible to predict accurately the average maturity of a particular
GNMA pool. The scheduled monthly interest and principal payments relating to
mortgages in the pool will be "passed through" to investors. GNMA securities
differ from conventional bonds in that principal is paid back to the certificate
holders over the life of the loan rather than at maturity. As a result, there
will be monthly scheduled payments of principal and interest. In addition, there
may be unscheduled principal payments representing prepayments on the underlying
mortgages. Although GNMA certificates may offer yields higher than those
available from other types of U.S. Government securities, GNMA certificates may
be less effective than other types of securities as a means of "locking in"
attractive long-term rates because of the prepayment feature. For instance, when
interest rates decline, the value of a GNMA certificate likely will not rise as
much as comparable debt securities due to the prepayment feature. In addition,
these prepayments can cause the price of a GNMA certificate originally purchased
at a premium to decline in price to its par value, which may result in a loss.
MORTGAGE-BACKED SECURITIES
Each of the Equity Funds, the Fixed Income Funds and the Tax-Exempt Funds may
invest in mortgage-backed securities which are rated in one of the three top
categories by Standard and Poor's Ratings Group ("S&P"), Moody's Investors
Service, Inc. ("Moody's") or Fitch Investors Service, Inc. ("Fitch"), or, if not
rated by S&P, Moody's or Fitch, of comparable quality as determined by the
Adviser or Advisers (as defined below) to the Fund. Two principal types of
mortgage-backed securities are collateralized mortgage obligations ("CMOs") and
real estate mortgage investment conduits ("REMICs"). CMOs are securities
collateralized by mortgages, mortgage pass-through certificates, mortgage
pay-through bonds (bonds representing an interest in a pool of mortgages where
the cash flow generated from the mortgage collateral pool is dedicated to bond
repayment), and mortgage-backed bonds (general obligations of the issuers
payable out of the issuers' general funds and additionally secured by a first
lien on a pool of single family detached properties). Many CMOs are issued with
a number of classes or series which have different maturities and are retired in
sequence.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-through certificates to be prepaid prior to
their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-through certificates issued or guaranteed by
U.S. Government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
ASSET-BACKED SECURITIES
In addition to mortgage-backed securities, the Funds (other than the 1784
Institutional U.S. Treasury Money Market Fund and the 1784 U.S. Treasury Money
Market Fund) may invest in asset-backed securities including company
receivables, truck and auto loans, leases, and credit card receivables. These
issues may be traded over-the-counter and typically have a short to intermediate
maturity structure depending on the paydown characteristics of the underlying
financial assets which are passed through to the security holder.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
As described in the prospectus by which shares of such Funds are offered, the
1784 Short-Term Income Fund and 1784 Income Fund may enter into mortgage "dollar
roll" transactions pursuant to which a Fund sells mortgage-backed securities for
delivery in the future and simultaneously contracts to repurchase substantially
similar securities on a specified future date. During the roll period, the Fund
foregoes principal and interest paid on the mortgage-backed securities. The Fund
is compensated for the lost interest by the difference between the current sales
price and the lower price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale. The Fund may also be compensated by receipt of a commitment fee.
STRIPS
Each of the Funds may invest in Separately Traded Interest and Principal
Securities ("STRIPS"), which are component parts of U.S. Treasury Securities
traded through the Federal Reserve Book-Entry System. The Adviser or Advisers to
a Fund will purchase only those STRIPS that it determines or they determine are
liquid or, if illiquid, do not violate such Fund's investment policy concerning
investments in illiquid securities. Consistent with Rule 2a-7, Bank of Boston,
as the Adviser to the Money Market Funds, will purchase, for Money Market Funds,
only those STRIPS that have a remaining maturity of 397 days or less. No Money
Market Fund may invest more than 20% of its total assets in STRIPS. While there
is no limitation on the percentage of an Equity Fund's, Fixed Income Fund's or
Tax-Exempt Fund's assets that may be comprised of STRIPS, the Adviser or
Advisers to each Fund will monitor the level of such holdings to avoid the risk
of impairing shareholders' redemption rights.
REPURCHASE AGREEMENTS
Each of the Funds may invest in repurchase agreements collateralized by
securities in which that Fund may otherwise invest. Repurchase agreements are
agreements by which a Fund obtains a security and simultaneously commits to
return the security to the seller (a primary securities dealer recognized by the
Federal Reserve Bank of New York or a national member bank as defined in Section
3(d)(1) of the Federal Deposit Insurance Act, as amended) at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days (usually not more than seven) from the date of purchase. The resale
price reflects the purchase price plus an agreed upon market rate of interest
which is unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by the Funds will
provide that the underlying security at all times shall have a value at least
equal to 100% of the resale price stated in the agreement; the Adviser or
Advisers to each Fund will monitor compliance with this requirement. Under all
repurchase agreements entered into by any Fund, the Custodian or its agent must
take possession of the underlying collateral. However, if the seller under a
repurchase agreement defaults, the Fund investing in that repurchase agreement
could realize a loss on the sale of the underlying security to the extent that
the proceeds of the sale (including accrued interest) are less than the resale
price provided in the repurchase agreement (including interest). In addition,
even though the Bankruptcy Code provides protection for most repurchase
agreements, if the seller should be involved in bankruptcy or insolvency
proceedings, a Fund may face delays and incur costs in selling the underlying
security or may suffer a loss of principal and interest if the Fund is treated
as an unsecured creditor of the seller and is required to return the underlying
security to the seller's estate as a voidable preference.
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MONEY MARKET FUNDS
A money market fund is an investment company that limits its investments to high
quality money market instruments with a weighted average maturity of 90 days or
less. Certain Funds (as described in the prospectuses by which shares of such
Funds are offered) may invest in money market funds, but not more than 5% of its
assets in any one money market fund or more than 10% of its assets in other
investment companies, including money market funds. When a Fund invests in a
money market fund, a shareholder bears not only his or her proportionate share
of the Fund's expenses, but also indirectly his or her share of the expenses of
the money market fund, including management fees.
TAX-EXEMPT SECURITIES
MUNICIPAL NOTES AND BONDS
The 1784 Tax-Free Money Market Fund, 1784 Short-Term Income Fund, 1784 Income
Fund and each of the Tax-Exempt Funds may invest in municipal notes, which
include but are not limited to general obligation notes, tax anticipation notes
(notes sold to finance working capital needs of the issuer in anticipation of
receiving taxes on a future date), revenue anticipation notes (notes sold to
provide needed cash prior to receipt of expected non-tax revenues from a
specific source), bond anticipation notes, certificates of indebtedness, demand
notes and construction loan notes. A Fund's investment in any of the notes
described above will be limited to those obligations which are rated (i) MIG-2
or VMIG-2 or better at the time of investment by Moody's, (ii) SP-2 or better at
the time of investment by S&P, or (iii) F-2 or better at the time of investment
by Fitch, or which, if not rated by Moody's, S&P or Fitch, are of at least
comparable quality, as determined by the Adviser to the Fund. Municipal bonds,
in which these same Funds may invest, must be rated BBB or better by S&P or
Fitch or Baa or better by Moody's at the time of investment or, if not rated by
Moody's, S&P or Fitch, must be determined by the Adviser to the Funds to have
essentially the same characteristics and quality as bonds having the above
ratings. Bonds rated BBB by S&P or Fitch or Baa by Moody's may have speculative
characteristics. The Adviser to these Funds may purchase industrial development
and pollution control bonds for these Funds if the interest paid thereon is
exempt from federal income tax. These bonds are issued by or on behalf of public
authorities to raise money to finance various privately-operated facilities for
business and manufacturing, housing, sports, and pollution control. These bonds
may also be used to finance public facilities such as airports, mass transit
systems, ports, and parking. The payment of the principal and interest on such
bonds is dependent solely on the ability of the facility's user to meet its
financial obligations and the pledge, if any, of real and personal property so
financed as security for such payment.
Municipal securities also include participations in municipal leases. These are
undivided interests in a portion of an obligation in the form of a lease or
installment purchase issued by a state or local government to acquire equipment
or facilities. Municipal leases frequently have special risks not normally
associated with general obligation bonds or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Although the
obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In light of these concerns, the Trust has
adopted and follows procedures for determining whether municipal lease
securities purchased by a Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures require
that a number of factors be used in evaluating the liquidity of a municipal
lease security, including the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers, the willingness of dealers to undertake to make a
market in the security, the nature of the marketplace in which the security
trades, the credit quality of the security, and other factors which the Adviser
to the Fund may deem relevant.
TAX-EXEMPT COMMERCIAL PAPER in which a Tax-Exempt Fund may invest will be
limited to investments in obligations which are rated at least A-2 by S&P,
Prime-2 by Moody's, or F-2 by Fitch, at the time of investment or which are of
comparable quality as determined by the Adviser to the Fund.
The 1784 Tax-Free Money Market Fund and each of the Tax-Exempt Funds may invest
in FLOATING RATE NOTES. Investments in such floating rate instruments will
normally involve industrial development or revenue (now known as "private
activity") bonds which provide that the rate of interest is set as a specific
percentage of a designated base rate (such as the prime rate) at a major
commercial bank, and that a Fund can demand payment of the obligation at all
times or at stipulated dates on short notice (not to exceed 30 days) at par plus
accrued interest. For purposes of determining the maturity of these obligations,
the Fund may use the longer of (a) the period required before the Fund is
entitled to prepayment under such obligations or (b) the period remaining until
the next interest rate adjustment date. Such obligations are frequently secured
by letters of credit or other credit support arrangements provided by banks. The
quality of the underlying credit or of the bank, as the case may be, must in the
Fund Adviser's opinion be equivalent to the long-term bond or commercial paper
ratings on securities in which the Fund may invest. The Adviser to the Fund will
monitor the earning power, cash flow and liquidity ratios of the issuers of
floating rate instruments and the ability of an issuer of a demand instrument to
pay principal and interest on demand. The Adviser to the Fund may also purchase
other types of tax-exempt instruments for these Funds as long as they are of a
quality equivalent to the bonds or commercial paper in which these Funds may
invest.
STANDBY COMMITMENTS
Funds investing in municipal securities may acquire such securities subject to a
"standby commitment." The Adviser or, if applicable, each of the Advisers, to
these Funds has the authority to purchase, for these Funds, securities at a
price which would result in a yield to maturity lower than that generally
offered by the seller at the time of purchase when they can simultaneously
acquire the right to sell the securities back to the seller, the issuer, or a
third party (the "writer") at an agreed-upon price at any time during a stated
period or on a certain date. Such a right is generally denoted as a "standby
commitment" or a "put." The purpose of engaging in transactions involving puts
is to maintain flexibility and liquidity to permit the Fund to meet redemptions
and remain as fully invested as possible in municipal securities. The Funds
reserve their right to engage in put transactions. The right to put the
securities depends on the writer's ability to pay for the securities at the time
the put is exercised. Each Fund would limit its put transactions to institutions
which the Adviser or, if applicable, each Adviser, to such Fund believes present
minimum credit risks. Each Adviser would use its best efforts initially to
determine and to continue to monitor the financial strength of the sellers of
the options by evaluating their financial statements and such other information
as is available in the marketplace. It may, however, be difficult to monitor the
financial strength of the writers because adequate current financial information
may not be available. In the event that any writer is unable to honor a put for
financial reasons, the Fund would be a general creditor (i.e., on a parity with
all other unsecured creditors) of the writer. Furthermore, particular provisions
of the contract between the Fund and the writer may excuse the writer from
repurchasing the securities; for example, a change in the published rating of
the underlying municipal securities or any similar event that has an adverse
effect on the issuer's credit or a provision in the contract that the put will
not be exercised except in certain special cases, for example, to maintain fund
liquidity. The Fund could, however, at any time sell the underlying fund
security in the open market or wait until the fund security matures, at which
time it should realize the full par value of the security.
Municipal securities purchased subject to a put may be sold to third persons at
any time, even though the put is outstanding, but the put itself, unless it is
an integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Fund. Sale
of the securities to third parties or lapse of time with the put unexercised may
terminate the right to put the securities. Prior to the expiration of any put
option, the Fund could seek to negotiate terms for the extension of such an
option. If such a renewal cannot be negotiated on terms satisfactory to the
Fund, the Fund could, of course, sell the security. The maturity of the
underlying security will generally be different from that of the put. There will
be no limit to the percentage of Fund securities that a Fund may purchase
subject to puts but the amount paid directly or indirectly for puts which are
not integral parts of a security as originally issued held in a Fund will not
exceed 1/2 of 1% of the value of the total assets of such Fund calculated
immediately after any such put is acquired.
For the purpose of determining the "maturity" of securities purchased subject to
an option to put, and for the purpose of determining the dollar-weighted average
maturity of a Fund including such securities, "maturity" will be considered to
be the first date on which the Fund has the right to demand payment from the
writer of the put although the final maturity of the security is later than such
date.
OPTIONS
Each of the Equity Funds, the 1784 Short-Term Income Fund and the 1784 Income
Fund may, for hedging purposes and in order to generate additional income, write
call options on a covered basis. Each of the Tax-Exempt Funds and the 1784 U.S.
Government Medium-Term Income Fund, may, for hedging purposes only, write call
options on a covered basis, and will not engage in option writing strategies for
speculative purposes.
A Fund may write covered call options from time to time on its assets as
determined by the Adviser or Advisers to such Fund to be appropriate in seeking
to achieve such Fund's investment objective, provided that the aggregate value
of such options may not exceed 10% of such Fund's net assets as of the time such
Fund enters into such options.
The purchaser of a call option has the right to buy, and the writer (in this
case a Fund) of a call option has the obligation to sell, an underlying security
at a specified exercise price during a specified option period. The advantage to
a Fund of writing covered calls is that the Fund receives a premium for writing
the call, which is additional income. However, if the security rises in value
and the call is exercised, the Fund may not participate fully in the market
appreciation of the security.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker/dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction.
A closing purchase transaction is one in which a Fund, when obligated as a
writer of an option, terminates its obligation by purchasing an option of the
same series as the option previously written. A closing purchase transaction
cannot be effected with respect to an option once the Fund writing the option
has received an exercise notice for such option. Closing purchase transactions
will ordinarily be effected to realize a profit on an outstanding call option,
to prevent an underlying security from being called, to permit the sale of the
underlying security or to enable a Fund to write another call option on the
underlying security with either a different exercise price or different
expiration date or both. The Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the net amount of the original
premium received on the call option is more or less than the cost of effecting
the closing purchase transaction. Any loss incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
sale of a different call option on the same underlying security. Such a loss may
also be wholly or partially offset by unrealized appreciation in the market
value of the underlying security. Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part by a decline in the
market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-term capital
gain in the amount of the premium on the option, less the commission paid. Such
a gain, however, may be offset by depreciation in the market value of the
underlying security during the option period. If a call option is exercised, the
Fund will realize a gain or loss from the sale of the underlying security equal
to the difference between (a) the cost of the underlying security and (b) the
proceeds of the sale of the security, plus the amount of the premium on the
option, less the commission paid.
The market value of a call option generally reflects the market price of the
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
Each Fund will write call options only on a covered basis, which means that the
Fund will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, the
Fund would be required to continue to hold a security which it might otherwise
wish to sell, or deliver a security it would want to hold. Options written by a
Fund will normally have expiration dates between one and nine months from the
date written. The exercise price of a call option may be below, equal to or
above the current market value of the underlying security at the time the option
is written.
A Fund may also purchase put and call options. Put options are purchased to
hedge against a decline in the value of securities held in the Fund's portfolio.
If such a decline occurs, the put options will permit the Fund to sell the
securities underlying such options at the exercise price, or to close out the
options at a profit. The premium paid for a put option plus any transaction
costs will reduce the benefit, if any, realized by the Fund upon exercise of the
option, and, unless the price of the underlying security rises or declines
sufficiently, the option may expire worthless to the Fund. In addition, in the
event that the price of the security in connection with which an option was
purchased moves in a direction favorable to the Fund, the benefits realized by
the Fund as a result of such favorable movement will be reduced by the amount of
the premium paid for the option and related transaction costs.
OPTIONS ON STOCK INDICES
The Equity Funds may engage in options on stock indices. A stock index assigns
relative values to the common stocks included in the index, and the index
fluctuates with changes in the market values of the underlying common stocks.
The Funds will not engage in transactions in options on stock indices for
speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the option
markets. The aggregate premium paid on all options on stock indices will not
exceed 5% of a Fund's total assets.
Options on stock indices are similar to options on stocks but have different
delivery requirements. Stock options provide the right to take or make delivery
of the underlying stock at a specified price. A stock index option gives the
holder the right to receive a cash "exercise settlement amount" equal to (i) the
amount by which the fixed exercise price of the option exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (ii) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than (in the case of a call)
or less than (in the case of a put) the exercise price of the option. The amount
of cash received will be equal to such difference between the closing price of
the index and exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return for the
option premium received, to make delivery of this amount. Gain or loss to a Fund
on transactions in stock index options will depend on price movements in the
stock market generally (or in a particular industry or segment of the market)
rather than price movements of individual securities.
As with stock options, a Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an exchange or it
may let the option expire unexercised.
A stock index fluctuates with changes in the market values of the stock included
in the index. Some stock index options are based on a broad market index such as
the Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower market index such as the Standard & Poor's 100. Indices are also based
on an industry or market segment such as the AMEX Oil and Gas Index or the
Computer and Business Equipment Index. Options on stock indices are currently
traded on the following exchanges, among others: The Chicago Board Options
Exchange, New York Stock Exchange and American Stock Exchange.
A Fund's ability to hedge effectively all or a portion of its securities through
transactions in options on stock indices depends on the degree to which price
movements in the underlying index correlate with price movements in the
securities held by the Fund. Since the Fund will not duplicate all of the
components of an index, the correlation will not be exact. Consequently, the
Fund bears the risk that the prices of the securities being hedged will not move
in the same amount as the hedging instrument. It is also possible that there may
be a negative correlation between the index or other securities underlying the
hedging instrument and the hedged securities which would result in a loss on
both such securities and the hedging instrument.
Positions in stock index options may be closed out only on an exchange which
provides a secondary market. There can be no assurance that a liquid secondary
market will exist for any particular stock index option. Thus, it may not be
possible to close such an option. The inability to close options positions could
have an adverse impact on a Fund's ability to effectively hedge its securities.
The Fund will enter into an option position only if there appears to the Adviser
or the Advisers of such Fund, at the time of investment, to be a liquid
secondary market for such options.
FUTURES CONTRACTS
Subject to applicable laws, each of the Funds may enter into bond and interest
rate futures contracts subject to applicable laws. The Funds intend to use
futures contracts only for bona fide hedging purposes. Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specified security at a specified future time and at a specified
price. A "sale" of a futures contract entails a contractual obligation to
deliver the underlying securities called for by the contract, and a "purchase"
of a futures contract entails a contractual obligation to acquire such
securities, in each case in accordance with the terms of the contract. Futures
contracts must be executed through a futures commission merchant, or brokerage
firm, which is a member of an appropriate exchange designated as a "contract
market" by the Commodity Futures Trading Commission ("CFTC").
When a Fund purchases or sells a futures contract, the Trust must allocate
assets of that Fund as an initial deposit on the contract. The initial deposit
may be as low as approximately 5% of the value of the contract. The futures
contract is marked to market daily thereafter and the Fund may be required to
pay or entitled to receive additional "variation margin", based on decrease or
increase in the value of the futures contract.
Futures contracts call for the actual delivery or acquisition of securities, or
in the case of futures contracts based on indices, the making or acceptance of a
cash settlement at a specified future time; however, the contractual obligation
is usually fulfilled before the date specified in the contract by closing out
the futures contract position through the purchase or sale, on a commodities
exchange, of an identical futures contract. Positions in futures contracts may
be closed out only if a liquid secondary market for such contract is available,
and there can be no assurance that such a liquid secondary market will exist for
any particular futures contract.
The Funds will engage in transactions in futures contracts for hedging purposes
only. A Fund's ability to hedge effectively through transactions in futures
contracts depends on, among other factors, its Adviser's or Advisers', as
applicable, judgment as to the expected price movements in the securities
underlying the futures contracts. In addition, it is possible in some
circumstances that a Fund would have to sell securities from its portfolio to
meet "variation margin" requirements at a time when it may be disadvantageous to
do so.
OPTIONS ON FUTURES CONTRACTS
The Funds permitted to enter into futures contracts may also, subject to any
applicable laws, purchase and write options on those futures contracts for
hedging purposes only. The holder of a call option on a futures contract has the
right to purchase the futures contract, and the holder of a put option on a
futures contract has the right to sell the futures contract, in either case at a
fixed exercise price up to a stated expiration date or, in the case of certain
options, on a stated date. Options on futures contracts, like futures contracts,
are traded on contract markets.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the securities deliverable on exercise of the
futures contract. A Fund will receive an option premium when it writes the call,
and, if the price of the futures contract at expiration of the option is below
the option exercise price, the Fund will retain the full amount of this option
premium, which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. Similarly, the writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the securities deliverable upon exercise of the futures contract. If a
Fund writes an option on a futures contract and that option is exercised, the
Fund may incur a loss, which loss will be reduced by the amount of the option
premium received, less related transaction costs. A Fund's ability to hedge
effectively through transactions in options on futures contracts depends on,
among other factors, the degree of correlation between changes in the value of
securities held by the Fund and changes in the value of its futures positions.
This correlation cannot be expected to be exact, and the Fund bears a risk that
the value of the futures contract being hedged will not move in the same amount,
or even in the same direction, as the hedging instrument. Thus it may be
possible for a Fund to incur a loss on both the hedging instrument and the
futures contract being hedged.
The ability of a Fund to engage in options and futures strategies depends also
upon the availability of a liquid market for such instruments; there can be no
assurance that such a liquid market will exist for such instruments.
FOREIGN SECURITIES
Certain of the Funds, as stated in the prospectus by which shares of such Funds
are offered, may invest in certain obligations or securities of foreign issuers.
The 1784 International Equity Fund intends to invest a substantial portion of
its assets in securities and obligations of foreign issuers. Permissible
investments may consist of obligations of foreign branches of U.S. banks and of
foreign banks, including certificates of deposit and time deposits (including
Eurodollar time deposits).
Investing in securities issued by companies whose principal business activities
are outside the United States may involve significant risks not present in
domestic investments. For example, the value of securities denominated in
foreign currencies and of dividends and interest paid with respect to such
securities, will fluctuate based on the relative strength of the U.S. dollar. In
addition, there is generally less publicly available information about foreign
companies, particularly those not subject to the disclosure and reporting
requirements of the U.S. securities laws. Foreign issuers are generally not
bound by uniform accounting, auditing and financial reporting requirements
comparable to those applicable to domestic issuers. Investments in foreign
securities also involve the risk of possible adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation, limitation
on the removal of funds or other assets of a Fund, political or financial
instability or diplomatic and other developments which would affect such
investments. Further, economies of particular countries or areas of the world
may differ favorably or unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for foreign
securities would be on exchanges or in over-the-counter markets located outside
the U.S. Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the U.S., and securities of some foreign
issuers (particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable U.S. companies. Foreign security
trading practices, including those involving securities settlement where a
Fund's assets may be released prior to receipt of payment, may expose a Fund to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer. In addition, foreign brokerage commissions are generally higher
than commissions on securities traded in the U.S. and may be non-negotiable. In
general, there is less overall governmental supervision and regulation of
foreign securities exchanges, brokers and listed companies than in the U.S.
The current policy of the 1784 International Equity Fund is not to invest more
than 10% of its assets in investment companies and investment trusts which
primarily hold foreign securities except that the Fund may invest all of its
investable assets in a Qualifying Portfolio (as defined below). Investments in
such entities may entail the risk that the market value of such investments may
be substantially less than their net asset value and that there would be
duplication of investment management and other fees and expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") and other forms of depositary receipts for
securities of foreign issuers provide an alternative method for a Fund to make
foreign investments. These securities are not denominated in the same currency
as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets and EDRs and
GDRs, in bearer form, are designed for use in European and global securities
markets. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. EDRs and GDRs are European
and global receipts evidencing a similar arrangement.
A Fund may invest in foreign securities that impose restrictions on transfer
within the United States or to United States persons. Although securities
subject to such transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject to such
restrictions.
The Equity Funds, the 1784 Income Fund and the 1784 Short-Term Income Fund may
invest in securities issued by entities based in developing countries throughout
the world. All of the risks of investing in securities of foreign issuers
discussed above are heightened for securities of issuers in developing
countries. Such investments may also entail higher custodial fees and sales
commissions than domestic investments.
Foreign issuers of securities or obligations are often subject to accounting
treatment and engage in business practices different from those respecting
domestic issuers of similar securities or obligations. Foreign branches of U.S.
banks and foreign banks may be subject to less stringent reserve requirements
than those applicable to domestic branches of U.S. banks.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Since investments in foreign companies usually involve currencies of foreign
countries, the value of the assets of a Fund with investments in foreign
companies as measured in U.S. dollars may be affected favorably or unfavorably
by changes in foreign currency exchange rates and exchange control regulations.
Although such Fund's assets are valued daily in terms of U.S. dollars, the Fund
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. A Fund may conduct its foreign currency exchange transactions
on a spot basis or for settlement on a future date (i.e., a "forward foreign
currency" contract or "forward" contract). A Fund may convert currency on a spot
basis from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Funds do not currently intend to speculate in
foreign currency exchange rates or forward contracts.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no fees or
commissions are charged at any stage for trades.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of U.S. dollars, of the amount of foreign currency
involved in the underlying security transaction, a Fund will be able to protect
itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received.
When the Adviser or each of the Advisers to a Fund believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract to sell, for a fixed amount
of U.S. dollars, the amount of foreign currency approximating the value of some
or all of the Fund's securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved is not generally possible since the future value of such securities in
foreign currencies changes 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 a short-term hedging strategy is highly
uncertain. A Fund does not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's securities or other assets denominated in the applicable
currency. Under normal circumstances, consideration of the prospect for currency
parities is incorporated in the longer term investment decisions made with
regard to overall diversification strategies. However, each Adviser to such
Funds believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of such Funds will
be served.
A Fund generally does not enter into a forward contract with a term greater than
one year. At the maturity of a forward contract, the Fund either sells the
security and makes delivery of the foreign currency, or it retains the security
and terminates its contractual obligation to deliver the foreign currency by
purchasing an "offsetting" contract with the same currency trader obligating it
to purchase, on the same maturity date, the same amount of the foreign currency.
If a Fund retains the security and engages in an offsetting transaction, the
Fund incurs a gain or loss (as described below) to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between the
date the Fund enters into a forward contract for the sale of the foreign
currency and the date it enters into an offsetting contract for the purchase of
foreign currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
It is impossible to forecast with precision the market value of Fund securities
at the expiration of the contract. Accordingly, it may be necessary for the Fund
to purchase additional foreign currency for the Fund on the spot market (and
cause the Fund to bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the security if its
market value exceeds the amount of foreign currency the Fund is obligated to
deliver.
The Funds' dealings in foreign currency contracts are limited to the
transactions described above. Of course, no Fund is required to enter into such
transactions with regard to the Fund's foreign currency-denominated securities
and will not do so unless deemed appropriate by the Adviser or Advisers to such
Fund. It should also be realized that this method of protecting the value of a
Fund's securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they also tend to limit any potential gain
which might result should the value of such currency increase.
WHEN-ISSUED SECURITIES
Each Fund may invest in securities on a when-issued basis, in which case
delivery and payment normally take place beyond conventional settlement time
after the date of commitment to purchase. The Funds will make commitments to
purchase obligations on a when-issued basis only with the intention of actually
acquiring the securities, but may sell them before the settlement date. The
when-issued securities are subject to market fluctuation, and no interest
accrues on the security to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery.
While awaiting delivery of securities purchased on a when-issued basis, a Fund
will establish a segregated account consisting of cash, short-term money market
instruments or high quality debt securities (for the 1784 Institutional U.S.
Treasury Money Market Fund and the 1784 U.S. Treasury Money Market Fund, cash
and U.S. Government securities) equal to the amount of the commitments to
purchase securities on such basis. If the value of these assets declines, the
Fund will place additional assets of the type described in the preceding
sentence in the account on a daily basis so that the value of the assets in the
account is equal to the amount of such commitments.
RESTRICTED SECURITIES
Restricted securities are securities that may not be sold to the public without
registration under the Securities Act of 1933 (the "1933 Act") absent an
exemption from registration. Certain of the permitted investments of the Funds
may be restricted securities, and the Adviser or Advisers to a Fund may invest
up to 20% of the total assets of a Fixed Income or Equity Fund in restricted
securities provided it is determined by such Adviser or Advisers that at the
time of investment such securities are not illiquid (generally, an illiquid
security is one that cannot be disposed of within seven days in the ordinary
course of business at its full value), based on guidelines which are the
responsibility of and are periodically reviewed by the Board of Trustees. Under
these guidelines, the Adviser or Advisers to a Fund will consider the frequency
of trades and quotes for the security, the number of dealers in, and potential
purchasers for, the securities, dealer undertakings to make a market in the
security, and the nature of the security and of the marketplace trades. In
purchasing such restricted securities, the intention of the Adviser or Advisers
to a Fund is to rely upon the exemption from registration provided by Rule 144A
promulgated under the 1933 Act. Restricted securities not determined to be
liquid may be purchased subject to each Fund's limitation on all illiquid
securities (15% of net assets for each Equity, Fixed Income and Tax-Exempt Fund
and 10% for each Money Market Fund).
SECURITIES LENDING
Each Fund may lend securities pursuant to agreements requiring that the loans be
continuously secured by cash, securities of the U.S. government or its agencies,
or any combination of cash and such securities, as collateral equal to 100% of
the market value at all times of the securities lent. Such loans will not be
made if, as a result, the aggregate amount of all outstanding securities loans
for the Fund exceed one-third of a Fund's total assets. A Fund will continue to
receive interest on the securities lent while simultaneously earning interest on
the investment of the cash collateral in U.S. government securities. However, a
Fund will normally pay lending fees to such broker-dealers and related expenses
from the interest earned on invested collateral. There may be risks of delay in
receiving additional collateral or risks of delay in recovery of the securities
or even loss of rights in the collateral should the borrower of the securities
fail financially. However, loans are made only to borrowers deemed by the
Adviser or Advisers to a Fund to be of good standing and when, in the judgment
of the Adviser or Advisers to a Fund, the consideration which can be earned
currently from such securities loans justifies the attendant risk. Any loan may
be terminated by either party upon reasonable notice to the other party. A Fund
may use the Distributor or a broker/dealer affiliate of an Adviser as a broker
in these transactions.
OTHER INVESTMENTS
The Funds (other than the 1784 Institutional U.S. Treasury Money Market Fund and
the 1784 U.S. Treasury Money Market Fund, which intend to invest only in U.S.
Treasury and other U.S. Government securities, repurchase agreements involving
such securities, and, in the case of the 1784 Institutional U.S. Treasury Money
Market Fund, to the extent permitted by the 1940 Act, securities of registered
investment companies which invest solely in the foregoing types of securities)
are not prohibited from investing in obligations of banks which are clients of
SEI Corporation ("SEI"). However, the purchase of shares of the Funds by such
banks or by their customers will not be a consideration in determining which
bank obligations the Funds will purchase.
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN MASSACHUSETTS MUNICIPAL
SECURITIES
The following is a summary of certain information contained in official
statements of certain issuers of Massachusetts Municipal Securities published
prior to July, 1995. The summary does not purport to be a complete description
and is current as of the date of the corresponding official statement.
1993 FISCAL YEAR. The budgeted operating funds of the Commonwealth ended fiscal
1993 with a surplus of revenues and other sources over expenditures and other
uses of $13.1 million and aggregate ending fund balances in the budgeted
operating funds of the Commonwealth of approximately $562.5 million. Budgeted
revenues and other sources for fiscal 1993 totaled approximately $14.710
billion, including tax revenues of $9.930 billion. Total revenues and other
sources increased by approximately 6.9% from fiscal 1992 to fiscal 1993, while
tax revenues increased by 4.7% for the same period. In July 1992, tax revenues
had been estimated to be approximately $9.685 billion for fiscal 1993. This
amount was subsequently revised during fiscal 1993 to $9.940 billion.
Commonwealth budgeted expenditures and other uses in fiscal 1993 totaled
approximately $14.696 billion, which is $1.280 billion or approximately 9.6%
higher than fiscal 1992 expenditures and other uses. Fiscal 1993 budgeted
expenditures were $23 million lower than the initial July 1992 estimates of
fiscal 1993 budgeted expenditures.
As of June 30, 1993, after payment of all Local Aid and retirement of short-term
debt, the Commonwealth showed a year-end cash position of approximately $622.2
million, as compared to a projected position of $485.1 million.
1994 FISCAL YEAR. The budgeted operating funds of the Commonwealth ended fiscal
1994 with a surplus of revenues and other sources over expenditures and other
uses of $26.8 million and aggregate ending fund balances in the budgeted
operating funds of the Commonwealth of approximately $589.3 million. Budgeted
revenues and other sources for fiscal 1994 totalled approximately $l5.550
billion, including tax revenues of $10.607 billion, $87 million below the
Department of Revenue's fiscal 1994 tax revenue estimate of $10.694 billion.
Total revenues and other sources increased by approximately 5.7% from fiscal
1993 to fiscal 1994 while tax revenues increased by 6.8% for the same period.
Commonwealth budgeted expenditures and other uses in fiscal 1994 totalled
$15.523 billion, which is $826.5 million or approximately 5.6% higher than
fiscal 1993 budgeted expenditures and other uses.
As of June 30, 1994, the Commonwealth showed a year-end cash position of
approximately $757 million, as compared to a projected position of $599 million.
In June, 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation. This legislation required an
increase in expenditures for education purposes above fiscal 1993 base spending
of $1.288 billion of approximately $175 million in fiscal 1994. The Executive
Office for Administration and Finance expects the annual increases in
expenditures above the fiscal 1993 base spending of $1.288 billion to be
approximately $396 million in fiscal 1995, $625 million in fiscal 1996 and $868
million in fiscal 1997. Additional annual increases are also expected in later
fiscal years. The fiscal 1995 budget as signed by the Governor includes $396
million in appropriations to satisfy this legislation.
1995 FISCAL YEAR. On July 10, 1994, the Governor signed into law the fiscal 1995
budget, which, together with authorizations contained in the final fiscal 1994
appropriations bill and expected supplemental appropriations relating to welfare
and certain other programs, as described below, currently provides for
approximately $16.482 billion in fiscal 1995 expenditures. The Governor
exercised his authority to veto and reduce individual line items and reduced
total expenditures by approximately $298.2 million and vetoed certain other law
changes contained in the fiscal 1995 budget.
Included in the approximately $298.2 million of vetoes noted above, the Governor
vetoed approximately $296.9 million in appropriations for the Executive Office
of Human Services and the Department of Public Welfare, representing the
estimate, at that time, of four months of funding for the Commonwealth's public
assistance programs. On February 10, 1995, the Governor signed into law Chapter
5 of the Acts of 1995, which reforms the Commonwealth's program for Aid to
Families with Dependent Children ("AFDC"). The revised program is scheduled to
take effect on July 1, 1995, subject to federal approval of certain waivers. It
reduces AFDC benefits to able-bodied recipients by 2.75% while allowing them to
keep a larger portion of their earned wages, requires approximately 22,000
able-bodied parents with school-aged children to work or perform community
service for 20 hours per week, and requires approximately 16,000 recipients who
have children between the ages of two and six to participate in an education or
training program or perform community service. The plan also establishes a pilot
program for up to 2,000 participants that offers tax credits and wage subsidies
to employers who hire welfare recipients. Parents who find employment will be
provided with extended medical benefits and day care benefits for up to one
year. The plan mandates paternal identification, expands funding for anti-fraud
initiatives, and requires parents on AFDC to immunize their children. Parents
who are disabled, caring for a disabled child, have a child under the age of
two, or are teenagers living at home and attending high school, will continue to
receive cash assistance.
Since most provisions of the new law did not take effect until July 1, 1995, the
Executive Office for Administration and Finance projects that the reforms will
not materially affect fiscal 1995 public assistance spending. The fiscal 1995
expenditure estimate of $16.399 billion includes $247.8 million appropriated in
Chapter 5 to fund the Commonwealth's public assistance programs for the last
four months of fiscal 1995. The new law's impact on fiscal 1996 projected
spending for public assistance programs is currently being evaluated.
Budgeted revenues and other sources to be collected in fiscal 1995 are estimated
by the Executive Office for Administration and Finance to be approximately
$16.311 billion. This amount includes estimated fiscal 1995 tax revenues of
$11.151 billion, which is approximately $544 million higher than fiscal 1994 tax
revenues of $10.607 billion. In December, 1994, the Governor signed into law
legislation modifying the capital gains tax by phasing out the tax for assets
held longer than six years and increasing the no-tax status threshold for
personal income tax purposes. The capital gains tax change is not effective
until January 1, 1996 and, therefore, is not expected to affect fiscal 1995 tax
revenues and to have only a minor effect on fiscal 1996 tax revenues. The no-tax
status change is estimated to reduce fiscal 1995 tax revenues by approximately
$5.5 million and fiscal 1996 tax revenues by $13.3 million.
In recent months, the rate of growth in certain tax revenue categories,
including, in particular, the income tax, has slowed. Fiscal 1994 tax revenues
were approximately $87 million below the Department of Revenue's tax revenue
estimate of $10.694 billion. On April 13, 1995, as required by law, the
Secretary for Administration and Finance revised the fiscal 1995 tax revenue
estimate to $11.151 billion, a reduction of approximately $27.5 million from the
most recent official estimate of $11.179 billion. The reduction in fiscal 1995
revenues is expected to be offset by lower spending resulting from increased
reversions (including lower spending in public assistance programs) and, if
necessary utilization of part of the contingency currently included in the
estimated fiscal 1995 financial statement.
The fiscal 1995 budget is based on numerous spending and revenue estimates, the
achievement of which cannot be assured. The House initially overrode $296.9
million of the Governor's vetoes relating to certain welfare programs contained
in the fiscal 1995 budget as well as certain law changes which may have a
financial impact on the Commonwealth. However, the Senate failed to override the
Governor's veto by the end of the calendar 1994 legislative session. The $16.399
billion of fiscal 1995 expenditures includes a reserve against certain
contingencies currently in the amount of $83.8 million. On October 7, 1994, the
Governor filed a supplemental appropriation recommendation aggregating
approximately $44.5 million; the Legislature failed to act on this
recommendation before the end of the calendar 1994 legislative session. On
January 25, 1995, the Governor filed fiscal 1995 supplemental appropriation
recommendations aggregating approximately $43.6 million.
On April 24, 1995, the Governor filed a fiscal 1995 supplemental appropriation
bill recommending approximately $16.7 million of expenditures related to
collective bargaining and certain other personnel costs. The legislature has not
yet acted upon this recommendation. On May 10, 1995, the House of
Representatives approved two supplemental appropriation bills for fiscal 1995,
which relate, in part, to prior supplemental appropriation recommendations. One
bill authorized fiscal 1995 expenditures of approximately $65 million, having a
net Commonwealth cost of approximately $27 million after factoring in revenue
reimbursements that would result form certain Medicaid expenditures authorized
by the legislation. The other bill authorizes fiscal 1995 expenditures of
approximately $9.1 million for certain Department of Social Services programs.
On May 17, 1995, the Senate Ways and Means Committee approved two supplemental
appropriation bills for fiscal 1995. One bill authorized fiscal 1995
expenditures of approximately $52.4 million (of which approximately $16.1
million would be continued to fiscal 1996), having a net Commonwealth cost of
approximately $50 million. The full Senate added approximately $59.5 million in
spending authorizations to this amount, having a net Commonwealth cost of
approximately $21.5 million after factoring in federal reimbursements for
certain Medicaid expenditures authorized by the bill. A second supplemental
appropriation bill authorizes approximately $9.2 million for Department of
Social Services programs. Both bills were approved by the Senate on May 25,
1995. Differences between the House and Senate versions of the two bills will be
reconciled by legislative conference committees. The net amounts for both the
House and Senate bills are included in the $83.8 million being reserved for
fiscal 1995 contingencies by the Executive Office for Administration and
Finance.
On November 8, 1994, the voters in the statewide general election approved an
initiative petition, which became law on December 8, 1994, that would slightly
increase the portion of gasoline tax revenue credited to the Highway Fund, one
of the Commonwealth's three major budgetary funds, prohibit the transfer of
money from the Highway Fund to other funds for non-highway purposes and exclude
the Highway Fund balance from the computation of the "consolidated net surplus"
for purposes of State finance laws. The initiative petition also provides that
no more than 15% of gasoline tax revenues may be used for mass transportation
purposes, such as expenditures related to the MBTA. The Executive Office of
Administration and Finance currently does not expect this law to have any
materially adverse impact on the fiscal 1995 budget or on other fiscal matters
generally. This law is not a constitutional amendment and is subject to
amendment or repeal by the Legislature, which may also, notwithstanding the
terms of the initiative petition, appropriate moneys from the Highway Fund in
such amounts and for such purposes as it determines, subject only to a
constitutional restriction that such moneys be used for motor vehicle, highway,
or mass transportation purposes.
CASH FLOW
The most recent cash flow projection prepared by the office of the State
Treasurer in May, 1995 estimates the fiscal 1995 year-end cash position to be
approximately $353 million. This projection is based on the fiscal 1995 budget
as originally signed by the Governor and supplemental appropriations enacted to
date. The cash flow projection reflects actual results through April, 1995 and
revenue and spending estimates as of May, 1995. The expenditure forecast
anticipates use of the $83.8 million being reserved for contingencies by the
Executive Office for Administration and Finance. The projection forecasts a
year-end transfer of $65.4 million to the Stabilization Fund (the projected $353
million year-end balance does not include balances in the Stabilization Fund).
The projection also anticipates advance payments during fiscal 1995 of $95
million to the Department of Medical Assistance and the Department of
Transitional Assistance for fiscal 1996 activity. On November 22, 1994, the
Commonwealth issued $240 million of general obligation notes to fund payments to
the MBTA for its net cost of service. The notes matured on June 15, 1995 (rather
than later in fiscal 1996 as had been assumed in earlier cash flow projections).
The cash flow projection assumes the issuance of additional notes in June, 1995
to refinance such notes, which is consistent with current plans. (The original
cash flow projection for fiscal 1995 had assumed that such notes would be paid
from available funds and not refinanced.) The cash flow projection assumes that
the Commonwealth will issue no additional long-term general obligation bonds
during fiscal 1995 to finance capital projects beyond the $825 million issued to
date (prior cash flow projections had assumed that $1.05 billion of such bonds
would be issued) and that no short-term operating borrowings will take place
under the commercial paper program during the remainder of fiscal 1995. As of
June 8, 1995, no Commonwealth commercial paper is outstanding.
The May 26, 1995 cash flow projection also contains monthly forecasts through
the end of fiscal 1996 and estimates that the fiscal 1996 year-end cash position
will be $528.1 million. The fiscal 1996 forecast is based upon the Governor's
budget recommendations filed in January, 1995, including a $45 million
contingency reserve, adjusted for the consensus revenue estimate for fiscal 1996
agreed to by the Governor and the legislature in April, 1995. The fiscal 1996
cash flow projection anticipates no need for the Commonwealth to borrow for
operating needs under its commercial paper program if capital bond sales and a
transit note sale occur as scheduled (the projection calls for the issuance of
$1.06 billion of capital bonds and $240 million of transit notes during fiscal
1996).
The Commonwealth's practice is to use available cash for capital expenditures
pending the issuance of long term bonds and, in the event the amount of
long-term debt is reduced or its issuance delayed due to market conditions or
other circumstances, additional amounts of commercial paper may be outstanding
from time to time. The ending balance included in the cash flow forecast and the
estimated ending balance for the Commonwealth's operating budget will differ due
to timing differences and the effect of certain non-budget items. In addition,
events occurring subsequent to the preparation of this cash flow projection may
cause the actual cash flow of the Commonwealth to vary from the projected cash
flow.
1996 FISCAL YEAR. On January 25, 1995, the Governor submitted his fiscal 1996
budget recommendations to the Legislature. The proposal calls for budgeted
expenditures of approximately $16.737 billion. After adjusting for approximately
$147.9 million in higher education revenues and expenditures that the Governor's
budget recommendation proposes moving to an off-budget trust fund for fiscal
1996, as described below, the recommended fiscal 1996 spending level is
approximately $436 million. Proposed budgeted revenues for fiscal 1996 are
approximately $16.246 billion. The Governor's fiscal 1996 budget recommendation
proposes several reductions in personal and business taxes, including an
increase of $500 in the dependent allowance and a $500 increase in the exemption
for blind and elderly taxpayers, corporate tax credits for job training,
revisions to the definitions of research and development tax credits for
companies in the defense-industry, and a phasing out of the sales tax on bulk
purchases of telecommunications services. The Executive Office of Administration
and Finance estimates that these tax law changes would result in reduced tax
revenues of approximately $34.6 million in fiscal 1996.
Under the Governor's fiscal 1996 budget recommendations, non-tax revenues are
estimated to total approximately $5.021 billion in fiscal 1996. Major changes in
projected non-tax revenues for fiscal 1996 include a decline in motor vehicle
license and registration fees of approximately $42 million, due mainly to
alternate year licensing patterns and the delayed impact of the change in 1991
to a five year driver's license renewal period; a decrease of approximately $17
million in abandoned property revenues, due to a one-time increase in abandoned
property collections in fiscal 1995 resulting from a change in the
Commonwealth's abandoned property laws; and a $40 million increase due to a
proposed initiative to provide incentives to State departments to optimize
non-tax revenues.
The Governor's budget proposal generally maintains current service levels for
most programs but also provides for increased funding to reflect various factors
including inflation, increased medical costs, increased pension costs and higher
debt services expenditures, as well as approximately $228 million recommended to
fully fund the education reform law passed in fiscal 1993. The proposal also
contains recommendations to increase spending in certain priority areas. The
Governor's budget proposal projects savings from reform of the State's welfare
system, higher health insurance contributions from State employees and other
administrative reductions. The recommendation also includes $45 million
allocated for a contingency reserve.
In connection with the fiscal 1996 budget recommendations, the Governor has also
recommended the establishment of an off-budget tuition retention trust fund for
higher education purposes. The revenues in and expenditures from such fund have
previously been counted as Commonwealth budgeted revenues and expenditures.
The Governor's fiscal 1996 budget recommendations will now be taken up by the
House Ways and Means Committee as the first step of legislative consideration of
the fiscal 1996 budget.
STATE TAXES. The major components of State taxes are the income tax, which
accounts for 53.6% of total projected tax revenues in fiscal 1994, the sales and
use tax, which accounts for 21.7%, and the business corporations tax, which
accounts for 7.4%. Other tax and excise sources account for the remaining 17.3%
of total tax revenues.
Income Tax. The Commonwealth assesses personal income taxes at flat rates,
according to classes of income, after specified deductions and exemptions. A
rate of 5.95% is applied to income from employment, professions, trades,
business, partnerships, rents, royalties, taxable pensions and annuities and
interest from Massachusetts banks. A rate of 12% is applied to other interest
(although interest on obligations of the United States and of the Commonwealth
and its political subdivisions is exempt) and dividends; and a rate ranging from
12% on capital gains from the sale of assets held for one year and less to 0% on
capital gains from the sale of certain assets held more than six years is
applied.
Under Chapter 151 of the Acts of 1990 up to 15% of State income tax revenue is
pledged to the payment of debt service on approximately $1.045 billion of
outstanding Fiscal Recovery Bonds issued pursuant to Chapter 151.
Partially as a result of income tax rate increases, State income tax revenues
increased from fiscal 1990 to $5.045 billion (excluding $298.3 million collected
pursuant to the 1989 tax legislation). These figures represent an increase of
approximately 13%. State income tax revenues in fiscal 1992 were $5.337 billion,
which represents an increase from fiscal 1991 of approximately 5.8%. Income tax
revenues in fiscal 1993 were $5.375 billion, an increase of approximately 0.7%
from fiscal 1992. Income tax revenues for fiscal 1994 were approximately $5.690
billion, an increase of 5.9% from fiscal 1993. Income tax revenues for fiscal
1995 are currently expected to be approximately $6.028 billion, an increase of
5.9% from fiscal 1994. As a result of a slowing rate of growth in certain tax
revenue categories, including, in particular, the income tax, the Secretary of
Administration and Finance reduced the total fiscal 1995 tax revenue estimate by
$75 million in September, 1994. On January 25, 1995, based on tax revenue
collections through December 31, 1994, the Secretary for Administration and
Finance revised the fiscal 1995 tax revenue estimate to $11.179 billion, a
reduction of approximately $55 million from the September 1994 estimate.
Sales and Use Tax. The Commonwealth imposes a 5% sales tax on retail sales of
certain tangible properties (including retail sales of meals) transacted in the
Commonwealth and corresponding 5% use tax on the storage, use or other
consumption of like tangible properties brought into the Commonwealth. However,
food, clothing, prescribed medicine, materials and produce used in food
production, machinery, materials, tools and fuel used in certain industries, and
property subject to other excises (except for cigarettes) are exempt from sales
taxation. The sales and use tax is also applied to sales of electricity, gas and
steam for certain nonresidential use and to nonresidential and most residential
use of telecommunications services.
Annual sales and use tax revenues declined from $1.956 billion in fiscal 1990 to
$1.909 billion in fiscal 1991. Sales and use tax revenues increased to $1.979
billion in fiscal 1992 and to $2.124 billion in fiscal 1993 and to $2.302
billion in fiscal 1994. Sales and use tax are estimated to increase to $2.454
billion in fiscal 1995.
Business Corporations Tax. Business corporations doing business in the
Commonwealth, other than banks, trust companies, insurance companies, railroads,
public utilities and safe deposit companies, are subject to an excise that has a
property measure and an income measure. The value of Massachusetts tangible
property (not taxed locally) or net worth allocated to the Commonwealth is taxed
at $2.60 per $1,000 of value. The net income allocated to Massachusetts, which
is based on gross income for federal taxes, is taxed at 9.5%. The minimum tax is
$456. Both rates and the minimum tax include a 14% surtax. Annual revenues from
the business corporations tax have declined significantly in recent years, from
the high of $887.1 million in fiscal 1989 to $612.2 million in fiscal 1991.
Business corporation tax revenues were $643.8 million in fiscal 1992,
representing an increase of $31.5 million, or 5.1%, from fiscal 1991. For fiscal
1992, the excise tax on commercial and savings banks yielded $60.2 million,
representing an increase of approximately 25.2% over fiscal 1991. Due to the
settlement by the Department of Revenue of a case pending before the Appellate
Tax Board, the Commonwealth paid a taxpayer commercial bank $37.0 million, thus
reducing revenues from the commercial and savings bank excise tax in fiscal 1992
from $97.1 million to $60.2 million. For fiscal 1993, revenues from the business
corporations tax increased to $737.4 million, or approximately 14.5% above
fiscal 1992 and tax revenues from banks increased to $152.9 million or 154.4%
above fiscal 1992. Fiscal 1994 tax revenues from corporations and banks were
approximately $782.3 million and 199.9 million, respectively, or approximately
6.1% and 30.7% above the respective fiscal 1993 amounts. Fiscal 1995 tax
revenues from corporations and banks are estimated to be $851.0 million and
$225.0 million, respectively.
Other Taxes. Other tax revenues of the Commonwealth are currently projected to
total $1.846 billion in fiscal 1995, a decrease of 0.01% over fiscal 1994. Other
tax revenues are derived by the Commonwealth from motor fuels excise taxes,
cigarette and alcoholic beverage excise taxes, estate and deed excises and other
tax sources. The Commonwealth is authorized to issue special obligation highway
bonds secured by a pledge of all or a portion of the Highway Fund, including
revenues derived from all portion of the motor fuels excise tax. The
Commonwealth issued $103,770,000 of special obligation bonds on June 24, 1992
secured by a pledge of 2 cents of the 21 cent motor fuel excise tax imposes on
gasoline. The portion of the motor fuel excise tax currently pledged to the
special obligation bonds is estimated to be $168.7 million in fiscal 1995. The
Commonwealth expects to issue up to $300 million of additional special
obligation bonds in fiscal 1994 secured by an additional portion of the motor
fuels excise tax. Additional special obligation bonds may also be issued in the
future secured by all or additional portions of the motor fuels excise tax.
On November 3, 1992, legislation was enacted by voter initiative petition which
imposed, as of January 1, 1993, a new excise tax of 1.25 cents per cigarette (25
cents per pack of 20 cigarettes) and 25% of the wholesale price of smokeless
tobacco. Under the legislation, the revenues raised by this excise tax shall be
credited to a new Health Protection Fund and expended, subject to appropriation
by the Legislature, to pay for health programs and education relating to tobacco
use. Total revenues deposited in the Health Protection Fund in fiscal 1993 and
fiscal 1994 were $59.5 million and $116.3 million, respectively, and are
estimated to be $114.3 million in fiscal 1995.
In addition, in January 1993, the Legislature overrode the Governor's veto of a
100% increase in the deeds excise tax. The increased revenues from this excise
tax, estimated by the Executive Office for Administration and Finance to be
approximately $15.25 million for fiscal 1993, will be retained by county
governments and applied to certain county costs. The availability of these
revenues will reduce Commonwealth expenditures for county purposes by an equal
amount.
Estate Tax Revisions. The fiscal 1993 budget included legislation which
gradually phases down the current Massachusetts estate tax until it becomes a
"sponge tax" in 1997. The "sponge tax" is based on the maximum amount of the
credit for the State taxes allowed for federal estate tax purposes. The estate
tax is phased out by means of annual increases in the basic exemption from the
current $200,000 level. The exemption was increased to $300,000 for 1993,
$400,000 for 1994, $500,000 for 1995 and is increased to $600,000 for 1996. In
addition, the legislation includes a full marital deduction starting July 1,
1994. Currently, the marital deduction is limited to 50% of the Massachusetts
adjusted gross estate until June 30, 1995. The static fiscal impact of the phase
out of the estate tax was estimated to be $24.8 million in 1994 and is estimated
to be $72.5 million in fiscal 1995.
FEDERAL AND OTHER NON-TAX REVENUES. Revenues from the federal government are
received through reimbursements for the federal share of federally mandated
programs such as Medicaid and AFDC. The amount of federal reimbursements
received by the Commonwealth is determined by the amounts of State expenditures
for such programs. Federal reimbursements increased approximately 11.4% from
$1.542 billion in fiscal 1989 to $1.718 billion in fiscal 1990. In fiscal 1991,
federal reimbursements increased by 61.7% to $2.777 billion, owing mainly to the
$513.0 million reimbursement of uncompensated care payments. Federal
reimbursements in fiscal 1992 decreased by $383 million to approximately $2.394
billion, reflecting a decrease of $349 million in uncompensated care payments.
In fiscal 1993, federal reimbursements increased to $2.674 billion as a result
of increased spending for certain entitlement programs. In fiscal 1994, federal
reimbursement increased to $2.915 billion. Federal reimbursements for fiscal
1995 are estimated to increase to $3.035 billion.
Departmental and other non-tax revenues are derived from licenses, registrations
and fees generated through cash transactions and reimbursement and assessments
for services. Annual revenues from these sources increased from $949.1 million
in fiscal 1989 to $1.025 billion in fiscal 1991, representing an annual average
increase of approximately 12.8%, decreased 1.5% to $1.187 billion in fiscal
1992, increased 11.8% in fiscal 1993 to $1.327 billion and decreased 10.5% to
$1.188 billion in fiscal 1994. Annual revenues from these sources are estimated
to increase to $1.250 billion in fiscal 1995. The decrease in 1994 was due to
several factors including: the change in fiscal 1993 to biennial car
registration at the Registry of Motor Vehicles; one-time receipt in fiscal 1993
of abandoned property revenues; and the one-time payment in fiscal 1993 to the
Commonwealth of $80 million from the Massachusetts Water Resources Authority.
These revenue declines were partially offset by an increase in higher education
tuition revenues due primarily to shifting higher education revenues and
expenditures from off-budget to on-budget accounts in fiscal 1994. The expected
increase in fiscal 1995 is due to various factors including primarily: the
biennial car registration mentioned above, which is expected to increase revenue
by approximately $20 million in fiscal 1995; certain abandoned property
initiatives that are expected to result in approximately $15 million of
additional revenues; additional Medicaid recoveries expected to amount to
approximately $24 million and increased child support collections in the amount
of approximately $11 million. The Governor's fiscal 1996 budget recommendation
projects departmental and other non-tax revenues of $1.099 billion, a decrease
of approximately $2 million after adjusting for approximately $147.9 million in
higher education revenue and spending that the recommendation proposes be moved
to an off-budget trust fund.
Interfund transfers and other sources from non-budgeted funds are estimated to
total $897.8 million in fiscal 1995, an increase of 5.1% compared to fiscal
1994. For the budgeted operating funds, interfund transfers include transfers of
profits from the State Lottery and Arts Lottery Funds and reimbursements for the
budgeted costs of the State Lottery Commission, which accounted for $568.6
million, $547.6 million, $558.0 million, $583.0 million in fiscal 1990 through
1994, respectively, and which are expected to account for $705.2 million in
fiscal 1995. The Governor's fiscal 1996 budget recommendation projects fiscal
1996 interfund transfers of approximately $930.4 million, an increase of 3.6% as
compared to fiscal 1995, which amounts include $729.4 million allocable to the
Lottery.
In fiscal 1991, special laws authorized transfers among the General, Highway and
Local Aid Funds to eliminate certain deficit fund balances. Transfers in respect
of such deficits were $234.8 million for fiscal 1991. Legislation included
within the fiscal 1993 budget prohibits, beginning with fiscal 1992, the
transfer of operating funds from the Highway Fund to the General Fund.
LIMITATIONS ON TAX REVENUES. In Massachusetts efforts to limit and reduce levels
of taxation have been under way for several years. Limits were established on
State tax revenues by legislation enacted on October 25, 1986 and by an
initiative petition approved by the voters on November 4, 1986. The two measures
are inconsistent in several respects.
Chapter 62F, which was added to the General Laws by initiative petition in
November 1986, establishes a State tax revenue growth limit for each fiscal year
equal to the average positive rate of growth in total wages and salaries in the
Commonwealth, as reported by the federal government, during the three calendar
years immediately preceding the end of such fiscal year. Chapter 62F also
requires that allowable State revenues be reduced by the aggregate amount
received by local governmental units from any newly authorized or increased
local option taxes or excises. Any excess in State tax revenue collections for a
given fiscal year over the prescribed limit, as determined by the State Auditor,
is to be applied as a credit against the then current personal income tax
liability of all taxpayers in the Commonwealth in proportion to the personal
income tax liability of all taxpayers in the Commonwealth for the immediately
preceding tax year. Unlike Chapter 29B, as described below, the initiative
petition did not exclude principal and interest payments on Commonwealth debt
obligations from the scope of its tax limit. However, the preamble contained in
Chapter 62F provides that "although not specifically required by anything
contained in this chapter, it is assumed that from allowable State tax revenues
as defined herein the Commonwealth will give priority attention to the funding
of State financial assistance to local governmental units, obligations under the
State governmental pensions systems, and payment of principal and interest on
debt and other obligations of the Commonwealth."
The legislation enacted in October 1986, which added Chapter 29B to the General
Laws, also established an allowable State revenue growth factor by reference to
total wages and salaries in the Commonwealth. However, rather than utilizing a
three-year average wage and salary growth rate, as used by Chapter 62F, Chapter
29B utilized an allowable State revenue growth factor equal to one-third of the
positive percentage gain in Massachusetts wages and salaries, as reported by the
federal government, during the three calendar years immediately preceding the
end of a given fiscal year. Additionally, unlike Chapter 62F, Chapter 29B allows
for an increase in maximum State tax revenues to fund an increase in local aid
and excludes from its definition of State tax revenues (i) income derived from
local option taxes and excises, and (ii) revenues needed to fund debt service
costs.
Tax revenues in fiscal 1990 through fiscal 1994 were lower than the limit set by
either Chapter 62F or Chapter 29B. The Executive Office for Administration and
Finance currently estimates that State tax revenues in fiscal 1995 and 1996 will
not reach the limit imposed by either of these
statutes.
In January 1992 the Governor announced his intention to seek an amendment to the
State constitution that would require any Commonwealth tax increase to receive
at least a two-thirds majority vote of each branch of the Legislature. No action
has yet been taken on this proposal.
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN RHODE ISLAND
MUNICIPAL SECURITIES
The following is a summary of certain information contained in official
statements of certain issuers of Rhode Island Municipal Securities published
prior to July, 1995. The summary does not purport to be a complete description
and is current as of the date of the corresponding official statement.
Rhode Island Municipal Securities may fluctuate in value in response to a
variety of factors, including the economic strength of State and local
governments and the availability of federal funding.
Rhode Island has developed a modern, diversified economy providing employment
for over 470,000 residents in both goods and service industries. In 1993, goods
producing industries generated $3.7 billion in earnings and accounted for 17% of
Rhode Island's total personal income. Service industries in the same year
generated $10.1 billion in earnings and accounted for 48 percent of the State's
personal income.
Total personal income in Rhode Island increased by 73.2% in nominal terms
between 1984 and 1994. In 1994, the Rhode Island economy generated $22.2 billion
in personal income. Rhode Island's per capita income of $22,251 is ranked 19th
among the 50 states and has grown faster than the national average.
In recent years, Rhode Island's employment mix has shifted with an increasing
proportion of employment in service producing sectors at the expense of goods
producing sectors. Between 1984 and 1994, employment in the goods producing
industries declined by 25.6% (135,000 to 100,500) while employment in service
producing industries grew by 18.5% (281,400 to 333,500).
In 1993, the manufacturing sector contributed $3.0 billion, or 13.9% of Rhode
Island's total personal income. Personal income derived from this sector
increased 28% between 1983 and 1993. Rhode Island is the jewelry capital of the
world, with over 35,000 employed in jewelry manufacturing, distribution and
related services. Hasbro, the world's second largest toy manufacturer, and
G-tech, the world's largest supplier of on-line lottery systems, are
headquartered in Rhode Island. Electronic products manufactured in the State
include connectors, circuit boards, uninterruptable computer power supplies, and
wire and cable assemblies. Metrology equipment, navigation equipment, medical
equipment and supplies, safety goggles, and protective breathing apparatus are
also manufactured in Rhode Island. Rhode Island's skilled crafts people produce
a wide variety of metal and plastic components which are used by manufacturers
throughout the world. Chemical manufacturers located in Rhode Island produce
products such as dyes, biomedical products and aerosol consumer products.
In 1993, the wholesale and retail trade sector contributed $2.0 billion, or 10%,
of Rhode Island's total personal income, and over 14.8% of the portion of
personal income derived from earnings. Employment in trade increased 7.3% from
88,600 in 1984 to 95,100 in 1994.
In 1992, the service sector contributed $4.0 billion, or 18.8% of Rhode Island's
total personal income, and over 28.9% of the portion of personal income derived
from earnings. Employment in Rhode Island's service industries increased 37.8%
from 99,200 in 1984, to 136,700 in 1994. Service is the largest division of the
State's economy with health services, business services and educational services
as the most important groups.
Business services, engineering, accounting and research are the fastest growing
sector of Rhode Island's economy, employing over 29,500 in 1994. Rhode Island
companies have developed extensive system engineering and research facilities to
support the Naval Undersea Warfare Center in Newport. Over 2,600 firms not only
provide business support services for Rhode Island's diversified economy, but
also export these services throughout the United States and the world.
Health services is the largest employment group in Rhode Island. There are 14
general hospitals and two voluntary psychiatric hospitals in Rhode Island. In
addition, there are 110 nursing and personal-care facilities in Rhode Island.
In 1993, the government sector contributed $2.3 billion, or 10.8% of Rhode
Island's total personal income, and over 16.6% of the portion of personal income
derived from earnings. Government employment in Rhode Island has increased 7.7%
since 1984 from 57,400, to 61,800 in 1994.
The United States Navy maintains a significant presence in Newport, Rhode
Island, where its facilities include: the Naval Education and Training Center;
Naval War College; and the Naval Undersea Warfare Center. These facilities
employ over 7,543 military and civilian personnel, and have an average daily
enrollment of almost 2,022 students. The Naval Undersea Warfare Center, with its
major laboratories in Newport and Middletown, is a prime source of high
technology that provides the Navy with its tactical and strategic edge in combat
systems, surface ship sonar, and undersea ranges. In 1994, the Naval Undersea
Warfare Center employed 3,829 people. Many Rhode Island companies have developed
extensive system engineering and research facilities that provide support to the
center.
In 1994, military personnel, civilian Department of Defense personnel and
private industry defense related employment in Rhode Island was estimated at
15,887 having declined from a 1987 high of 26,934. Total defense contract awards
to Rhode Island firms have decreased from a high of $555 million in 1990, to
$410 million in 1994.
Beginning in 1989, Rhode Island, like other New England states, began to
experience a slowdown in its economy. The State's unemployment rate increased
from 4.1% in 1989 to 6.8% in 1990, to 8.6% in 1991, and again to 8.9% in 1992.
Personal income growth slowed from an annual rate of 9.0% in 1988 to 2.1 percent
in 1991. In constant dollars, personal income growth slowed from 4.5.% to -1.8%
for the same years.
The economic slowdown resulted in significant State budget constraints and
opportunities to review the overall fiscal situation. The recession that
engulfed the Rhode Island economy appears to have finally stabilized. After
three years of falling employment, the number of jobs in Rhode Island grew by
0.1% in 1993. Data Resources, Inc. (DRI) forecasters estimate Rhode Island job
growth at an annual rate of 1.4% annually from 1994 to 1998 with personal income
growth rates averaging 5.4%. Real personal income growth is forecast to average
2.2%.
The national recession has been longest and deepest in the New England states.
Since 1989, 9.6% of all of New England's non-agricultural jobs have been lost.
Rhode Island losses have paralleled those of the rest of the region.
Non-agricultural employment in Rhode Island fell by 8.9% between the 1989 peak
and the low point in 1992.
Rhode Island, Massachusetts, Connecticut and Maine rank among the top 12 states
in defense prime contract awards per capita. As a result, federal defense
cutbacks have affected this region disproportionately. The national recovery did
not affect all regions equally. New England is forecast to continue to lag due
to the restructuring of the defense industry and overbuilding in real estate
markets.
The DRI estimators forecast that the national economy is beginning to slow with
a "soft landing" rather than a recession. Consumer spending is slowing in
response to higher interest rates and rising debt burdens. Debt accumulation
appears to have risen to earlier peak levels; the rate of accumulation growth
does not appear sustainable.
The Rhode Island outlook is for continued recovery at a sluggish pace. Non-farm
employment has increased 1% annually over the past three years and is estimated
to remain at 1.2% annual growth through years 2000. Rhode Island expects to
continue to lose manufacturing jobs to foreign competitors, high regulatory
costs, and the end of the Seawolf Program. Services will provide 80% of the new
jobs created through 2000, reflecting growth in business services, education,
health care, and tourism.
Population growth is expected to average 0.4% annually during the fiscal years
1995 through 2000. Population declined 0.2% annually during the past three years
as a result of a weak job market, motivating out-migration. The shrinking labor
force contributed to the reduction of three points off the unemployment rate
since the spring of 1992. The unemployment rate is forecast to grow from the
currently forecast 6.4% for 1995 to 6.8% in 1996.
The gross State product has rebounded from -3.8% change in 1991 to a high of
3.1% in 1994; however, that tracked the overall growth rate of the U.S. economy.
Growth rates are expected to drop to 1.7% in 1995 and further to 1.2% in 1996.
Personal income growth also peaked in 1994, at 5.4%. Growth drops to 5.3% in
1995 and 4.3% in 1996 before rebounding in 1997.
REVENUE ESTIMATES. Current revenue estimates are those adopted by the Revenue
Estimating Conference for fiscal 1995 and fiscal 1996 on May 10, 1995. They are
based on current law. Thus, they do not include the cigarette tax increase, the
retention of an additional one cent of the existing gas tax by the Department of
Transportation as recommended by the Governor, nor do they include extension of
the existing nursing home tax currently under discussion.
The Conference estimated revenues of $1.633 billion for fiscal 1995 and $l.565
billion for fiscal 1996. These represent 4.7% growth in fiscal 1995 and -3.5% in
fiscal 1996.
When adjusted for tax law changes, they represent -1.3% in fiscal 1995 and 2.1%
for fiscal 1996. Major changes include the nursing home tax, the hospital
license fee, and the public utilities gross earnings tax phase out for
manufacturing energy. The fiscal 1995 decrease is in disproportionate share
Medicaid receipts.
PERSONAL INCOME TAX. The personal income tax estimate for fiscal 1995 of $531.0
million is a downward revision of $37.0 million. The fiscal 1996 estimate of
$550.0 million is a downward revision of $47.0 million, reflecting fiscal 1995
change as well as reduction in estimated growth from 5.1% to 3.6% to reflect the
revised economic forecast.
Income tax returns to date have presented a mixed picture to estimators. Through
April, 1995 withholding receipts were 6.4% above the same period in fiscal 1994.
However, estimated payments and final payments were 13.7% and 5.6% below,
respectively. Refunds were 9.3% ahead. It appears possible that over withholding
may be occurring again -- it had been virtually eliminated in 1991 when the IRS
re-based the withholding tables.
INSURANCE COMPANY GROSS PREMIUMS TAX. The estimators lowered the estimates by
$6.0 million in fiscal 1995 and $8.0 million in fiscal 1996 based upon payments
to date and the March estimated filings. Companies are required to file 40% of
their tax year estimated liability in March and the remaining 60% in June. The
estimate of $35.0 million and $36.0 million reflects -6.9 percent and 2.9%
growth rates for fiscal 1995 and fiscal 1996, respectively.
SALES TAX. The estimates are $454.0 million for fiscal 1995 and $465.0 million
for fiscal 1996. These are downward revisions of: $1.0 million for fiscal 1995,
representing a drop in the growth rate from 8.4% to 8.2%; and $7.0 million in
fiscal 1996, representing a drop in the projected growth from 3.7% to 2.4%.
Review of monthly returns shows decreasing six-month average collections as
shown here:
<PAGE>
PERIOD MONTHLY AVERAGE
July - December $39.1
August - January 39.1
September - February 37.9
October - March 36.9
November - April 36.8
This suggests a slowdown on taxable purchases moving with the economic slowdown.
LOTTERY. The estimators revised the fiscal 1995 and fiscal 1996 estimates
upward by $10.2 and $7.5 million, respectively. The principal area
of growth is in video games.
OTHER. The estimators increased the disproportionate share component of
departmental sales and services by $12.7 million for fiscal 1995 and $5.7
million for fiscal 1996. This requires corresponding increases from DHS for
matching funds of $5.9 million and $2.6 million, respectively.
Personal income tax receipts showed healthy growth in fiscal 1994, probably as a
result of a large one-time filing equal to approximately two percent of the
growth. The fiscal 1995 drop would be 2% higher on that basis. The fiscal 1996
estimate reflects the estimators' concern for economic slowdown.
General business taxes show a drop in fiscal 1995 as a result of the change in
the health care provider assessment rate on mental retardation group homes in
September, 1994 as noted earlier. The drop in fiscal 1996 is the result of an
$8.1 million loss in the health care providers assessment on nursing homes that
expires September 30, 1995 under current law. The Assembly has discussed
extending the tax.
Sales and use taxes are estimated to increase 8.7% in fiscal 1995 and 2.1% in
fiscal 1996. The sales tax component is projected to grow 8.2% in fiscal 1995
and 2.4% in fiscal 1996. Fiscal 1995 showed dramatic growth of 16% in the first
six months (July-December) over the same period for the prior year, followed by
a gradual slowdown. The fiscal 1996 estimate assumes the slowdown will continue.
Departmental receipts show considerable annual variance, largely as a result of
the one-time hospital license fee (fiscal 1995) and large medicaid
disproportionate share payments (fiscal 1993 and fiscal 1994). The changing
federal medicaid restrictions on these sources are expected to have had run
their course by fiscal 1996.
Finally, lottery games continue to be a major source of revenue increase,
growing from $43.6 million in fiscal 1993, to $51.3 million in fiscal 1994, and
over $70.0 million in fiscal 1995 and fiscal 1996.
COMPARATIVE STATEMENTS OF REVENUES AND EXPENDITURES. The General Fund revenues
and expenditures for fiscal 1995 are predicated on the basis of revised revenue
estimates and revised expenditures as projected by the State Budget Office.
Revenues reflect the May Consensus estimates of the Revenue Estimating
Conference, adjusted by the Budget Office for the deficit resolution plan.
Fiscal 1995 revenues are currently estimated by the Budget Office to be
$1,669,633,205, an increase of $36,233,205 over the May conference and
$15,392,088 over the Governor's Budget. The $36.2 million variance is a result
of an estimated decrease in the business corporations tax of $5.3 million due to
a liability resulting from a recent court decision and $41,523,400 of other
revenues estimated by the Budget Office. These revenues are from bond proceeds
earnings ($480,376), employee medical insurance recoveries ($1,305,132),
reversal of a medical assistance payable reserve ($12,420,002), prior year
adjustments ($1,319,225), prior year group life dividends ($775,265), recoveries
from the medical assistance program ($3.0 million), recoveries from the Solid
Waste Management Corporation ($5,854,523), excess bond proceeds recoveries
($3,508,877), prior year Public Building Authority recoveries ($960,000),
enhancements from restricted receipt conversions ($12.0 million) and a decrease
in revenues from Lottery advertising ($100,000).
The General Fund revenues and expenditures for fiscal 1996 are based on
expenditures contained in the proposed fiscal 1996 budget submitted by the
Governor in March, 1995. Revenues reflect the May consensus estimates of the
Revenue Estimating Conference. Fiscal 1996 revenues will change as a result of
budget negotiations. Revenue changes under discussion include a hospital
licensing fee of 4.92% of net revenues ($53.7 million), a 5 cent increase in the
cigarette tax ($4.9 million), a decrease of $410,000 due to the elimination of
the motor vehicle walk-in registration fee, a decrease in the gas tax due to
increased dedication to Transportation expenditures ($4.2 million), and a
decrease in sales and services tax due to lost revenues from out-of-State
prisoners ($2.2 million), all of which were proposed by the Governor in March.
These total $51.8 million. Also under discussion are the extension of the
nursing home tax ($8.1 million), additional gambling revenue through change to
the distribution at the Lincoln Dog Racing facility ($2.0 million), recovery of
prior year employee medical insurance ($2.7 million), additional medical
assistance program cost recoveries ($17.0 million), lottery advertising revenues
($1.0 million), and other sources ($2.0 million).
The Budget Office projects a closing surplus of $4.3 million in fiscal 1995
assuming the components contained in the deficit reduction plan are accepted.
The State must resolve a $42.5 million projected deficit in fiscal 1996. The
Governor is in the process of developing a budget deficit resolution plan for
fiscal 1996. In addition to the changes in revenues described above, expenditure
reduction plans for State agencies and departments are currently under review.
FREE SURPLUS. State law provides that all unexpended or unencumbered balances of
general revenue appropriations, whether regular or special, shall lapse to
General Fund surplus at the end of each fiscal year, provided, however, that
such balances may be reappropriated by the Governor in the ensuing fiscal year
for the same purpose for which the monies were originally appropriated by the
General Assembly. Free surplus is the amount available at the end of any fiscal
year for future appropriation by the General Assembly.
The Governor is in the process of developing a budget deficit resolution plan to
resolve the projected $42.5 million deficit in fiscal 1996. Expenditure
reduction plans for State agencies and departments are currently under review.
State statutes require every city and town to adopt a balanced budget for each
fiscal year. Local governments rely principally upon general real and tangible
personal property taxes and automobile excise taxes for provision of revenue.
The State is required to enact and maintain a balanced budget. In the event of a
budgetary imbalance, the available free surplus will be reduced and/or
additional resources (i.e. taxes, fines, fees, licenses, etc.) will be required
and/or certain of the expenditure controls will be put into effect.
A combination of these measures will be utilized by the State in order to
maintain a balanced budget.
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN CONNECTICUT
MUNICIPAL SECURITIES
The following is a summary of certain information contained in official
statements of certain issuers of Connecticut Municipal Securities published
prior to October, 1995. The summary does not purport to be a complete
description and is current as of the date of the corresponding official
statement.
Connecticut Municipal Securities may fluctuate in value in response to a variety
of factors, including the economic strength of State and local governments and
the availability of federal funding.
Connecticut's economy is diverse, with manufacturing, services and trade
accounting for approximately 70% of total non-agricultural employment.
Manufacturing employment has been on a downward trend since 1984 while
non-manufacturing employment has risen significantly. Rapid relative growth in
the non-manufacturing sector as compared to the manufacturing sector is a trend
that is in evidence nationwide and reflects the increased importance of the
service industry. From 1970 to 1993, manufacturing employment in the State
declined 33.5%, while non-manufacturing employment rose 63.3%, particularly in
the service, trade and financial categories, resulting in a 27.6% increase in
total growth in non-agricultural establishment employment.
Defense-related business plays an important role in the Connecticut economy.
Economic activity has been affected by the volume of defense contracts awarded
to Connecticut firms. In the past 10 years, Connecticut has ranked from 6th to
12th among all states in total defense contract awards, receiving 2.5% of all
such contracts in 1993. On a per capita basis, defense awards to Connecticut
have traditionally been among the highest in the nation. However, in recent
years the federal government has reduced defense-related spending. This trend is
expected to continue.
The Connecticut General Assembly's annual appropriation acts have usually
authorized current expenditures consistent with the anticipated annual tax and
other revenue sources except in certain years since 1971 when borrowings were
authorized to fund deficits.
In the fiscal years ended June 30, 1985, 1986 and 1987, the operating surpluses
of the State's General Fund were $365.5, $250.1 and $365.2 million,
respectively. For the fiscal year ended June 30, 1988 the operating deficit was
$115,594,656. By statute, this amount was deemed to be appropriated from the
Budget Reserve Fund to fund the deficit.
After the effect of a variety of executive actions and legislative enactments in
the course of the fiscal year which significantly reduced the projected deficit,
the operating deficit for the fiscal year ended June 30, 1989 was $28,019,984.
This amount was also deemed to be appropriated from the Budget Reserve Fund to
fund the deficit.
For the fiscal year ended June 30, 1990, the General Fund's operating deficit
was $259,496,841. This was the net deficit after actions taken by the Governor
and the General Assembly which affected both revenues and expenditures. As
required by statute, the State Comptroller transferred the balance of the Budget
Reserve Fund, or $102,254,299, to the General Fund to partially fund the
operating deficit. This action brought the total deficit carried forward to
fiscal 1990-91 to $157,242,542.
For the fiscal year ended June 30, 1991, the operating deficit, after
miscellaneous surplus adjustments, was $808,468,983. Together with the deficit
carried forward from fiscal 1989-90, the total deficit for the fiscal year
1990-91 was $965,711,525. This total deficit amount was funded by the issuance
of General Obligation Economic Recovery Notes.
The result of the fiscal year ended June 30, 1992 was a General Fund operating
surplus of $110,181,277. The surplus was used to retire $110,100,000 of Economic
Recovery Notes.
For the fiscal year ended June 30, 1993, there was a General Fund operating
surplus of $113,490,652. By statute, the unappropriated surplus in the General
Fund is deemed to be appropriated for debt service for the fiscal year ending
June 30, 1994.
For the fiscal year ended June 30, 1994, there was a General Fund operating
surplus of $19,654,737. By statute, the unappropriated surplus in the General
Fund is deemed to be appropriated for debt service for the fiscal year ending
June 30, 1995.
Per statute, the State's fiscal position is reported monthly by the Comptroller.
This report compares revenues already received and expenditures already made to
estimated revenues to be collected and estimated expenditures to be made during
the balance of the year.
The Comptroller's February 1, 1995 letter indicated a General Fund deficit of
$174.1 million. Subsequently, on February 15, 1995, the Governor released his
recommended budget for the upcoming biennium. As part of that recommendation,
the Governor included a plan to substantially reduce this deficit primarily
through legislative action to reinstate State taxes on hospital patient services
effective February 1, 1995, estimated to be $86.7 million from the gross
earnings tax and $45.0 million from the sales tax, and by legislative changes to
the tax levied in connection with underground fuel tanks estimated to produce
$13.5 million in revenues to the General Fund. Based on the assumption such
action would be taken, the Comptoller's monthly report of March 1, 1995,
reflects a deficit of $2.6 million. The General Assembly has not yet adopted the
Governor's plan and the Governor is currently exploring alternative actions
including potential legislative changes.
No assurance can be given that subsequent projections will not indicate changes
in the anticipated General Fund result.
The Governor's Recommended Biennial Budget for fiscal 1995-96 anticipates
General Fund expenditures of $8,489.7 million and General Fund revenues of
$8,495.3 million. After deducting $2.6 million for the anticipated carry-forward
deficit from fiscal 1994-95, the estimated surplus for fiscal 1995-96 is $3.0
million. For fiscal 1996-97, the Governor's Recommended Budget anticipates
General Fund expenditures of $8,617.2 million and General Fund revenue of
$8,629.9 million resulting in a projected surplus of $12.7 million. Per statute,
these surpluses will be deposited into the Budget Reserve Fund.
The Governor's Recommended Budget for the biennium remains within the limits
imposed by the statutory expenditure cap. For fiscal 1995-96 and for fiscal
1996-97, permitted growth in capped expenditures is 3.59% and 3.71%,
respectively. The Recommended Budget is $126.2 million below the expenditure cap
in fiscal 1995-96 and $246.6 million below the expenditure cap in fiscal
1996-97.
The Governor's Recommended Budget calls for a lower income tax rate of 3% to be
applied to a filer's first portion of taxable income with the remainder to be
taxed at the current rate of 4.5%. This change is retroactive to January 1, 1995
and for joint filers the new 3% rate will apply to the first $12,000 of taxable
income. By January 1, 1997, when the Governor's recommended changes are fully
implemented, for joint filers the new 3% rate will apply to the first $30,000 of
taxable income. After full implementation fully 43% of Connecticut's taxpayers
will pay exclusively at the new 3% rate. In addition, the Governor is proposing
to phase down the Corporation Business Tax beginning January 1, 1997 from 10.5%
to 8% by January 1, 1999. These two changes, when combined with other
miscellaneous revenue modifications, are expected to result in a $218 million
revenue loss in fiscal 1995-96 and a $343 million revenue loss in fiscal
1996-97.
In order to achieve a balanced budget, the Governor, after a thorough review of
all State budget programs and functions, has recommended expenditure reductions
from estimated current services of approximately $1,020 million in fiscal
1995-96 and an additional $632 million in fiscal 1996-97. The Governor's budget
proposes significant changes to the welfare system aimed at promoting economic
self-sufficiency. These include permitting recipients to earn more before
eliminating their benefits, imposing an 18 month time limit for receipt of
benefits, and reducing the AFDC payment levels with no additional benefits for
additional children. In fiscal 1995-96 these changes will reduce AFDC
expenditures by $36 million from fiscal 1994-95 and General Assistance
expenditures by $27 million. Include in the Governor's budget is a restructuring
of the numerous categorical grants to municipalities. The Education Cost Sharing
grant, the State's largest, will be consolidated with other reduction related
grants. Overall, the Governor's budget pares back 95% of the projected increase
in education grants to towns. The Governor's budget also proposes to cut in
half, to $500 million, the amount of bonds annually authorized by the State to
rein in debt service costs.
The Governor's Recommended Budget also calls for the reissuance of a portion of
the fiscal 1995-96 Economic Recovery Fund payment and extending the payment over
three additional years. This change will decrease the fiscal 1995-96 payment
from $328.1 million to $91.9 million and increases the fiscal 1996-97 payment
form zero to $91.3 million, the fiscal 1997-98 payment from zero to $87.2
million and the fiscal 1998-99 payment from zero to $86.6 million. This revision
will result in a projected additional interest expense of $28.8 million over the
period.
The budget recommended by the Governor for fiscal year 1995-1996 anticipates
General Fund expenditures of $8,489,700,000 and General Fund revenues of
$8,495,300,000. For fiscal 1996-1997, the adopted budget anticipates General
Fund expenditures of $8,115,600,000 and General Fund revenues of $8,629,900,000.
No assurance can be given that subsequent projections will not indicate changes
in the anticipated General Fund result.
On November 3, 1992, Connecticut voters approved a constitutional amendment
which requires a balanced budget for each year and imposes a cap on the growth
of expenditures. The statutory spending cap limits the growth of expenditures to
either (1) the average of the annual increase in personal income in the State
for each of the preceding five years, or (2) the increase in the consumer price
index for urban consumers during the preceding twelve-month period, whichever is
greater. Expenditures for the payment of bonds, notes and other evidences of
indebtedness are excluded from the constitutional and statutory definitions of
general budget expenditures.
By statute, no bonds, notes or other evidences of indebtedness for borrowed
money payable from General Fund tax receipts of the State shall be authorized by
the General Assembly except as shall not cause the aggregate amount of (1) the
total amount of bonds, notes or other evidences of indebtedness payable from
General Fund tax receipts authorized by the General Assembly but which have not
been issued and (2) the total amount of such indebtedness (excluding short-term
and certain other indebtedness) which has been issued and remains outstanding,
to exceed 1.6 times the total estimated General Fund tax receipts of the State
for the fiscal year in which any such authorization will become effective. As a
result, the State had a debt incurring margin as of March 1, 1995 of
$1,716,182,730.54. Potentially, this law could limit the amount of Connecticut
Municipal Obligations available for purchase by the Fund.
Several tax changes were adopted during the 1993 legislative session, the net
effect of which is not yet clear. Among the most significant changes were the
changes to the Corporation Business Tax based on income. A four year gradual
rate reduction was adopted reducing the tax to 11.25% beginning January 1, 1995;
11% beginning January 1, 1996; 10.5% beginning January 1, 1997 and 10% beginning
January 1, 1998. Additionally, the Corporation Business Tax based on capital was
eliminated for regulated investment companies and real estate investment trusts.
To assist manufacturers, the Gross Receipts Tax on electricity to those
businesses will be phased out over the next four years. Further, to encourage
continuing research and development in Connecticut, a research and development
tax credit was provided for research and development expenses for income years
commencing on or after January 1, 1993.
Several Sales Tax exemptions were added which include, among others, amusements
and recreation, airport valet parking, certain tax preparation services and car
washes. The Personal Income Tax estimated and withholding payment schedule was
changed to conform to the federal timetable. A minimum tax was established so
that Connecticut personal income taxpayers who are subject to the federal
alternative minimum tax will now pay the higher of the State income tax or 23%
of their adjusted federal tentative minimum tax. The tax on cigarettes was
increased by 2 cents per pack effective July 1, 1993 and 3 cents per pack
effective July 1, 1994 and a two dollar excise tax on automobile tires was
enacted.
The State Department of Revenue Services has received claims for refund of the
Corporation Business Tax ("CBT") for the years 1986 through 1993 aggregating
more than $87,000,000, attributable to the inclusion in the income base of the
CBT of interest on federal obligations while excluding from the base interest on
certain State obligations. On March 8, 1995, the Connecticut General Assembly
enacted legislation taking by eminent domain the rights of holders relating to
exclusion of interest on any State obligation from the income base of the CBT,
effective for interest accrued on or after January 1, 1992. The State will pay
just compensation to holders for the rights taken. This legislative action is
intended to eliminate the basis for such refund claims for 1992 and later years,
aggregating approximately 70% of amounts claimed. The just compensation payable
to holders of State obligations is expected to aggregate substantially less than
the refunds claimed for 1992 and later years. Public Act Additional legislative
action authorizes the issuance of bonds in the amount of $48 million for the
payment of compensation, interest, administration and refunds.
The State of Connecticut, its officers and employees, are defendants in numerous
lawsuits. The Attorney General's Office has reviewed the status of pending
lawsuits and reports that an adverse decision in any of the cases listed in the
Litigation section of the Connecticut State Official Statement could materially
affect the State of Connecticut's financial position.
<PAGE>
INVESTMENT LIMITATIONS
The following are fundamental policies of each of the Funds.
A Fund may not:
1. Purchase any securities which would cause more than 25%
of the total assets of the Fund to be invested in the
securities of one or more issuers conducting their
principal business activities in the same industry,
provided that this limitation does not apply to
investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities
and repurchase agreements involving such securities
and, for certain Funds, to other investments as
described in the prospectuses by which shares of those
Funds are offered, and provided further that this
limitation does not apply to an investment of all of
the investable assets of the 1784 International Equity
Fund in a diversified, open-end management investment
company having the same investment objective and
policies and substantially the same investment
restrictions as those applicable to the Fund (a
"Qualifying Portfolio"). For purposes of this
limitation, (i) utility companies will be divided
according to their services; for example, gas, gas
transmission, electric and telephone will each be
considered a separate industry; (ii) financial service
companies will be classified according to the end users
of their services; for example, automobile finance,
bank finance and diversified finance will each be
considered a separate industry; and (iii) supranational
entities will be considered to be a separate industry.
2. Make loans except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; (b) enter into
repurchase agreements; and (c) engage in securities lending as described
in the prospectus by which shares of that Fund are offered and in the
Statement of Additional Information.
3. Acquire more than 10% of the voting securities of any
one issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities
and repurchase agreements involving such securities) or
invest more than 5% of the total assets of the Fund in
the securities of an issuer (except securities issued
or guaranteed by the United States, its agencies or
instrumentalities and repurchase agreements involving
such securities); provided, that (a) the foregoing
limitation shall not apply to the 1784 Massachusetts
Tax-Exempt Income Fund, 1784 Connecticut Tax-Exempt
Income Fund and 1784 Rhode Island Tax-Exempt Income
Fund, (b) the foregoing limitation shall not apply to
25% of the total assets of each of the Equity Funds,
the Fixed Income Funds, the 1784 Tax-Exempt Medium-Term
Income Fund or the 1784 Tax-Free Money Market Fund and
(c) the foregoing limitation does not apply to an
investment of all of the investable assets of the 1784
International Equity Fund in a Qualifying Portfolio.
4. Invest in companies for the purpose of exercising
control.
5. Borrow, except that a Fund may borrow money from banks
and may enter into reverse repurchase agreements, in
either case in an amount not to exceed 33 1/3% of that
Fund's total assets and then only as a temporary
measure for extraordinary or emergency purposes (which
may include the need to meet Shareholder redemption
requests). This borrowing provision is included solely
to facilitate the orderly sale of fund securities to
accommodate heavy redemption requests if they should
occur and is not for investment purposes. A Fund will
not purchase any securities for its portfolio at any
time at which its borrowings equal or exceed 5% of its
total assets (taken at market value), and any interest
paid on such borrowings will reduce income.
6. In the case of the Equity Funds, the Money Market
Funds, the 1784 U.S. Government Medium-Term Income
Fund, the 1784 Tax-Exempt Medium-Term Income Fund and
the 1784 Massachusetts Tax-Exempt Income Fund, pledge,
mortgage or hypothecate assets except to secure
temporary borrowings permitted by (5) above in
aggregate amounts not to exceed 10% of total assets
taken at current value at the time of the incurrence
of such loan, except as permitted with respect to
securities lending.
7. Purchase or sell real estate, including real estate
limited partnership interests, commodities and
commodities contracts but excluding interests in a pool
of securities that are secured by interests in real
estate. However, subject to its permitted investments,
any Fund may invest in companies which invest in real
estate commodities or commodities contracts. Each of
the Funds may invest in futures contracts and options
thereon to the extent described in the prospectus by
which shares of that Fund are offered and elsewhere in
this Statement of Additional Information.
8. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term credits
as necessary for the clearance of security transactions.
9. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter under federal securities laws in selling a security
held by the Fund.
10. Purchase securities of other investment companies
except as permitted by the 1940 Act and the rules and
regulations thereunder. Under these rules and
regulations, each of the Funds is prohibited from
acquiring the securities of other investment companies
if, as a result of such acquisition, (a) such Fund owns
more than 3% of the total voting stock of the company;
(b) securities issued by any one investment company
represent more than 5% of the total assets of such
Fund; or (c) securities (other than treasury stock)
issued by all investment companies represent more than
10% of the total assets of such Fund, provided, that
with respect to the 1784 International Equity Fund, the
limitations do not apply to an investment of all of the
investable assets of the Fund in a Qualifying
Portfolio. These investment companies typically incur
fees that are separate from those fees incurred
directly by a Fund. A Fund's purchase of such
investment company securities results in the layering
of expenses, such that Shareholders would indirectly
bear a proportionate share of the operating expenses of
such investment companies, including advisory fees.
It is the position of the Securities and Exchange Commission's Staff that
certain non-governmental issuers of CMOs and REMICs constitute investment
companies pursuant to the 1940 Act and either (a) investments in such
instruments are subject to the limitations set forth above or (b) the
issuers of such instruments have received orders from the Securities and
Exchange Commission exempting such instruments from the definition of
investment company.
11. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the Securities and Exchange Commission.
12. Write or purchase puts, calls, or other options or
combinations thereof, except that each Fund may write
covered call options with respect to any or all of the
securities it holds, subject to any limitations
described in the prospectus offering shares of that
Fund or elsewhere in this Statement of Additional
Information and each Fund may purchase and sell other
options as described in the prospectus by which shares
of that Fund are offered.
NON-FUNDAMENTAL POLICIES
The following policies are not fundamental and may be changed by the Trust with
respect to any Fund without approval by the Shareholders of that Fund.
No Fund may invest in warrants except that (i) the 1784 Growth and Income Fund,
the 1784 Asset Allocation Fund and the 1784 International Equity Fund may each
invest in warrants in an amount not exceeding 5% of the Fund's net assets as
valued at the lower of cost or market value; included in these amounts, but not
to exceed 2% of the Fund's net assets may be warrants not listed on the New York
Stock Exchange or American Stock Exchange; and (ii) the 1784 Short-Term Income
Fund and the 1784 Income Fund may each invest in warrants in an amount not
exceeding 2% of its net assets, this limitation does not apply to warrants
acquired in units or attached to securities. Such warrants may not be listed on
the New York Stock Exchange or American Stock Exchange.
No Fund may invest in illiquid securities in an amount exceeding, in the
aggregate, 15% of that Fund's net assets (10% for Money Market Funds), provided
that this limitation does not apply to an investment of all of the investable
assets of the 1784 International Equity Fund in a Qualifying Portfolio. An
illiquid security is a security which cannot be disposed of promptly (within
seven days) and in the usual course of business without a loss, and includes
repurchase agreements maturing in excess of seven days, time deposits with a
withdrawal penalty, non-negotiable instruments and instruments for which no
market exists. The foregoing limitation does not apply to restricted securities,
including those issued pursuant to Rule 144A under the 1933 Act, if it is
determined by or under procedures established by the Board of Trustees of the
Trust that, based on trading markets for the specific restricted security in
question, such security is not illiquid.
No Fund may purchase or retain securities of an issuer if, to the knowledge of
the Trust, an officer, trustee, partner or director of the Trust or any
investment adviser of the Trust owns beneficially more than 1/2 of 1% of the
shares or securities of such issuer and all such officers, trustees, partners
and directors owning more than 1/2 of 1% of such shares or securities together
own more than 5% of such shares or securities.
No Fund may invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
No Fund may purchase securities of any company which has (with predecessors) a
record of less than 3 years continuing operations if, as a result more than 5%
of total assets (taken at fair market value) of the Fund would be invested in
such securities, except that the foregoing limitation shall not apply to (a)
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; (b) municipal securities which are rated by at least one
nationally recognized bond rating service and, in the case of the Equity Funds,
the Money Market Funds, the 1784 U.S. Government Medium-Term Income Fund, the
1784 Tax-Exempt Medium-Term Income Fund and the 1784 Massachusetts Tax-Exempt
Income Fund, at least two such bond rating services; or (c) an investment of all
of the investable assets of the 1784 International Equity Fund in a Qualifying
Portfolio.
The foregoing percentages will apply at the time of the purchase of a security
and shall not be considered violated unless an excess occurs or exists
immediately after and as a result of a purchase of such security.
THE ADVISERS
The Trust has entered into separate advisory agreements (each, an "Advisory
Agreement") with The First National Bank of Boston ("Bank of Boston") and, with
respect to the 1784 International Equity Fund, Kleinwort Benson Investment
Management Americas Inc. ("Kleinwort Benson"). The Advisory Agreement with Bank
of Boston for the Funds other than the 1784 International Equity Fund is dated
as of June 1, 1993 and the Advisory Agreement with Bank of Boston for the 1784
International Equity Fund is dated as of November 28, 1994. The Advisory
Agreement with Kleinwort Benson for the 1784 International Equity Fund is dated
as of November 28, 1994. Bank of Boston and Kleinwort Benson shall be referred
to in this Statement of Additional Information, collectively, as the "Advisers"
and each, individually, as an "Adviser." The prospectus by which shares of each
Fund are offered contains a description of the fees payable to the Advisers for
services rendered to that Fund under the applicable Advisory Agreements, and
contains a description of certain voluntary waivers of such fees.
For the fiscal years ended May 31, 1994 and 1995, the Trust paid the following
fees (after fee waivers) on behalf of the Funds to Bank of Boston under the
Advisory Agreements to which Bank of Boston is a party:
Bank of Boston Bank of Boston
Investment Investment
Fund Advisory Fees 1994 Advisory Fees 1995
1784 Tax-Free Money Market Fund $ 0 $ 1,471,000
1784 U.S. Treasury Money Market $ 0 $ 69,000
1784 Institutional U.S. Treasury $ 0 $ 85,000
Money Market
1784 U.S. Government Medium-Term $ 0 $ 679,000
Income Fund
1784 Tax-Exempt Medium-Term Income $ 0 $ 602,000
Fund
1784 Massachusetts Tax-Exempt Fund $ 0 $ 363,000
1784 Short-Term Income Fund N/A $ 86,000
1784 Income Fund N/A $ 521,000
1784 Connecticut Tax-Exempt Income Fund N/A $ 138,000
1784 Rhode Island Tax-Exempt N/A $ 77,000
Income Fund
1784 Growth and Income Fund $ 12,000 $ 1,393,000
1784 Asset Allocation $ 0 $ 23,000
1784 International Equity Fund N/A $ 0
Total $ 12,000 $ 5,707,000
The foregoing table does not reflect contributions to the Funds made by Bank of
Boston in order to assist the Funds in maintaining competitive expense ratios.
For the fiscal year ended May 31, 1995, the Trust paid $199,000 to Kleinwort
Benson under the Advisory Agreement to which Kleinwort Benson is a party with
respect to the 1784 International Equity Fund.
The continuance of each Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are neither parties to the
Advisory Agreement nor "interested persons" of any party thereto, cast in person
at a meeting called for the purpose of voting on such approval. Each Advisory
Agreement will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to any Fund, by a majority of the outstanding shares of that Fund, on
not less than 30 nor more than 60 days' written notice to the applicable
Adviser, or by the applicable Adviser on 90 days' written notice to the Trust.
Each Advisory Agreement provides that neither the Adviser nor its personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution of
security transactions for the Trust or any Fund, except that the Adviser and its
personnel shall not be protected against any liability to the Trust, any Fund or
its Shareholders by reason of willful misfeasance, bad faith or gross negligence
on its or their part in the performance of its or their duties or from reckless
disregard of its or their obligations or duties thereunder.
THE ADMINISTRATOR
The Trust and SEI Financial Management Corporation (the "Administrator") are
parties to an administration agreement (the "Administration Agreement"). The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement has an initial term of three years starting in May,
1993 and may be renewed for one additional two-year term unless either party
gives notice of non-renewal to the other party not less than 90 days prior to
the expiration of the initial term.
SEI Financial Management Corporation, a wholly owned subsidiary of SEI
Corporation ("SEI"), was organized as a Delaware corporation in 1969 and has its
principal business offices at 680 East Swedesford Road, Wayne, PA 19087. Alfred
P. West, Jr., Carmen V. Romeo, and Henry H. Greer constitute the Board of
Directors of the Administrator. Mr. West is the Chairman of the Board and Chief
Executive Officer of the Administrator. Mr. West serves as the Chairman of the
Board of Directors, and Chief Executive Officer of SEI. SEI and its subsidiaries
are leading providers of funds evaluation services, trust accounting systems,
and brokerage and information services to financial institutions, institutional
investors and money managers. The Administrator also serves as administrator to
the following other institutional mutual funds: SEI Daily Income Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI International
Trust, SEI Institutional Managed Trust, Stepstone Funds, The Compass Capital
Group of Funds, FFB Lexicon Funds, The Advisors' Inner Circle Fund, The Pillar
Funds, CUFund, STI Classic Funds, CoreFunds, Inc., First American Funds, Inc.,
First American Investment Funds, Inc., Rembrandt Funds(R), The Arbor Fund,
Marquissm Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc.,
Inventor Funds, Inc., The Achievement Funds Trust, Insurance Investment Products
Trust, Bishop Street Funds, CrestFunds, Inc. and Conestoga Family of Funds.
<PAGE>
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly owned subsidiary of
SEI, and the Trust are parties to a distribution agreement ("Distribution
Agreement"), dated as of June 1, 1993 and amended and restated as of September
14, 1995. The Trust has adopted a distribution plan dated as of June 1, 1993
with respect to each of the Equity Funds and the Fixed Income Funds, a
distribution plan dated as of September 14, 1995 with respect to the Class C
shares of the 1784 U.S. Treasury Money Market Fund, and a distribution plan
dated as of September 14, 1995 with respect to the Class D shares of the 1784
U.S. Treasury Money Market Fund, in each case pursuant to Rule 12b-1 under the
1940 Act (collectively, the "Plans"). The Distributor will receive no
compensation for distribution of shares of the 1784 Tax-Free Money Market Fund
or the 1784 Institutional U.S. Treasury Money Market Fund or for the
distribution of the Class A shares of the 1784 U.S. Treasury Money Market Fund.
The Distribution Agreement and the Plans provide that the Trust will pay the
Distributor a fee, calculated daily and paid monthly, at an annual rate of (i)
0.25% of the average daily net assets of each of the Equity Funds and the Fixed
Income Funds, (ii) 0.25% of the average daily net assets of the Class C shares
the 1784 U.S. Treasury Money Market Fund, and (iii) 0.75% of the average daily
net assets of the Class D shares 1784 U.S. Treasury Money Market Fund. The
Distributor can use these fees to compensate broker/dealers and service
providers, including each Adviser and its affiliates, which provide
administrative and/or distribution services to Shareholders of these Funds or
holders of these shares of the 1784 U.S. Treasury Money Market Fund, as
applicable, or their customers who beneficially own shares of these Funds or own
these shares of the 1784 U.S. Treasury Money Market Fund, as applicable.
The Distribution Agreement is renewable annually and may be terminated by the
Distributor, by the Trustees of the Trust who are not interested persons and
have no financial interest in the Plans or any related agreement ("Qualified
Trustees"), or, with respect to any particular Fund or Class of shares, by a
majority vote of the outstanding shares of such Fund or such Class of shares, as
applicable, for which the Distribution Agreement is in effect upon not more than
60 days' written notice by either party.
The Trust has adopted each of the Plans in accordance with the provisions of
Rule 12b-1 under the 1940 Act which regulates circumstances under which an
investment company may directly or indirectly bear expenses relating to the
distribution of its shares. Continuance of each of the Plans must be approved
annually by a majority of the Trustees of the Trust and by a majority of the
Qualified Trustees. Continuance of the Plan with respect to each of the Equity
Funds and the Fixed Income Funds was approved by the Trustees on March 15, 1995.
Each of the Plans requires that quarterly written reports of amounts spent under
such Plan and of the purposes of such expenditures be furnished to and reviewed
by the Trustees. Expenditures may include (1) the cost of prospectuses, reports
to Shareholders, sales literature and other materials for potential investors;
(2) advertising; (3) expenses incurred in connection with the promotion and sale
of the Trust's shares including the Distributor's expenses for travel,
communication, and compensation and benefits for sales personnel; (4) any other
expenses reasonably incurred in connection with the distribution and marketing
of the shares subject to approval of a majority of the Qualified Trustees. No
Plan may be amended to increase materially the amount which may be spent
thereunder without approval by a majority of the outstanding shares of the Funds
or the Class of shares which are subject to such Plan. All material amendments
of the Plans will require approval by a majority of the Trustees of the Trust
and of the Qualified Trustees.
<PAGE>
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees and executive officers
of the Trust and their principal occupations for the last five years are set
forth below.
DAVID H. CARTER - Trustee - 224 Polpis Road, Nantucket, Massachusetts
02554. Trustee, St. James Portfolios, since June, 1994; Main Board Director,
Touche Remnant & Co. (investment advisor), 1982-1988; Managing Director,
Bearbull (UK) Ltd., London (investment advisor), 1988-January 1993.
TARRANT CUTLER - Trustee - 5 Masconomo Street, Manchester, Massachusetts 01944.
Senior Executive Vice President, Massachusetts Financial Services Company,
retired in 1991.
KENNETH A. FROOT - Trustee - Harvard University Graduate School of Business,
Boston, Massachusetts 02163. Thomas Henry Carroll-Ford Visiting Professor of
Business Administration, Harvard University Graduate School of Business, since
1991; Associate Professor of Management with Tenure, Sloan School of Management,
Massachusetts Institute of Technology, 1991-May 1992; Ford International
Development Chair, Sloan School, 1987-1990; Research Associate, National Bureau
of Economic Research, 1990-present.
KATHRYN F. MUNCIL - Trustee - c/o Fort William Henry Corporation,
Canada Street, Lake George, New York 12845. Chief Financial Officer,
Fort William Henry Corporation, since 1993; Treasurer, Spaulding Investment
Company (property management) 1985-1993.
*ROBERT A. NESHER - Trustee, President & Chief Executive Officer- 680 East
Swedesford Road, Wayne, Pennsylvania 19087. Retired since 1994. Director and
Executive Vice President of SEI 1986 to July, 1994. Director and Executive Vice
President of the Administrator and Distributor 1981 to July, 1994.
CARMEN V. ROMEO - Treasurer, Assistant Secretary - 680 East Swedesford Road,
Wayne, Pennsylvania 19087. Director, Executive Vice President, Chief
Financial Officer and Treasurer of SEI. Director and Treasurer of the
Administrator and Distributor since 1981.
ROGER P. JOSEPH - Secretary - 150 Federal Street, Boston, Massachusetts 02110.
Partner, Bingham, Dana & Gould, counsel to the Trust, since 1993.
DAVID G. LEE - Senior Vice President & Assistant Secretary - 680 East Swedesford
Road, Wayne, Pennsylvania 19087. Senior Vice President of the Administrator and
the Distributor since 1993. Vice President of the Administrator and the
Distributor from 1991 to 1993. President of GW Sierra Trust Funds before 1991.
KEVIN P. ROBINS - Vice President & Assistant Secretary - 680 East Swedesford
Road, Wayne, Pennsylvania 19087. Senior Vice President of SEI, the Administrator
and the Distributor since 1994. Vice President of SEI, the Administrator and the
Distributor from 1991 to 1994. Vice President of SEI, the Administrator and the
Distributor from 1992 to 1994. Associate, Morgan, Lewis & Bockius (law firm)
prior to 1992.
ROBERT CARROLL - Vice President & Assistant Secretary - 680 East Swedesford
Road, Wayne, Pennsylvania 19087. Vice President, Assistant Secretary of SEI, the
Administrator and Distributor since 1994. United States Securities and Exchange
Commission, Division of Investment Management, from 1990 to 1994. Associate,
McGuire, Woods, Brattle & Boothe (law firm) before 1990.
SANDRA K. ORLOW - Vice President, Assistant Secretary - 680 East Swedesford
Road, Wayne, Pennsylvania 19087. Vice President and Assistant Secretary
of the Administrator and Distributor since 1983.
STEPHEN G. MEYER- Controller - 680 East Swedesford Road, Wayne,
Pennsylvania 19087. Vice President and Controller, Chief Accounting Officer
of SEI since 1992. Senior Associate, Coopers & Lybrand L.L.P. from 1990 to
1992. Internal Audit, Vanguard Group of Investments prior to 1990.
*Mr. Nesher is a Trustee who may be deemed to be an "interested"
person of the Trust as the term is defined in the 1940 Act.
The following table sets forth certain information regarding the compensation of
the Trust's Trustees for the fiscal year ended May 31, 1995. The Officers of the
Trust receive no compensation from the Trust for serving in such capacity.
<TABLE>
<CAPTION>
Compensation Table
Pension or Total
Retirement Estimated Compensation
Aggregate Benefits Accrued Annual Benefits from the Trust
Compensation as Part of Fund Upon and the Funds
Name of Trustee from the Trust Expenses Retirement Paid to Trustee
<S> <C> <C> <C> <C>
David H. Carter $15,000 $ 0 $ 0 $15,000
Tarrant Cutler $15,000 $ 0 $ 0 $15,000
Kenneth A. Froot $15,000 $ 0 $ 0 $15,000
Kathryn F. Muncil $15,000 $ 0 $ 0 $15,000
Robert A. Nesher $15,000 $ 0 $ 0 $15,000
</TABLE>
The Trustees and officers of the Trust own, in the aggregate, less than 1% of
the outstanding shares of the Trust. The Trust pays the fees for unaffiliated
Trustees. Compensation of officers and affiliated Trustees of the Trust who are
employed by the Administrator is paid by the Administrator.
As of September 1, 1995, National Financial Services Corp., 200 Liberty Street,
New York, NY 10281, owned of record 20.06% of the outstanding shares of the 1784
U.S. Treasury Money Market Fund and 6.22% of the outstanding shares of the 1784
Short-Term Income Fund.
As of September 1, 1995, The First National Bank of Boston, 100 Federal Street,
Boston, Massachusetts 02110, and its affiliates, owned of record the following
percentages of the outstanding shares of the following Funds: 1784 Tax-Free
Money Market Fund - 84.30%; 1784 Institutional U.S. Treasury Money Market Fund -
54.41%; 1784 U.S. Government Medium-Term Income Fund - 79.59%; 1784 Tax-Exempt
Medium-Term Income Fund - 94.33%; 1784 Massachusetts Tax-Exempt Income Fund -
67.90%; 1784 Growth & Income Fund - 78.80%; 1784 Asset Allocation Fund - 24.97%;
1784 International Equity Fund - 98.17%; 1784 Short-Term Income Fund - 71.77%;
1784 Income Fund - 92.10%; 1784 Connecticut Tax-Exempt Income Fund - 87.24%; and
1784 Rhode Island Tax-Exempt Income Fund - 93.93%. The Trust believes that The
First National Bank of Boston possessed, on behalf of its underlying accounts,
voting or investment power with respect to a majority of such shares.
COMPUTATION OF YIELD
From time to time the Trust advertises the "current yield" and "effective yield"
(also referred to as "effective compound yield") of the Money Market Funds. Both
yield figures are based on historical earnings and are not intended to indicate
future performance. The "current yield" of a Fund refers to the income generated
by an investment in that Fund over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The current yield of these Funds will be calculated daily based upon the seven
days ending on the date of calculation ("base period"). The yield is computed by
determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing shareholder account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing such net change by the value
of the account at the beginning of the same period to obtain the base period
return and multiplying the result by (365/7). Realized and unrealized gains and
losses are not included in the calculation of the yield. The effective compound
yield of these Funds is determined by computing the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula:
Effective Yield = (Base Period Return + 1) (365/7) - 1.
The current and the effective yields reflect the reinvestment of net income
earned daily on fund assets.
The yield of the Money Market Funds fluctuates, and the annualization of a
week's dividend is not a representation by the Trust as to what an investment in
a Fund will actually yield in the future. Actual yields will depend on such
variables as asset quality, average asset maturity, the type of instruments the
Fund invests in, changes in interest rates on money market instruments, changes
in the expenses of the Fund and other factors.
Yields are one basis upon which investors may compare these Funds with other
money market funds; however, yields of other money market funds and other
investment vehicles may not be comparable because of the factors set forth above
and differences in the methods used in valuing fund instruments.
From time to time, the Trust may advertise a 30-day yield for each of the Equity
Funds and each of the Fixed Income Funds. These figures will be based on
historical earnings and are not intended to indicate future performance. The
yield of these Funds refers to the annualized net investment income per share
generated by an investment in the Funds over a specified 30-day period. The
yield is calculated by assuming that the income generated by the investment
during that 30-day period is generated over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2 [((a-b)/cd + 1)6 - 1]
where a = dividends and interest earned during the period; b = expenses accrued
for the period (net of reimbursement); c = the current daily number of shares
outstanding during the period that were entitled to receive dividends; and d =
the maximum offering price per share on the last day of the period.
The Trust may also advertise a "tax-equivalent yield" for each of the Tax-Exempt
Funds and the 1784 Tax-Free Money Market Fund. The "tax-equivalent yield" is
calculated by determining the rate of return that would have to be achieved on a
fully taxable investment to produce the after-tax equivalent of a Fund's yield,
assuming certain tax brackets for a Shareholder. Any tax-equivalent yield
quotation of a Fund will be calculated by adding (a) the portion of that Fund's
current yield which is not tax-exempt and (b) the result obtained by dividing
the portion of the Fund's current yield which is tax-exempt by the difference of
one minus a stated income tax rate.
CALCULATION OF TOTAL RETURN
From time to time, the Trust may advertise total return for a Fund. The total
return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including but not limited
to the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)n = ERV, where P = a hypothetical initial payment of
$1,000; T = average annual total return; n = number of years; and ERV = ending
redeemable value (as of the end of the designated time period) of a hypothetical
$1,000 payment made at the beginning of the designated time period.
PURCHASE AND REDEMPTION OF SHARES
It is currently the Trust's policy to pay for the redemptions of shares of the
Funds in cash. The Trust retains the right, however, to alter this policy to
provide for redemptions in whole or in part by a distribution in kind of
securities held by the Funds in lieu of cash. Shareholders may incur brokerage
charges and tax liabilities on the sale of any such securities so received in
payment of redemptions.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the Securities and Exchange Commission by rule or
regulation) as a result of disposal or valuation of the Fund's securities is not
reasonably practicable, or for such other periods as the Securities and Exchange
Commission has by order permitted. The Trust also reserves the right to suspend
sales of shares of the Fund for any period during which any of the New York
Stock Exchange, an Adviser, the Administrator or the Custodian is not open for
business.
Purchase and redemption of shares of the 1784 U.S. Treasury Money Market
Fund by Connecticut municipalities and other Connecticut municipal corporations
and authorities pursuant to the provisions of Section 7-400 of the Connecticut
General Statutes, as from time-to-time amended ("Con. Gen. Stat. ss. 7-400"),
may be made only through the use of (i) a bank, savings bank or savings and loan
association incorporated under the laws of the State of Connecticut, or (ii) a
federally chartered bank, savings bank or savings and loan association having
its principal place of business in the State of Connecticut, or (iii) such other
agent as may be permitted by Conn. Gen. Stat. ss. 7-400.
SYSTEMATIC WITHDRAWAL PLAN
A Shareholder (other than a Shareholder of the 1784 Institutional U.S. Treasury
Money Market Fund may direct the shareholder servicing agent to send him or her
regular monthly, quarterly, semi-annual or annual payments, as designated on the
Account Application and based upon the value of his account. Each payment under
a Systematic Withdrawal Plan ("SWP") must be at least $100, except in certain
limited circumstances. Such payments are drawn from the proceeds of the
redemption of shares held in the Shareholder's account (which would be a return
of principal and, if reflecting a gain, would be taxable). To the extent that
redemptions for such periodic withdrawals exceed dividend income reinvested in
the account, such redemptions will reduce and may eventually exhaust the number
of shares in the Shareholder's account. All dividend and capital gain
distributions for an account with a SWP will be reinvested in additional full
and fractional shares of the applicable Fund at the net asset value in effect at
the close of business on the record date for such distributions. To initiate a
SWP, shares having an aggregate value of at least $10,000 must be held on
deposit by the shareholder servicing agent. The Shareholder by written
instruction to the shareholder servicing agent may deposit into the account
additional shares of the applicable Fund, change the payee or change the dollar
amount of each payment. The shareholder servicing agent may charge the account
for services rendered and expenses incurred beyond those normally assumed by the
applicable Fund with respect to the liquidation of shares. No charge is
currently assessed against the account, but one could be instituted by the
shareholder servicing agent on 60 days' notice in writing to the Shareholder in
the event that the applicable Fund ceases to assume the cost of these services.
Any Fund may terminate any SWP for an account if the value of the account falls
below $5,000 as a result of share redemptions (other than as a result of a SWP)
or an exchange of shares of the Fund for shares of another Fund. Any such plan
may be terminated at any time by either the Shareholder or the applicable Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the shares of each Fund is determined on each day
on which both the New York Stock Exchange and the Federal Reserve Bank of Boston
are open ("Business Days"). This determination is made once during each such
day, as of 12:00 noon Eastern Time ("ET") in respect of shares of the 1784 U.S.
Treasury Money Market Fund and the 1784 Tax-Free Money Market Fund, as of 3:00
p.m. ET in respect of the 1784 Institutional U.S. Treasury Money Market Fund
(noon on a Half Day, as defined in the prospectus by which shares of such Fund
are offered), and as of 4:00 p.m. ET in respect of the 1784 Growth and Income
Fund, 1784 Asset Allocation Fund, 1784 International Equity Fund, 1784 U.S.
Government Medium-Term Income Fund, 1784 Tax-Exempt Medium-Term Income Fund,
1784 Massachusetts Tax-Exempt Income Fund, 1784 Connecticut Tax-Exempt Income
Fund, 1784 Rhode Island Tax-Exempt Income Fund, 1784 Short-Term Income Fund and
1784 Income Fund. The Exchange is normally closed on the following national
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas. Net asset value per
share of each Fund is calculated by adding the value of securities and other
assets of that Fund, subtracting liabilities and dividing by the number of its
outstanding shares.
Securities of the Money Market Funds will be valued by the amortized cost
method, which involves valuing a security at its cost on the date of purchase
and thereafter (absent unusual circumstances) assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuations
in general market rates of interest on the value of the instrument. While this
method provides certainty in valuation, it may result in periods during which a
security's value, as determined by this method, is higher or lower than the
price a Fund would receive if it sold the instrument. During periods of
declining interest rates, the daily yield of these Funds may tend to be higher
than a like computation made by a company with identical investments utilizing a
method of valuation based upon market prices and estimates of market prices for
all of its fund securities. Thus, if the use of amortized cost by a Fund
resulted in a lower aggregate fund value on a particular day, a prospective
investor in that Fund would be able to obtain a somewhat higher yield than would
result from investment in a company utilizing solely market values, and existing
investors in the Fund would experience a lower yield. The converse would apply
in a period of rising interest rates.
The use by the Money Market Funds of amortized cost and the maintenance by these
Funds of a net asset value at $1.00 are permitted by regulations promulgated by
Rule 2a-7 under the 1940 Act, provided that certain conditions are met. The
regulations also require the Trustees to establish procedures which are
reasonably designed to stabilize the net asset value per share at $1.00 for
these Funds. Such procedures include the determination of the extent of
deviation, if any, of these Funds' current net asset value per share calculated
using available market quotations from these Funds' amortized cost price per
share at such intervals as the Trustees deem appropriate and reasonable in light
of market conditions and periodic reviews of the amount of the deviation and the
methods used to calculate such deviation. In the event that such deviation
exceeds 1/2 of 1%, the Trustees are required to consider promptly what action,
if any, should be initiated, and, if the Trustees believe that the extent of any
deviation may result in material dilution or other unfair results to
Shareholders of these Funds, the Trustees are required to take such corrective
action as they deem appropriate to eliminate or reduce such dilution or unfair
results to the extent reasonably practicable. Such actions may include the sale
of fund instruments prior to maturity to realize capital gains or losses or to
shorten average fund maturity; withholding dividends; redeeming shares in kind;
or establishing a net asset value per share by using available market
quotations. In addition, if any of these Funds incurs a significant loss or
liability, the Trustees have the authority to reduce pro rata the number of
shares of that Fund in the account of each Shareholder of such Fund and to
offset each such Shareholder's pro rata portion of such loss or liability from
that Shareholder's accrued but unpaid dividends or from future dividends of the
affected Fund while each other Fund must annually distribute at least 90% of its
investment company taxable income.
In valuing each of the Equity Funds', the Fixed Income Funds' and the Tax-Exempt
Funds' assets, short-term obligations are valued by the amortized cost method,
which involves valuing a security at its cost on the date of purchase and
thereafter (absent unusual circumstances) assuming a constant amortization to
maturity of any discount or premium regardless of the impact of fluctuations in
general market rates of interest on the value of the instrument. This
constitutes fair value as determined by the Board of Trustees of the Trust. A
security listed on an exchange will be valued at its last sale price on that
exchange using quotations on the exchange on which the security is traded most
extensively. Lacking any sales, the security will be valued at the mean between
the closing asking price and the closing bid price. Unlisted securities which
are quoted on the National Association of Securities Dealers' National Market
System, for which there have been sales of such securities, shall be valued at
the last sale price reported on such system. If there are no such sales, the
value shall be the high, or "inside" bid, which is the bid supplied by the NASD
on its NASDAQ Screen for such securities in the over-the-counter market. The
value of such securities quoted on the NASDAQ System, but not listed on the
National Market System, shall be valued at the high or "inside" bid. Unlisted
securities which are not quoted on the NASDAQ System and for which
over-the-counter market quotations are readily available will be valued at the
mean between the current bid and asked prices for such securities in the
over-the-counter market. Other unlisted securities (and listed securities
subject to restriction on sale) will be valued at their fair value as determined
in good faith by the Board of Trustees of the Trust although the actual
calculation may be done by others. Open futures contracts are valued at the most
recent settlement price, unless such price does not reflect the fair value of
the contract, in which case such positions will be valued by or under the
direction of the Board of Trustees of the Trust.
TAXES
TAX STATUS OF THE FUNDS
Each of the Funds is treated as a separate entity for federal income tax
purposes under subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). Each Fund has elected to be treated and intends to qualify each
year as a "regulated investment company" under Subchapter M by meeting all
applicable requirements of Subchapter M, including requirements as to the nature
of the Fund's gross income, the amount of Fund distributions (as a percentage of
both the Fund's overall income and, in the case of the Tax-Exempt Funds, its
tax-exempt income), and the composition and holding period of the Fund's
portfolio assets. Because each Fund intends to distribute all of its net
investment income and net realized capital gains to shareholders in accordance
with the timing requirements imposed by the Code, it is not expected that the
Funds will be required to pay any federal income or excise taxes, although a
Fund's foreign-source income may be subject to foreign withholding taxes. If a
Fund should fail to qualify as a "regulated investment company" in any year, the
Fund would incur a regular corporate federal income tax upon its taxable income
and the Fund's distributions would generally be taxable as ordinary dividend
income to its shareholders.
Each of the Funds is organized as a series of a Massachusetts business trust and
is not subject to any Massachusetts income or excise taxes as long as it
qualifies as a regulated investment company under the Code.
TAX STATUS OF THE SHAREHOLDERS
Distributions by Funds Other Than the Tax-Exempt Funds. Shareholders of Funds
other than the Tax-Exempt Funds will have to pay federal income taxes and may be
subject to state or local income taxes on the dividends and capital gain
distributions they receive from those Funds. Dividends from ordinary income and
any distributions from net short-term capital gains are taxable to shareholders
as ordinary income for federal income tax purposes, whether paid in cash or in
additional shares. Distributions of net capital gains (i.e., the excess of net
long-term capital gains over net short-term capital losses), whether paid in
cash or in additional shares, are taxable to shareholders as long-term capital
gains without regard to the length of time the shareholders have held their
shares.
Distributions by the Tax-Exempt Funds. The portion of each Tax-Exempt Fund's
distributions of net investment income that is attributable to interest from
tax-exempt securities will be designated by that Fund as an "exempt-interest
dividend" under the Code and will generally be exempt from federal income tax in
the hands of shareholders so long as at least 50% of the total value of the
Fund's assets consists of tax-exempt securities at the close of each quarter of
the Fund's taxable year. Distributions of tax-exempt interest earned from
certain securities may, however, be treated as an item of tax preference for
shareholders under the federal alternative minimum tax, and all exempt-interest
dividends may increase a corporate shareholder's alternative minimum tax. The
percentage of income designated as tax-exempt will be applied uniformly to all
distributions by the Fund of net investment income made during each fiscal year
of the Fund and may differ from the percentage of distributions consisting of
tax-exempt interest in any particular month. Shareholders are required to report
exempt-interest dividends received from the Fund on their federal income tax
returns.
Shareholders of the Tax-Exempt Funds will have to pay federal income taxes and
may be subject to state or local income taxes on the non exempt-interest
dividends (including dividends from earnings from taxable securities and
repurchase transactions) and capital gain distributions they receive from the
Funds. That portion of net investment income distributions not designated as
tax-exempt and any distributions from net short-term capital gains are taxable
to shareholders as ordinary income for federal income tax purposes, whether the
distributions are paid in cash or in additional shares. Distributions of net
capital gains, whether paid in cash or in additional shares, are taxable to
shareholders as long-term capital gains without regard to the length of time the
shareholders have held their shares.
The exemption of exempt-interest dividends for federal income tax purposes does
not necessarily result in exemption under the tax laws of any state or local
taxing authority. For a discussion of the state and local tax consequences of an
exempt-interest dividend from any Fund investing in state or local obligations,
see that Fund's prospectus.
Distributions -- General. The Money Market Funds are not expected to make any
capital gain distributions. Because the Funds other than the Equity Funds do not
expect to earn any dividend income, it is expected that none of their dividends
will qualify for the dividends received deduction for corporations. A portion of
the Equity Funds' ordinary income dividends (but none of their capital gain
distributions) is normally eligible for the dividends received deduction for
corporations if the recipient otherwise qualifies for that deduction with
respect to its holding of Fund shares. Availability of the deduction for
particular shareholders is subject to certain limitations, and deducted amounts
may be subject to the alternative minimum tax or result in certain basis
adjustments. Any Fund dividend that is declared in October, November, or
December of a calendar year, that is payable to shareholders of record in such a
month, and that is paid the following January will be treated as if received by
the shareholders on December 31 of the year in which the dividend is declared.
The Trust will notify shareholders regarding the federal tax status of
distributions after the end of each calendar year.
Except in the case of the Money Market Funds, any Fund distribution (or, in the
case of the Fixed Income Funds and the Tax-Exempt Funds, any Fund distribution
of net capital gains or net short-term capital gains) will have the effect of
reducing the per share net asset value of shares in the Fund by the amount of
the distribution. Shareholders purchasing shares shortly before the record date
of any such distribution, other than an exempt-interest dividend paid by a
Tax-Exempt Fund, may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
Distributions of a Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but generally
not from capital gains realized upon the disposition of such obligations) may be
exempt from state and local taxes. The Trust intends to advise shareholders of
the extent, if any, to which their respective distributions consist of such
interest. Shareholders are urged to consult their tax advisors regarding the
possible exclusion of such portion of their dividends for state and local income
tax purposes.
DISPOSITION OF SHARES IN THE FUNDS
In general, any gain or loss realized upon a taxable disposition of shares of a
Fund by a Shareholder that holds such shares as a capital asset will be treated
as long-term capital gain or loss if the shares have been held for more than
twelve months and otherwise as short-term capital gain or loss. In the case of
the Tax-Exempt Funds, any loss realized upon a disposition of shares in a Fund
held for six months or less will be disallowed to the extent of any
exempt-interest dividends received with respect to those shares. In the case of
any Fund, any loss realized upon the disposition of shares in the Fund held for
six months or less will (if not disallowed as described in the preceding
sentence) be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales.
ADDITIONAL INFORMATION FOR SHAREHOLDERS OF THE TAX-EXEMPT
FUNDS
Interest on indebtedness incurred by Shareholders to purchase or carry shares of
a Tax-Exempt Fund will not be deductible for federal income tax purposes.
Exempt-interest dividends are taken into account in calculating the amount of
social security and railroad retirement benefits that may be subject to federal
income tax. Entities or persons who are "substantial users" (or persons related
to "substantial users") of facilities financed by certain private activity bonds
should consult their tax advisors before purchasing shares of a Tax-Exempt Fund.
ADDITIONAL INFORMATION RELATING TO FUND INVESTMENTS
Except in the case of the Money Market Funds, the Funds' current dividend and
accounting policies will affect the amount, timing, and character of
distributions to Shareholders, and may, under certain circumstances, make an
economic return of capital taxable to Shareholders. Any investment by a Fund in
zero coupon bonds, deferred interest bonds, payment-in-kind bonds, certain
stripped securities including STRIPS, and certain securities purchased at a
market discount will cause the Fund to recognize income prior to the receipt of
cash payments with respect to those securities. In order to distribute this
income and avoid a tax on the Fund, a Fund may be required to liquidate
portfolio securities that it might otherwise have continued to hold, potentially
resulting in additional taxable gain or loss to the Fund.
An investment by a Fund in residual interests of a CMO that has elected to be
treated as a REMIC can create complex tax problems, especially if the Fund has
state or local governments or other tax-exempt organizations as shareholders.
Fund transactions in options, futures contracts, and forward contracts will be
subject to special tax rules that may affect the amount, timing, and character
of Fund income and distributions to shareholders. For example, certain positions
held by a Fund on the last business day of each taxable year will be marked to
market (i.e., treated as if closed out) on that day, and any gain or loss
associated with the positions will be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held by a Fund that
substantially diminish its risk of loss with respect to other positions in its
portfolio may constitute "straddles," and may be subject to special tax rules
that would cause deferral of Fund losses, adjustments in the holding periods of
Fund securities, and conversion of short-term into long-term capital losses.
Certain tax elections exist for straddles that may alter the effects of these
rules. The Funds will limit their activities in options, futures contracts,
forward contracts, and swaps and related transactions to the extent necessary to
meet the requirements of Subchapter M of the Code.
Special tax considerations apply with respect to a Fund's foreign investments.
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source; the Funds (other than
the 1784 International Equity Fund) do not expect to be able to pass through to
shareholders foreign tax credits or deductions with respect to such foreign
taxes. The United States has entered into tax treaties with many foreign
countries that may entitle the Funds to a reduced rate of tax or an exemption
from tax on such income; the Funds intend to qualify for treaty reduced rates
where available. It is not possible, however, to determine a Fund's effective
rate of foreign tax in advance since the amount of the Fund's assets to be
invested within various countries is not known. If the 1784 International Equity
Fund holds more than 50% of its assets in foreign stock and securities at the
close of its taxable year, the Fund may elect to "pass through" to the Fund's
Shareholders foreign income taxes paid. If the Fund so elects, Shareholders will
be required to treat their pro rata portion of the foreign income taxes paid by
the Fund as part of the amounts distributed to them by the Fund and thus
includable in their gross income for federal income tax purposes. Shareholders
who itemize deductions would then be allowed to claim a deduction or credit (but
not both) on their federal income tax returns for such amounts, subject to
certain limitations. Shareholders who do not itemize deductions would (subject
to such limitations) be able to claim a credit but not a deduction. No deduction
will be permitted to individuals in computing their alternative minimum tax
liability. If the Fund does not qualify or elect to "pass through" to the Fund's
Shareholders foreign income taxes paid by it, Shareholders will not be able to
claim any deduction or credit for any part of the foreign taxes paid by the
Fund.
Foreign exchange gains and losses realized by a Fund will generally be treated
as ordinary income and losses. Use of foreign currencies for non-hedging
purposes may be limited in order to avoid a tax on the applicable Fund. While it
is not intended for the Funds generally to do so, a Fund may from time to time
invest in stock of foreign issuers deemed to be "passive foreign investment
companies" for U.S. tax purposes; any Fund making such an investment may be
liable for U.S. income taxes on certain distributions and realized capital gains
from stock of such issuers.
FOREIGN SHAREHOLDERS
Taxable dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at a rate of 30%, although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. The
Funds intend to withhold tax payments at the rate of 30% (or the lower treaty
rate) on taxable dividends and other payments to Non-U.S. Persons that are
subject to such withholding. Any amounts overwithheld may be recovered by such
persons by filing a claim for refund with the U.S. Internal Revenue Service
within the time period appropriate to such claims. Distributions received from
the Funds by Non-U.S. Persons also may be subject to tax under the laws of their
own jurisdiction.
BACKUP WITHHOLDING
Each of the Funds is also required in certain circumstances to apply backup
withholding at the rate of 31% on taxable dividends and redemption proceeds paid
to any shareholder (including a Non-U.S. Person) who does not furnish to the
Fund certain information and certifications or who is otherwise subject to
backup withholding. Backup withholding will not, however, be applied to payments
that have been subject to 30% (or lower treaty rate) withholding.
FUND TRANSACTIONS; TRADING PRACTICES AND BROKERAGE
FUND TRANSACTIONS
None of the Advisers has any obligation to deal with any dealer or group of
dealers in the execution of transactions in Fund securities. Subject to policies
established by the Trustees, each Adviser to a Fund is responsible for placing
the orders to execute transactions for each Fund. In placing orders, it is the
policy of the Trust for each Adviser to seek to obtain the best net results
taking into account such factors as price (including the applicable dealer
spread), the size, type and difficulty of the transaction involved, the firm's
general execution and operational facilities, and the firm's risk in positioning
the securities involved. While each Adviser generally seeks reasonably
competitive spreads or commissions, the Trust will not necessarily be paying the
lowest spread or commission available.
The money market securities in which the Funds invest are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, each Adviser
will 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. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
securities are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing
transactions for the Funds will primarily consist of dealer spreads and
underwriting commissions.
TRADING PRACTICES AND BROKERAGE
Specific decisions to purchase or sell securities for a Fund are made by a
portfolio manager who is an employee of Bank of Boston, as Adviser to such Fund
and who is appointed and supervised by the senior officers of Bank of Boston, or
in the case of the 1784 International Equity Fund, by portfolio managers who are
employees of Bank of Boston or of Kleinwort Benson and who are appointed and
supervised by the senior officers of Bank of Boston or by senior officers of
Kleinwort Benson. Changes in a Fund's investments are reviewed by the Board of
Trustees of the Trust. A portfolio manager may serve other clients of either of
the Advisers or of an affiliate of either of the Advisers in a similar capacity.
Each Adviser selects brokers or dealers to execute transactions for the purchase
or sale of securities for the Funds on the basis of its judgment of their
professional capability to provide the service. The primary consideration is to
have brokers or dealers execute transactions at best price and execution. Best
price and execution refers to many factors, including the price paid or received
for a security, the commission charged, the promptness and reliability of
execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. Each Adviser's determination of what are reasonably competitive
rates is based upon the professional knowledge of its portfolio managers as to
rates paid and charged for similar transactions throughout the securities
industry. In some instances, a Fund pays a minimal share transaction cost when
the transaction presents no difficulty. Some trades are made on a net basis
where a Fund either buys securities directly from the dealer or sells them to
the dealer. In these instances, there is no direct commission charged but there
is a spread (the difference between the buy and sell price) which is the
equivalent of a commission.
Each Adviser may allocate, out of all commission business generated by all of
the funds and accounts under its management, brokerage business to brokers or
dealers who provide brokerage and research services. These research services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software used in security
analyses; and providing fund performance evaluation and technical market
analyses. Such services are used by each Adviser in connection with its
investment decision-making process with respect to one or more portfolios under
its management and may not be used exclusively with respect to the fund or
account generating the brokerage. Not all brokerage and research services are
useful or of value in advising any particular Fund.
As provided in the Securities Exchange Act of 1934 (the "1934 Act"), higher
commissions may be paid to broker/dealers who provide brokerage and research
services than to broker/dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker/dealers
who provide such brokerage and research services, the commissions paid to such
broker/dealers are not, in general, expected to be higher than commissions that
would be paid to broker/dealers not providing such services; further, in
general, any such commissions are reasonable in relation to the value of the
brokerage and research services provided. Unless otherwise directed by the
Trust, a commission higher than one charged elsewhere will not be paid to a
broker/dealer solely because it provided research services to an Adviser. In
addition, fund transactions which generate commissions or their equivalent are
directed to broker/dealers who provide daily fund pricing services to the Funds.
Subject to best price and execution, commissions used for pricing may or may not
be generated by the Funds receiving the pricing service.
Bank of Boston may place a combined order for two or more Funds (or for a Fund
and another account under the Bank of Boston's management) engaged in the
purchase or sale of the same security if, in the Bank of Boston's judgment,
joint execution is in the best interest of each participant and will result in
best price and execution. Transactions involving commingled orders are allocated
in a manner deemed equitable to each Fund or account. It is believed that the
ability of the Funds to participate in volume transactions will generally be
beneficial to them. Although it is recognized that, in some cases, the joint
execution of orders could adversely affect the price or volume of the security
that a particular Fund may obtain, it is the opinion of the Bank of Boston and
the Board of Trustees of the Trust that the advantages of combined orders
outweigh the possible disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, an
Adviser may place orders for a Fund with broker/dealers which have agreed to
defray certain Trust expenses such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of shares of the Trust as a factor
in the selection of brokers and dealers to execute Fund transactions.
It is expected that an Adviser may execute brokerage or other agency
transactions through the Distributor or such Adviser or an affiliate of such
Adviser, for a commission in conformity with the 1940 Act, the 1934 Act and
rules promulgated by the Securities and Exchange Commission such policies as the
Board of Trustees of the Trust may determine. Under these provisions, the
Distributor or such Adviser or an affiliate of such Adviser is permitted to
receive and retain compensation for effecting transactions for a Fund on an
exchange if a written contract is in effect between the Distributor and the
Trust expressly permitting the Distributor or such Adviser or an affiliate of
such Adviser to receive and retain such compensation. These rules further
require that commissions paid to the Distributor, such Adviser or any such
affiliate by the Trust for such exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." In addition, an Adviser may direct commission business to one or more
designated broker/dealers in connection with such broker/dealer's provision of
services to the Trust or the Funds or payment of certain Trust expenses, such as
custody, pricing and professional fees. The Trustees, including those who are
not "interested persons" of the Trust, have adopted procedures for evaluating
the reasonableness of commissions paid to the Distributor and will review these
procedures periodically.
SERVICEMARKS
The servicemark 1784 FUNDS and the "eagle" logo are used by permission of Bank
of Boston, and in the event that the Advisory Agreement with Bank of Boston is
terminated, the Trust has agreed to discontinue use of the servicemark and logo.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of series, each of which represents an equal proportionate interest in
that series. Shareholders of each series are entitled upon liquidation or
dissolution to a pro rata share in the net assets of that series available for
distribution to shareholders. Shareholders have no preemptive rights. Currently,
the Trust has thirteen series of shares, each of which is a Fund. The 1784 U.S.
Treasury Money Market Fund offers three classes of shares: Class A, Class C and
Class D. The Declaration of Trust provides that the Trustees of the Trust may
create additional series of shares, and may create additional classes of any one
or more series. All consideration received by the Trust for shares of any
additional series and all assets in which such consideration is invested would
belong to that series and would be subject to the liabilities related thereto.
Share certificates representing shares will not be issued.
Shares of each series of the Trust are entitled to vote separately to approve
advisory agreements or changes in investment policies, but shares of all series
of the Trust vote together in the election or selection of Trustees, principal
underwriters and accountants.
The Declaration of Trust may be amended as authorized by vote of Shareholders of
the Trust. Matters not affecting all series or classes of shares shall be voted
on only by the shares of the series or classes affected. Shares of the Trust may
be voted in person or by proxy, and any action taken by Shareholders may be
taken without a meeting by written consent of a majority of Shareholders
entitled to vote on the matter.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the Shareholders' incurring financial loss for that reason
appears remote because the Trust's Declaration of Trust contains an express
disclaimer of Shareholder liability for obligations of the Trust and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any Shareholder held personally liable for the
obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that the Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any officer, agent,
employee, investment adviser or administrator, principal underwriter or
custodian, nor shall any Trustee be responsible for the act or omission of any
other Trustee, and no Trustee shall be liable to the Trust or any Shareholder.
The Declaration of Trust also provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with actual or threatened litigation in which they may be involved because of
their offices with the Trust unless it is determined, in the manner provided in
the Declaration of Trust, that they have not acted in good faith in the
reasonable belief that their actions were in the best interests of the Trust.
However, nothing in the Declaration of Trust shall protect or indemnify a
Trustee against any liability for his or her willful misfeasance, bad faith,
gross negligence or reckless disregard of his or her duties.
FINANCIAL INFORMATION
The Statements of Net Assets at May 31, 1995, the Statements of Operations for
the period ended May 31, 1995, the Statements of Changes in Net Assets for the
period ended May 31, 1995, the Financial Highlights for the period ended May 31,
1995, the Notes to the Financial Statements and the Report of Independent
Accountants, each of which is included in the two Annual Reports to Shareholders
of the Trust, are incorporated by reference into this Statement of Additional
Information and have been so incorporated in reliance upon the report of Coopers
& Lybrand L.L.P., independent accountants, as experts in accounting and
auditing. A copy of each of the Annual Reports accompanies this Statement of
Additional Information.
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<PAGE>
INVESTMENT ADVISERS 1784 FUNDS
The First National Bank of Boston 1784 GROWTH AND INCOME FUND
100 Federal Street 1784 ASSET ALLOCATION FUND
Boston, MA 02110 1784 INTERNATIONAL EQUITY FUND
1784 U.S. GOVERNMENT MEDIUM-TERM
INCOME FUND
Kleinwort Benson Investment 1784 SHORT-TERM INCOME FUND
Management Americas Inc. 1784 INCOME FUND
200 Park Avenue 1784 TAX-EXEMPT MEDIUM-TERM INCOME
New York, New York 10166 FUND
1784 MASSACHUSETTS TAX-EXEMPT INCOME
FUND
DISTRIBUTOR 1784 RHODE ISLAND TAX-EXEMPT INCOME
FUND
SEI Financial Services Company 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
680 East Swedesford Road 1784 TAX-FREE MONEY MARKET FUND
Wayne, PA 19087-1658 1784 U.S. TREASURY MONEY MARKET FUND
1784 INSTITUTIONAL U.S. TREASURY MONEY
MARKET FUND
ADMINISTRATOR
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, PA 19087-1658
LEGAL COUNSEL
Bingham, Dana & Gould
150 Federal Street
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109 STATEMENT OF ADDITIONAL INFORMATION
CUSTODIAN
The First National Bank of Boston OCTOBER 2, 1995
100 Federal Street
Boston, MA 02110
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The 1784 Funds:
are not insured by the FDIC or any other governmental agency;
are not guaranteed by The First National Bank of Boston or any
of its affiliates;
are not deposits or obligations of The First National Bank of
Boston or any of its affiliates;
involve investment risks, including possible loss of principal.
The First National Bank of Boston serves as investment adviser,
custodian and fund accountant for the 1784 Funds. The 1784 Funds
are distributed by SEI Financial Services Company, a party
independent of The First National Bank of Boston or any of its
affiliates. Financial Service Counselors are registered
representatives of an independent broker-dealer or of 1784 Investor
Services,Inc., an affiliate of The First National Bank of Boston.
1784 FUNDS
