<PAGE>
As filed with the Securities and Exchange Commission on December 15, 1995.
File Nos.33-58004
811-7474
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 9
and / x /
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 11
/ x /
1784 FUNDS*
(Exact Name of Registrant as Specified in Charter)
2 Oliver Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 342-5734
ROBERT A. NESHER
C/O SEI CORPORATION
680 E. SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
(Name and Address of Agent for Service)
Copies to:
JOHN M. BAKER, SENIOR COUNSEL ROGER P. JOSEPH, ESQ.
THE FIRST NATIONAL BANK OF BOSTON BINGHAM, DANA & GOULD
100 FEDERAL STREET, 01-19-02 150 FEDERAL STREET
BOSTON, MA 02110 BOSTON, MA 02110
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It is proposed that this filing will become effective on February 28, 1996
pursuant to paragraph (a) of Rule 485.
Pursuant to Rule 24f-2, Registrant has registered an indefinite number of its
Shares of Beneficial Interest (without par value) under the Securities Act of
1933 and filed a Rule 24f-2 Notice for Registrant's fiscal year ended May 31,
1995 on or about July 31, 1995.
____________________________
*Relating to shares of 1784 Growth Fund and 1784 Florida Tax-Exempt Income Fund
<PAGE>
1784 FUNDS
CROSS REFERENCE SHEET
N-1A ITEM NO. LOCATION
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PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Expense Summary
Shareholder Transaction
Expenses
Annual Operating Expenses
Item 3. Condensed Financial Information *
Item 4. General Description of Registrant Summary
The Trust
Investment Objective
Investment Policies
Certain Investment Policies and
Guidelines
Investment Limitations
Description of Permitted
Investments and Techniques
Item 5. Management of the Fund Trustees of the Trust
The Adviser
The Administrator
The Shareholder Servicing Agent
and Transfer Agent
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities Voting Rights
Shareholder Inquires
Dividends and Distributions
Taxes
Item 7. Purchases of Securities Being Purchases of Shares
Offered Exchanges
The Distributor
Item 8. Redemption or Repurchase Redemption of Shares
Item 9. Pending Legal Proceedings *
<PAGE>
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PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History The Trust
Item 13. Investment Objectives and Policies Investment Objective and
Policies
Description of Permitted
Investments
Investment Limitations
Securities Lending
Item 14. Management of the Fund Trustees and Officers of the
Trust (Prospectus)
The Administrator
The Shareholder Servicing Agent
and Transfer Agent
Item 15. Control Persons and Principal Trustees and Officers of the
Holders of Securities Trust (Prospectus)
Item 16. Investment Advisory and Other The Adviser
Services The Administrator
The Shareholder Servicing Agent
and Transfer Agent
The Distributor
Counsel and Independent
Accountants (Prospectus)
Item 17. Brokerage Allocation and Other Fund Transactions; Trading
Practices Practices and Brokerage
Item 18. Capital Stock and Other Securities Description of Shares
Shareholder Liability
Item 19. Purchase, Redemption, and Purchase and Redemption of
Pricing of Securities Being Shares (Prospectus)
Offered Determination of Net Asset
Value
Item 20. Tax Status Taxes (Prospectus)
Taxes
Item 21. Underwriters The Distributor
Item 22. Calculation of Performance Data Computation of Yield
Calculation of Total Return
Item 23. Financial Statements Financial Information
<PAGE>
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PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
*Not Applicable
<PAGE>
EXPLANATORY NOTE
The sole purpose of this Post-Effective Amendment to the Registration
Statement is to register shares of 1784 Growth Fund and 1784 Florida Tax-Exempt
Income Fund, each a new series of 1784 Funds. No other series of 1784 Funds is
affected by this Post-Effective Amendment.
<PAGE>
Prospectus
[I784 Funds Logo]
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 GROWTH FUND (the "Fund").
Shares of the Fund 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 Fund are referred to hereinafter as "Shareholders." Shares of the
Fund 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
Fund that a prospective investor should know before investing in the Fund.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information, dated October 2, 1995,
amended January 2, 1996 and further amended February 28, 1996 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.
February 28, 1996
<PAGE>
TABLE OF CONTENTS
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Page
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Expense Summary 1
Summary 2
The Trust 5
Investment Objective 6
Investment Policies 6
Certain Investment Policies and Guidelines 7
Investment Limitations 9
The Adviser 10
The Administrator 11
The Shareholder Servicing Agent and Transfer Agent 12
The Distributor 12
Purchase of Shares 13
Redemption of Shares 16
Systematic Withdrawal Plan 18
Exchanges 18
Performance 19
Taxes 19
General Information 21
Description of Permitted Investments and Techniques 23
<PAGE>
EXPENSE SUMMARY
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Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of the Fund and annual operating expenses of the Fund, and (ii) an
example illustrating the dollar cost of such expenses on a hypothetical $1,000
investment in the Fund.
SHAREHOLDER TRANSACTION EXPENSES
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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 offering price) None
Redemption Fees(1) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
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(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees(2) 0.74%
12b-1 Fee (after fee waiver)(2) None
Other Expenses(2) 0.51%
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Total Operating Expenses(2) 1.25%
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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 the Adviser for the Fund, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
the Fund 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 the Fund's average daily net
assets. If the Distributor should terminate this waiver, long-term
Shareholders may pay more than the economic equivalent of the maximum
front-end sales charge that would have been permitted. 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 may contribute to
the Fund or waive additional portions of its fees in order to limit other
operating expenses and to assist the Fund in maintaining a
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<PAGE>
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. 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." Because the Fund is newly organized, expenses are estimated.
Absent the waiver of fees and contributions, estimated other expenses and
estimated total operating expenses would be 0.76% and 1.50% of the average
daily net assets of the Fund, on an annualized basis. 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:
1 Year 3 Years
------ -------
$13 $40
The example is based upon estimated operating expenses for the Fund. 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 Fund. Additional information may be found under "General Information -
The Trust," "The Adviser," "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 ore more professionally managed
funds of securities. The following provides basic information about the 1784
GROWTH FUND. The Fund is a diversified fund.
WHAT IS THE INVESTMENT OBJECTIVE? The investment objective of the 1784 Growth
Fund is capital appreciation. Dividend income, if any, is incidental to this
objective. The Fund's investment objective may be changed only with the
consent of holders of a majority of the Fund's outstanding shares. There can
be no assurance that the Fund will achieve its investment objective. See
"Investment Objective" and " Investment Limitations."
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<PAGE>
WHAT ARE THE PERMITTED INVESTMENTS? The 1784 Growth Fund under normal
circumstances invests at least 65% of its total assets in common stocks and
securities convertible into common stock of companies that the Adviser
believes have above-average growth potential. During periods of unusual
economic market conditions or for temporary defensive purposes or liquidity,
the Fund 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 the Fund entail certain
risks and considerations of which an investor should be aware. For example, the
net asset value per share of the Fund is not fixed and should be expected to
fluctuate based on changes in the value of the underlying portfolio
securities. Specifically, common stocks and other equity securities
fluctuate in value based on many factors, including actual and anticipated
earnings, changes in management, political and economic developments and
potential for takeovers and acquisitions. In the short term, prices can
fluctuate dramatically in response to these factors. The market value of
fixed income investments will change in response to interest rate changes and
other factors.
The Fund emphasizes securities that in the Adviser's opinion have
above-average growth potential including securities of smaller, lesser-known
companies. Investors in the Fund should be aware that the securities offering
above-average growth potential involve above-average risk and volatility. In
particular, securities of smaller. lesser-known companies may have more risks
than the securities of larger companies. Companies with small market
capitalizations may be more susceptible to market downturns or setbacks
because they have limited product lines, markets, distribution channels, and
financial and management resources. Further, there is often less publicly
available information about companies with small market capitalizations than
about more established companies. As a result of these and other factors, the
prices of securities issued by companies with small market capitalization may
be volatile. Shares of the Fund, therefore, may be subject to greater
fluctuation in value than shares of an equity fund primarily in securities of
larger, more established companies.
The Fund may also invest a portion of its assets in non-U.S. securities.
Foreign securities in which the Fund is authorized to invest may subject the
Fund 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") serves
as the Adviser for the Fund 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
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 Fund on an annualized basis to not more than 1.25% of the Fund's average
daily net assets. Bank of Boston may contribute to the Fund in order to limit
operating expenses and to assist the Fund in maintaining
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<PAGE>
a competitive expense ratio. Fee waivers and contributions, if any, 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. The Fund's portion of such fee is
based on the 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? Boston Financial
Data Services acts as dividend disbursing agent and shareholder servicing
agent for the Fund. State Street Bank and Trust Company acts as transfer
agent for the Fund. See "The Shareholder Servicing Agent 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 the 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 Fund. 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 the Fund. 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 the 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 the 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."
-4-
<PAGE>
Shares of the Fund are currently being offered without any sales charges. See
"The Distributor."
HOW DO I REDEEM SHARES? Redemptions of shares of the Fund may be made through
the Shareholder Servicing 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 the Fund is distributed in the form of
dividends which are paid at least semi-annually. 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 Shareholder Servicing 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 the 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 the Fund shares exchanged, and could result in gain or loss to the
Shareholder. See "Exchanges."
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 Fund, 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
Florida Tax-Exempt Income Fund, 1784 U.S. Treasury Money Market Fund, 1784
Institutional U.S. Treasury Money
-5-
<PAGE>
Market Fund, 1784 Tax-Free Money Market Fund, 1784 Growth and Income Fund,
1784 Asset Allocation Fund and 1784 International Equity 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 capital
appreciation. Dividend income, if any, is incidental to this objective.
There is no assurance that the investment objective of the Fund will be met. The
investment objective of the Fund is a fundamental policy of the Fund, and
therefore cannot be changed without the consent of holders of a majority of the
Fund's outstanding shares. See "Investment Limitations."
INVESTMENT POLICIES
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THE 1784 GROWTH FUND is a diversified fund that under normal circumstances
invests at least 65% of its total assets in common stocks and securities
convertible into common stock of U.S. and foreign issuers. The Fund emphasizes
securities that in the Adviser's opinion have above-average growth potential,
including securities of smaller, lesser-known companies. The Adviser may also
pursue growth by investing in other companies such as mid-sized companies
with established products that are developing new product lines, new
management methods or new distribution channels; larger well-known companies
that may be industry leaders; or revitalized companies in declining
industries that hold a strong position in the market. Growth may be measured
by factors such as earnings, cash flow or gross sales. While some of the
securities purchased for the Fund may pay dividends, receipt of current
income is not a consideration in selecting investments.
For purposes of the Fund's policy of investing at least 65% of its assets in
common stocks and securities convertible into common stocks, 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 non-convertible debt
securities, preferred stocks and money market instruments.
The 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."
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<PAGE>
For more information regarding the permitted investments and investment
practices of the 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" and the Statement of
Additional Information.
CERTAIN INVESTMENT POLICIES
AND GUIDELINES
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The Fund may make any of the investments or engage in any of the investment
practices described under "Description of Permitted Investments and
Techniques." The Fund's investments normally consist primarily of securities
that are listed on recognized exchanges or actively traded in the
over-the-counter market. The Fund may also hold securities that are neither
so listed nor so traded. However, the Fund will not invest more than 15% of
its net assets in illiquid securities.
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. Smaller companies are especially sensitive to these factors.
In addition, the 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, and the Fund's shares will fluctuate in value. Under most
circumstances, changes in the value of 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. Receipt of income from the Fund's
securities is incidental to the Fund's objective of capital appreciation.
The Fund emphasizes securities that in the Adviser's opinion have
above-average growth potential including securities of smaller, lesser-known
companies. Investing in the securities of companies offering above-average
growth potential, however, also involves greater risk and the possibility of
greater portfolio price volatility. Generally, companies with above-average
growth potential tend to have higher average price/earnings (P/E) ratios
which means the stocks are more expensive than average relative to their
earnings. Smaller, lesser-known companies are associated with higher
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<PAGE>
investment risk because they may have limited size, product lines, markets,
distribution channels and financial and managerial resources. 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.
Investments in securities of foreign issuers (including investments in
depositary receipts) may subject the 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 Fund may
invest not more than 5% of its assets in securities of issuers in developing
countries and not more than 25% of its assets in securities of foreign
issuers, including the 5% it may invest in issuers in developing countries.
The money market instruments in which the Fund 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 Adviser; (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 Fund may invest are described under "Description of Permitted
Investments and Techniques." For temporary defensive purposes during periods
when it is determined by the Adviser that market conditions warrant, the Fund
may invest up to 100% of its assets in money market instruments. The Fund may
also invest up to 100% of its assets in money market instruments. The Fund
may also invest, for temporary defensive purposes, 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.
The Fund may, from time to time, engage in securities lending; however, loans
made by the Fund of the securities it holds may not exceed 33-1/3% of the
Fund's total assets. The Fund may purchase securities on a when-issued basis.
The Fund 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.
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<PAGE>
Under normal circumstances the annual portfolio turnover rate for the Fund is
not expected to exceed 100%.
INVESTMENT LIMITATIONS
- -------------------------------------------------------------------------------
The investment objective of the Fund and the following investment limitations
are fundamental policies of the Fund. Fundamental policies cannot be changed
without the consent of the holders of a majority of the 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.
The 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. This restriction applies to 75% of the 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. For purposes of this limitation
(a) utility companies will be divided according to their services; for example,
gas, gas transmission, electric and telephone will each be considered a separate
industry; (b) 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
(c) supranational entities will be considered to be a separate industry.
3. Make loans, except that the 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 the Fund may borrow money from banks and may enter
into reverse repurchase 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). The 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).
-9-
<PAGE>
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
- --------------------------------------------------------------------------------
The First National Bank of Boston ("Bank of Boston" or the "Adviser") manages
the assets of the 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
the Fund. Eugene D. Takach and Theodore E. Ober, Fund Managers, have been the
co-managers of the Fund since the commencement of its operations. 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.
For its services under the Advisory Agreement, the Adviser receives from the
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 the Fund on an annualized basis 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. 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. Subject to compliance with procedures established
by the Trustees, the Adviser may execute the Fund's brokerage or other agency
transactions through the Adviser or an affiliate of the Adviser.
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, 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
-10-
<PAGE>
securities and they have earned national recognition and respect. The investment
management group within Bank of Boston which manages the Fund 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
Fund, 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 Fund. 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 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 Fund. 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. The
Fund's portion of such fee is based on the average daily net assets of the Fund.
The Administrator has agreed to waive a
-11-
<PAGE>
portion of its fees on a month to month basis under certain circumstances for
certain of the portfolios of the Trust.
THE SHAREHOLDER SERVICING AGENT AND
TRANSFER AGENT
- -------------------------------------------------------------------------------
Boston Financial Data Services acts as dividend disbursing agent and shareholder
servicing agent (the "Shareholder Servicing Agent") for the Fund, and
receives a fee for these services. The principal business address of the
Shareholder Servicing Agent is 2 Heritage Drive, North Quincy, MA 02171.
State Street Bank and Trust Company acts as transfer agent (the "Transfer
Agent") for the Fund, and receives a fee for these services. The principal
business address of the Transfer Agent is 225 Franklin Street, Boston, MA
02110-2875.
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 amended and restated as of
September 14, 1995, and the Trust has adopted a distribution plan (the "Plan")
dated as of June 1, 1993 and amended and restated as of September 14, 1995
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
0.25% of the average daily net assets of the 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 the Fund to be
offered without distribution fees to certain types of investors.
The Fund 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
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<PAGE>
own employees, in connection with the sale of shares of the Fund 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 Fund and other portfolios of the
Trust sold by the participant.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Shares of the Fund 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 the 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 the 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 the Fund calculated to three
decimal places.
A purchase order for shares of the 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 the 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.
-13-
<PAGE>
By Mail
- --------------------------------------------------------------------------------
Investors may purchase shares of the 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 to the Fund , P.O. Box 8524,
Boston, MA (02266-8524. Subsequent purchases of shares may be made at any time
by mailing a check (or other negotiable bank draft or money order) to the Fund.
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 the
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 Fund is 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 the Fund may be
purchased. All accounts in the 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 the 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.
-14-
<PAGE>
Other Information Regarding Purchases
- --------------------------------------------------------------------------------
Shares of the 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 Shareholder Servicing
Agent.
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 day following the date of
purchase.
The net asset value per share of the 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
-15-
<PAGE>
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 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 Shareholder Servicing
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 Shareholder Servicing 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 the Shareholder Servicing Agent, P.O. Box 8524, Boston, MA
02266-8524.
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 Shareholder Servicing 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 Shareholder Servicing 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.
The Fund's address for overnight deliveries is 1784 Funds, c/o Boston
Financial Data Services, 2 Heritage Drive, North Quincy, MA 02171.
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
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<PAGE>
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 Shareholder Servicing Agent
reserve the right to amend these requirements for the 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 Fund are effected at the net asset value
per share next determined after receipt, by the Shareholder Servicing 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 Shareholder Servicing 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. The 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. The 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, the 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
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<PAGE>
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
- --------------------------------------------------------------------------------
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 the 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. 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.
-18-
<PAGE>
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 the Fund 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. The Fund 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 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 the 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 the 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 the 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.
The 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 Fund. The discussion, which is based on current tax laws, regulations,
rulings and judicial
-19-
<PAGE>
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 Fund. Additional information
concerning taxes is set forth in the Statement of Additional Information.
Tax Status of the Fund
- --------------------------------------------------------------------------------
The Fund is treated as a separate entity for federal income tax purposes, and is
not combined with the Trust's other portfolios. The Trust intends to qualify the
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 the Fund's shareholders in accordance with the timing
requirements set out in the Code. As a result, it is expected that the Fund will
not be required to pay any federal income or excise taxes, although foreign
source income received by the Fund may be subject to foreign withholding taxes.
Tax Treatment of Shareholders
- --------------------------------------------------------------------------------
Shareholders of the Fund 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 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. Foreign exchange gain or loss
will generally be treated as ordinary gain or loss. A portion of the dividends
received from the Fund (but none of the Fund's 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 the 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.
Income received by the 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 the Fund's assets to be invested in various
countries is not known. Investment by the
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<PAGE>
Fund in certain "passive foreign investment companies" may be limited in order
to avoid imposition of a tax on the Fund.
The Fund 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. The 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 Fund, 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 Growth and Income
Fund, 1784 Asset Allocation Fund, 1784 International Equity 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 and 1784 Florida 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 Fund 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.
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
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<PAGE>
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 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 Fund is distributed in the form of dividends which are paid quarterly.
Shareholders of record will be entitled to receive the dividend. Currently,
capital gains of the 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
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<PAGE>
change their election by providing written notice to the Administrator at least
15 days prior to the distribution.
Dividends and distributions of the Fund 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 Fund. The Fund will not 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 Fund's permitted investments and investment techniques, there are
no limits on the amount of assets the 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
-23-
<PAGE>
stock. As a result, the 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.
SMALL CAPITALIZATION COMPANIES - The Fund may invest in smaller, lesser-known
companies which the Adviser believes offer growth potential. See "Certain
Investment Policies and Guidelines" above for a discussion of some of the
risks associated with investing in small capitalization companies.
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 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. These risks may be heightened for securities of issuers
in developing countries. The 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.
FOREIGN CURRENCY TRANSACTIONS - The 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. The Fund will conduct currency exchange
transactions either
-24-
<PAGE>
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 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.
The 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 the 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 Fund would use currency exchange transactions only for
bona fide hedging purposes and other non-speculative strategies involving
specified settlement transactions.
WARRANTS - The 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.
SECURITIES LENDING - In order to generate additional income, the 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 at least 100% of the market value of the
securities lent plus accrued interest. The Fund may lend up to 33-1/3% of its
total assets. Collateral is marked to market daily. The Fund will continue to
receive any income payable on the securities lent while simultaneously
earning interest on the investment of any cash collateral subject to the
payment of a rebate fee to the borrower. 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.
-25-
<PAGE>
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." The 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 the
Fund to sell them promptly at an acceptable price.
OPTIONS - The Fund may engage in writing call options from time to time as
deemed by the Adviser 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.
The 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.
There are risks associated with options transaction, 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 the Fund and
price movements of the related options; (3) there may not be a liquid
secondary market for options; and (4) while the 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.
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
-26-
<PAGE>
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
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 - The 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 - The 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. The
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 Fund 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,
-27-
<PAGE>
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. 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, 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. The 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 the Fund may not hold more than 3%
of the total outstanding voting stock of any one investment company, including
money market funds. When the 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;
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<PAGE>
therefore, the 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 Fund 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; the Fund will not 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. The 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 the 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, the Fund 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 the Fund and the agreement by the Fund to repurchase the
securities at an agreed-upon price, date and interest payment. When the 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.
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<PAGE>
FUTURES AND OPTIONS ON FUTURES - The 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. The 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 Fund 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 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 Fund 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 - The 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 the 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. The 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, the Fund
will establish a
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<PAGE>
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.
-31-
<PAGE>
PROSPECTUS
[1784 Funds logo]
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 FLORIDA TAX-EXEMPT INCOME FUND (the "Fund").
Shares of the Fund 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
Fund are referred to hereinafter as "Shareholders." Shares of the Fund 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
Fund that a prospective investor should know before investing in the Fund.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information, dated October 2, 1995, amended
January 2, 1996 and further amended February 28, 1996, 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.
February 28, 1996
<PAGE>
TABLE OF CONTENTS
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Page
- --------------------------------------------------------------------------------
Expense Summary 1
Summary 2
The Trust 5
Investment Objective 6
Investment Policies 6
Certain Investment Policies and Guidelines 8
Investment Limitations 10
The Adviser 11
The Administrator 13
The Shareholder Servicing Agent and Transfer Agent 13
The Distributor 13
Purchase of Shares 14
Redemption of Shares 17
Systematic Withdrawal Plan 19
Exchanges 20
Performance 20
Taxes 21
General Information 23
Description of Permitted Investments and Techniques 25
Appendix A/Description of Ratings A-1
Appendix B/Taxable Equivalent Yield Table B-1
<PAGE>
EXPENSE SUMMARY
- --------------------------------------------------------------------------------
Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of the Fund and annual operating expenses of the Fund, and (ii) an
example illustrating the dollar cost of such expenses on a hypothetical $1,000
investment in the Fund.
SHAREHOLDER TRANSACTION EXPENSES
________________________________________________________________________________
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
ANNUAL OPERATING EXPENSES
________________________________________________________________________________
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
<S> <C>
Advisory Fees (after fee waiver) (2) 0.60%
12b-1 Fee (after fee waiver) (2) None
Other Expenses (2) 0.65%
________________________________________________________________________________
Total Operating Expenses (2) 1.25%
________________________________________________________________________________
</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 Fund, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
the Fund 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 the Fund's average daily net assets. If the
Distributor should terminate this waiver, long-term Shareholders may pay more
than the economic equivalent of the maximum front-end sales charge that would
have been permitted. 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 may contribute to the Fund in order to limit other operating expenses and
to assist the Fund in maintaining a competitive expense
<PAGE>
ratio. Bank of Boston may contribute to the Fund in order to limit other
operating expenses and to assist the Fund in maintaining a competitive
expense ratio. Fee waivers by the Adviser, Administrator and Distributor, and
contributions by the Bank of Boston, if any, 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 the Fund. Because the Fund is newly
organized, expenses are estimated. Absent the waiver of fees by the
Distributor, Adviser and Administrator, estimated other expenses and estimated
total operating expenses would be 1.04% and 1.64% of the average daily net
assets of the Fund, on an annualized basis. 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>
<S> <C>
1 Year 3 Years
$13 $40
</TABLE>
The example is based on estimated operating expenses for the Fund. 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
Fund. 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 FLORIDA
TAX-EXEMPT INCOME FUND (the "Fund"). The Fund is a non-diversified fund.
-2-
<PAGE>
WHAT IS THE INVESTMENT OBJECTIVE? The investment objective of the 1784 Florida
Tax-Exempt Income Fund is to provide Shareholders with current income exempt
from federal income taxes through Fund shares which are exempt from Florida
intangible personal property taxes. Preservation of capital is a secondary
objective. The Fund's investment objective may be changed only with the consent
of holders of a majority of the Fund's outstanding shares. There can be no
assurance that the Fund will achieve its investment objective. See "Investment
Objective" and "Investment Limitations."
WHAT ARE THE PERMITTED INVESTMENTS? The Fund under normal market conditions
will invest 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 bond counsel to the
issuer, is exempt from federal income tax and not included as a preference item
under the alternative minimum tax (collectively, "Municipal Securities"), and
normally will invest at least 65% of its total assets in Municipal Securities
(a) that would not subject Shareholders to Florida intangible personal property
taxes and (b) the interest on which, in the opinion of bond counsel to the
issuer, is exempt from federal income tax and not included as a preference item
under the alternative minimum tax.
WHAT ARE SOME OF THE RISKS? The investment policies of the Fund entail certain
risks and considerations of which an investor should be aware. For example, the
net asset value per share of the Fund 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 Fund may invest are
subject to greater market fluctuations as a result of changes in interest rates.
Since the Fund is a non-diversified fund, a relatively high percentage of its
assets may be invested in the securities of a limited number of issuers, which
means that the value of the shares of the Fund 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 Fund 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 the Fund. 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 Fund to not more than 1.25% of the Fund's average daily net
assets. Bank of Boston may contribute to the Fund in order to limit operating
expenses and to assist the Fund in maintaining a competitive expense ratio. Fee
waivers and contributions, if any, may be terminated at any time. See "The
Adviser."
-3-
<PAGE>
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. The Fund's portion of such fee is based on
the 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 ARE THE SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT? Boston Financial
Data Services acts as dividend disbursing agent and shareholder servicing agent
for the Fund. State Street Bank and Trust Company acts as transfer agent for
the Fund. See "The Shareholder Servicing Agent 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 the 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 Fund. 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 the Fund. 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 the 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 the 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."
-4-
<PAGE>
Shares of the Fund are currently being offered without any sales charges. See
"The Distributor."
HOW DO I REDEEM SHARES? Redemptions of shares of the Fund may be made through
the Shareholder Servicing 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 the Fund 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 Shareholder
Servicing 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 the 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 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 Fund shares exchanged, and could result in taxable gain or loss
to the Shareholder. See "Exchanges."
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 Florida Tax-Exempt Income Fund, a non-
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 Tax-Exempt Medium-Term Income Fund, 1784 Massachusetts
Tax-Exempt Income Fund, 1784 Rhode Island Tax-Exempt Income Fund, 1784
Connecticut Tax-Exempt
-5-
<PAGE>
Income Fund, 1784 Growth and Income Fund, 1784 Asset Allocation Fund, 1784
International Equity Fund, 1784 Growth 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 FLORIDA TAX-EXEMPT INCOME FUND is to
provide Shareholders with current income exempt from federal income taxes
through Fund shares which are exempt from Florida intangible personal property
taxes. Preservation of capital is a secondary objective.
There is no assurance that the investment objective of the Fund will be met. The
investment objective of the Fund is a fundamental policy of the Fund, and
therefore cannot be changed without the consent of holders of a majority of the
Fund's outstanding shares. See "Investment Limitations."
INVESTMENT POLICIES
________________________________________________________________________________
The 1784 FLORIDA TAX-EXEMPT INCOME FUND, (the "Fund"), as a matter of
fundamental policy, will invest 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 bond counsel to the issuer, is exempt
from federal income tax and not included as a preference item under the
alternative minimum tax (collectively, "Municipal Securities"), and normally
will invest at least 65% of its total assets in Municipal Securities (a) that
would not subject Shareholders to Florida intangible personal property taxes and
(b) the interest on which, in the opinion of bond counsel to the issuer, is
exempt from federal income tax and not included as a preference item under the
alternative minimum tax (collectively, "State Municipal Securities"). State
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"), SP-2 or better by Standard & Poor's Ratings Group ("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
-6-
<PAGE>
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.
The securities other than State Municipal Securities in which the Fund may
invest include: (1) Municipal Securities that would subject Shareholders to
Florida intangible personal property taxes; (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. The Fund may write (sell) covered
call options and may enter into fixed income futures contracts and options (in
each case for hedging purposes only).
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 Fund to maintain an average weighted effective maturity of
from five to ten years. Effective maturity takes into account estimates of the
average life of mortgage-backed and asset-backed securities and anticipated
exercises of calls and prepayment rights. The Adviser may shorten the average
weighted effective maturity of the 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 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%.
The 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 the Fund in any
one issuer. Since a relatively high percentage of assets of the Fund may be
invested in the obligations of a limited number of issuers, the value of the
shares of the Fund may be more susceptible to any single economic, political or
regulatory occurrence than the shares of a diversified investment company. The
Trust intends that the 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
-7-
<PAGE>
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 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" and the
Statement of Additional Information.
CERTAIN INVESTMENT POLICIES
AND GUIDELINES
________________________________________________________________________________
The market value of the 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.
The Fund's investments will normally consist primarily of securities that are
listed on recognized exchanges or actively traded in the over-the-counter
market. The Fund may also hold securities that are neither so listed nor so
traded. However, the Fund will not invest 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 the 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 Fund.
-8-
<PAGE>
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, the Fund 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 Fund may also invest, for temporary defensive
purposes, 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.
The Fund may invest in floating or variable rate obligations and may purchase
securities on a when-issued basis. The Fund may also, from time to time, engage
in securities lending; however, loans made by the Fund of the securities it
holds may not exceed 33-1/3% of the Fund's total assets. The Fund may enter
into interest rate futures contracts and related options.
In the event a security owned by the 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 Florida Securities
________________________________________________________________________________
The Fund intends to invest a significant portion of its assets in Municipal
Securities (a) that are exempt from Florida intangible personal property taxes
and (b) the interest on which, in the opinion of bond counsel to the issuer, is
exempt from federal 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 Florida and/or obligors of state, municipal and public
authority debt obligations to meet their obligations thereunder. Investors
should consider the greater risk inherent in the 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
Florida issues with the yield of a more diversified portfolio including out-of-
state issues before making an investment decision. Many of the Fund's State
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.
Over the past few years, Florida's economy has typically performed better than
that of the nation as a whole. In recent years, however, Florida's economic
growth has slowed from its previous highs. Florida's personal income has grown
at a strong pace and has generally outperformed the personal income growth of
both the U.S. as a whole and the
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<PAGE>
Southeast in particular. The reasons for this are that Florida's population has
expanded at a quick pace and Florida's economy since the early 1970s has
diversified in such a way as to provide a broader economic base. Presently,
Florida's service sector employment constitutes 86.4% of total non-farm
employment. Service jobs historically tend to be less sensitive to business
cycle swings. Moreover, manufacturing jobs in Florida tend to be concentrated in
technology, printing and publishing. These types of jobs also tend to be less
cyclical than other forms of manufacturing employment. Florida's dependency on
the highly cyclical construction and construction-related manufacturing sectors
has declined. The tourism industry in Florida has also diversified in recent
years with the addition of a variety of amusement and educational theme parks.
This diversification has helped to reduce the seasonal and cyclical character of
the tourism industry and to stabilize tourist-related employment. Florida
general obligation bonds have maintained an Aa rating from Moody's, an AA rating
from S&P and an AA rating from Fitch.
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
Florida Municipal Securities" in the Statement of Additional Information.
The foregoing discussion of special factors relating to Municipal Securities of
issuers in Florida is a summary of certain information contained in official
statements relating to securities offerings by such issuers. The foregoing
summary does not purport to be a complete description and is current as of the
dates of such official statements.
INVESTMENT LIMITATIONS
________________________________________________________________________________
The investment objective of the Fund and the following investment limitations
are fundamental policies of the Fund. Fundamental policies cannot be changed
without the consent of the holders of a majority of the 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.
The 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
(a) 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 (b) financial service companies will be
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<PAGE>
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 the 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 the 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). The 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 ADVISER
________________________________________________________________________________
The First National Bank of Boston ("Bank of Boston" or the "Adviser") manages
the assets of the 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
the Fund. David H. Thompson, Director of Fund Management, and Susan A.
Sanderson, Senior Fund Manager, have been co-managers of the Fund since the
commencement of its operations. 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. 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.
For its services under the Advisory Agreement, the Adviser receives from the
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 the Fund 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 fee to reduce net operating expenses to less than the
amount specified above. Subject to compliance with procedures established by
the Trustees, the Adviser may execute the Fund's brokerage or other agency
transactions through the Adviser or an affiliate of the Adviser.
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<PAGE>
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 Fund 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
Fund, 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 Fund. 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 Fund. 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
-12-
<PAGE>
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. The
Fund's portion of such fee is based on the average daily net assets of the 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 AGENT AND
TRANSFER AGENT
________________________________________________________________________________
Boston Financial Data Services acts as dividend disbursing agent and shareholder
servicing agent (the "Shareholder Servicing Agent") for the Fund, and receives a
fee for these services. The principal business address of the Shareholder
Servicing Agent is 2 Heritage Drive, North Quincy, MA 02171. State Street Bank
and Trust Company acts as transfer agent (the "Transfer Agent") for the Fund,
and receives a fee for these services. The principal business address of the
Transfer Agent is 225 Franklin Street, Boston, MA 02110-2875.
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 amended and restated as of September
14, 1995, and the Trust has adopted a distribution plan (the "Plan") dated as of
June 1, 1993 and amended and restated as of September 14, 1995 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 0.25% of the
average daily net assets of the Fund. The
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<PAGE>
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 the Fund to be
offered without distribution fees to certain types of investors.
The Fund 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 Fund 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 Fund and
other portfolios of the Trust sold by the participant.
PURCHASE OF SHARES
________________________________________________________________________________
Shares of the Fund 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 the 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
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<PAGE>
discretion. No minimum purchase amount applies to subsequent purchases made by
reinvestment of dividends.
The purchase price for shares of the 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 the Fund calculated to three decimal places.
A purchase order for shares of the 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 the 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
________________________________________________________________________________
Investors may purchase shares of the 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 to the Fund, P.O. Box 8524,
Boston, MA 02266-8524. Subsequent purchases of shares may be made at any time
by mailing a check (or other negotiable bank draft or money order) to the Fund.
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 the
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.
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<PAGE>
SYSTEMATIC INVESTMENT PLAN (SIP)
________________________________________________________________________________
A Shareholder 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 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 the 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 Shareholder Servicing Agent.
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. The 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
-16-
<PAGE>
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 the 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 Shareholder Servicing
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 Shareholder Servicing 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 the Shareholder Servicing Agent, P.O. Box 8524, Boston, MA 02266-
8524.
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 Shareholder Servicing 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
-17-
<PAGE>
previously designated on the Account Application. Telephone redemption requests
may be made by calling the Shareholder Servicing 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. The Fund's address for
overnight deliveries is 1784 Funds, c/o Boston Financial Data Services, 2
Heritage Drive, North Quincy, MA 02171.
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 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 Shareholder Servicing Agent reserve the right to
amend these requirements for the 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 Fund are effected at the net asset value
per share next determined after receipt, by the Shareholder Servicing 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 Shareholder Servicing 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. The 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. The 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
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<PAGE>
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, the 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 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 the 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. 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
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<PAGE>
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 the Fund 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. The Fund 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 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 the 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 the 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 Fund's tax-equivalent yield 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 the 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
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<PAGE>
end of each period and assuming the reinvestment of all dividend and capital
gain distributions.
The 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 Fund. 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 Fund. Additional
information concerning taxes is set forth in the Statement of Additional
Information.
Tax Status of the Fund
________________________________________________________________________________
The Fund is treated as a separate entity for federal income tax purposes, and is
not combined with the Trust's other portfolios. The Trust intends to qualify the
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 the Fund's shareholders in accordance with the timing
requirements set out in the Code. As a result, it is expected that the Fund 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 Fund from interest
on Municipal Securities (referred to as "exempt-interest dividends") will be
exempt from federal income tax because the 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 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
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<PAGE>
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
the 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 Fund.
The Trust expects that none of the dividends received from the Fund 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 the Fund; the Trust will also make annual
reports to Shareholders of the State tax status of the 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. The 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
________________________________________________________________________________
Florida does not currently impose an income tax on individuals. Thus, individual
Shareholders of the Fund who are Florida residents will not be subject to any
personal income taxation by Florida on distributions received from the Fund.
Distributions of investment income and capital gains by the Fund will be subject
to Florida corporate
-22-
<PAGE>
income tax, state taxes in states other than Florida and local taxes of cities
other than those in Florida. Shareholders subject to taxation by states other
than Florida may realize a lower after-tax rate of return than Florida
Shareholders since dividends distributed by the Fund may not be exempt from
income taxation by such other states.
Florida currently imposes an intangible personal property tax on certain
securities and other intangible assets owned by Florida residents. Certain types
of tax-exempt securities of Florida issuers, U.S. Government securities and tax-
exempt securities issued by certain U.S. territories and possessions are exempt
from the Florida intangible personal property tax. If 100% of the Fund's assets
on the last business day of each calendar year consist of assets exempt from the
Florida intangible personal property tax, shares of the Fund owned by Florida
residents will also be exempt from the Florida intangible personal property tax.
If Shares of the Fund are subject to the Florida intangible personal property
tax because less than 100% of the Fund's assets on the last business day of the
calendar year consist of assets exempt from the Florida intangible personal
property tax, only the portion of the net asset value of the Fund that is
attributable to obligations of the U.S. Government will be exempt from taxation.
The Fund anticipates that on the last business day of each calendar year the
Fund's assets will consist solely of assets exempt from the Florida intangible
personal property tax.
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 Fund, 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 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 Growth and Income Fund, 1784
Asset Allocation Fund, 1784 International Equity Fund, 1784 Growth 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 Fund and other
series under
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<PAGE>
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.
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.
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<PAGE>
Dividends and Distributions
________________________________________________________________________________
Substantially all of the net investment income (not including capital gains) of
the Fund 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 Shareholder Servicing Agent. Currently, capital gains of the 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.
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. 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 Fund. The Fund will not 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 Fund's permitted investments and investment
techniques, there are no limits on the amount of assets the Fund may invest in
particular types of securities.
-25-
<PAGE>
MUNICIPAL SECURITIES - Municipal securities which the 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 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 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 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.
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").
-26-
<PAGE>
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 - The 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 - The 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. 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, and only if the Adviser deems the bank obligation
to be of comparable credit quality to the commercial paper in which the 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.
-27-
<PAGE>
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. The 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 the 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, the Fund will not invest more
than 15% of its net assets in such time deposits and other illiquid securities.
FUTURES AND OPTIONS ON FUTURES - The 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. The 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 Fund 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 Fund 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
-28-
<PAGE>
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; the 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 issued by corporations and other entities.
Maturities on these issues vary from one to 270 days.
LOAN PARTICIPATIONS - The 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 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 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 the Fund
may be regarded as illiquid; the Fund will not 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." The 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
-29-
<PAGE>
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 the
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. The 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 the 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, the Fund may enter into repurchase agreements on a pooled
basis with other portfolios of the Trust.
MORTGAGE-BACKED SECURITIES - The 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. The
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 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 Fund 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.
-30-
<PAGE>
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 the 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 Fund. 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 - The Fund may acquire securities subject to a standby
commitment which permits the 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. The 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 the Fund may
purchase subject to a standby commitment but the amount paid directly or
indirectly for a standby commitment held by the Fund will not exceed 1/2 of 1%
of the value of the total assets of the Fund.
-31-
<PAGE>
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS - The 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 the 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. The 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, the 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, the 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 at least 100% of the market value of the securities lent plus
accrued interest. The Fund may lend up to 33-1/3% of its total assets. The Fund
will continue to receive any income payable on the securities lent while
simultaneously earning interest on the investment of any cash collateral subject
to the payment of a rebate fee to the borrower. 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.
-32-
<PAGE>
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,
A-1
<PAGE>
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.
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
A-2
<PAGE>
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-3
<PAGE>
APPENDIX B
TAXABLE EQUIVALENT YIELD TABLE
- -------------------------------------------------------------------------------
The table is for illustrative purposes only and is not intended to predict the
actual return an individual would earn on an investment in the Fund. No
assurance can be made that the Fund will attain any particular yield. The tax
rates used in the table are based upon published 1995 marginal tax rates
currently available and scheduled to be in effect. The table does 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.
Find your Federal tax bracket based on your taxable income.
<TABLE>
<CAPTION>
YOU WOULD NEED THE TAXABLE
YIELD LISTED OPPOSITE THE
FEDERAL TAX BRACKET IN THE
TAXABLE INCOME* 1995 FEDERAL CHART BELOW TO
- -------------------------------------- MARGINAL RATE HAVE A TAX-EXEMPT YIELD OF:
------------- ----------------------------------------------
SINGLE JOINT 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% 4.60% 5.18% 5.75% 6.33% 6.90% 7.48% 8.05%
23,351 - 56,550 39,001 - 94,250 28.00% 5.12% 5.76% 6.40% 7.04% 7.68% 8.32% 8.96%
56,551 - 117,950 94,251 - 143,600 31.00% 5.24% 5.90% 6.55% 7.21% 7.86% 8.52% 9.17%
117,951 - 256,500 143,601 - 256,500 36.00% 5.44% 6.12% 6.80% 7.48% 8.16% 8.84% 9.52%
256,501 and more 256,501 and more 39.60% 5.58% 6.28% 6.98% 7.68% 8.38% 9.07% 9.77%
</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.
<PAGE> Statement of
Additional Information
October 2, 1995,
as amended
January 2, 1996,
as amended
February 28, 1996
1784 FUNDS
1784 GROWTH AND INCOME FUND
1784 ASSET ALLOCATION FUND
1784 INTERNATIONAL EQUITY FUND
1784 GROWTH 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 FLORIDA 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 Growth 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 Florida 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 or, for
Class C and Class D shares of the 1784 U.S. Treasury Money Market Fund, January
2, 1996 or, for the 1784 Growth Fund and the 1784 Florida Tax-Exempt Income
Fund, February 28, 1996, 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.
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TABLE OF CONTENTS
Page
The Trust 3
Investment Objectives and Policies 3
Description of Permitted Investments 4
Investment Limitations 38
The Advisers 41
The Administrator 42
The Distributor 43
Trustees and Officers of the Trust 44
Computation of Yield 46
Calculation of Total Return 47
Purchase and Redemption of Shares 47
Systematic Withdrawal Plan 48
Determination of Net Asset Value 48
Taxes 50
Fund Transactions; Trading Practices and Brokerage 54
Servicemarks 56
Description of Shares 56
Shareholder Liability 57
Limitation of Trustees' Liability 57
Financial Information 57
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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, 1784 International
Equity Fund and 1784 Growth 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, 1784 Connecticut Tax-Exempt
Income Fund and 1784 Florida 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 GROWTH FUND is capital appreciation. Dividend income, if any, is
incidental to the objective of the 1784 Growth Fund.
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. The investment objective
of the 1784
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FLORIDA TAX-EXEMPT INCOME FUND is to provide its shareholders with current
income exempt from federal income taxes through Fund shares which are exempt
from Florida intangible personal property taxes. Preservation of capital is a
secondary objective of each of the Connecticut, Rhode Island and Florida 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.
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
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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.
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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
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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.
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 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
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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.
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
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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.
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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
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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.
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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.
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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
<PAGE>
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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
<PAGE>
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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
<PAGE>
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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
<PAGE>
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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
(other than the 1784 Tax-Exempt Money Market 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.
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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.
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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.
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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
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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.
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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
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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
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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
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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
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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
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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.
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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
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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:
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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
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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.
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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-
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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
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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 from 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.
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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.
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN FLORIDA MUNICIPAL SECURITIES
The following is a summary of certain information contained in official
statements of certain issuers of Florida Municipal Securities published prior
to December 1995. The summary does not purport to be a complete description
and is current as of the date of the corresponding official statement.
Personal income in Florida has been growing the last several years and
generally has outperformed both the nation as a whole and the Southeast in
particular. From 1985 through 1994, Florida's per capita income rose an
average of 5.2% per year, while the
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national per capita income increased an average of 5.1%. Real personal income
is estimated to increase 4.1% in 1995-96 and increase 3.8% in 1996-97. By the
end of 1996-97, real personal income per capita in Florida is projected to
average 4.2% higher than its 1994-95 level.
Florida's population growth is one reason why its economy has typically
performed better than the nation as a whole. In 1980, Florida was ranked
seventh among the 50 states with a population of 9.7 million people. Florida
has continued to grow since then and as of April 1, 1994 ranks fourth with an
estimated population of 13.9 million. Since 1984, Florida's average annual
rate of population increase has been approximately 2.3% as compared to an
approximately 1.0% average annual increase for the nation as a whole.
Throughout the 1980s, the unemployment rate in Florida had, generally, tracked
below that of the nation. In recent years, however, as Florida's economic
growth has slowed from its previous highs, the unemployment rate has tracked
above the national average. Florida's unemployment rate is projected to be
5.3% in 1995 and 5.7% in 1996. The average rate of unemployment for Florida
since 1985 is 6.3%, while the national average is 6.4%.
Until recently, Florida has had a dynamic construction industry, with single
and multi-family housing starts accounting for 8.5% of total U.S. housing
starts in 1994, while Florida's population was 5.3% of the nation's total
population. The reason for such a dynamic construction industry was the rapid
growth of Florida's population. In Florida, single and multi-family housing
starts in 1995-96 are projected to reach a combined level of 116,000 units,
while increasing to 117,100 in 1996-97. Total construction expenditures are
forecasted to increase 3.3% in 1995-96 and increase by 6.5% in 1996-97.
Financial operations in Florida are maintained through the use of four funds
types -- the General Revenue Fund, Trust Funds, the Working Capital Fund and,
beginning in fiscal year 1995-96, the Budget Stabilization Fund. In fiscal
year 1994-95, approximately 66% of total direct revenues to these Funds were
derived from Florida State taxes and fees. Federal funds and other special
revenues accounted for the remaining revenues. Major sources of tax revenues
to the General Revenue Fund are the sales and use tax, corporate income tax,
intangible personal property tax and alcoholic beverage tax, which amounted to
67%, 7%, 4%, and 4%, respectively, of total General Revenue Fund receipts
available. State expenditures are categorized for budget and appropriation
purposes by type of fund and spending unit, which are further subdivided by
line item. In fiscal year 1994-95, expenditures from the General Revenue Fund
for education, health and welfare, and public safety amounted to approximately
49%, 32% and 11%, respectively, of the total General Revenue Fund available.
For fiscal year 1995-96, the estimated General Revenue plus Working Capital and
Budget Stabilization funds available to Florida is $15,149.1 million, a 2.2%
increase over 1994-95. With combined General Revenue Fund, Working Capital
Fund and Budget Stabilization Fund appropriations at $14,824.0 million,
unencumbered reserves at the end of 1995-96 are estimated at $325.1 million.
For fiscal year 1996-97, the estimated General Revenue plus Working Capital and
Budget Stabilization funds available total $15,717.8 million, a 3.8% increase
over fiscal year 1995-96.
The sales and use tax is the greatest single source of tax receipts in Florida.
For the fiscal year ended June 30, 1995, receipts from this source were $10,672
million, an increase of 6.0% from fiscal year 1993-94. The second largest
source of tax receipts is the motor fuel tax. The estimated collections from
this source during the fiscal year ended June 30, 1994 were $1,733.4 million,
however these revenues are almost entirely dedicated to trust funds for
specific purposes and are not included in the General Revenue Fund. Alcoholic
beverage tax
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revenues totalled $437.3 million for the fiscal year ending June 30, 1995. The
receipts of the corporate income tax for the fiscal year ended June 30, 1995
were $1,063.5 million, an increase of 1.5% from the previous fiscal year. Gross
receipt tax collections for fiscal year 1994-95 totalled $508.4 million, an
increase of 10.4% over the previous fiscal year. Documentary stamp tax
collections totalled $695.3 million during fiscal year 1994-95, decreasing
11.4% from the previous fiscal year. The intangible personal property tax is a
tax on stocks, bonds, notes, governmental leaseholds, certain limited
partnership interests and other intangible personal property. Total
collections from intangible personal property taxes were $818.0 million during
fiscal year 1994-95, a 2.1% decline from the previous fiscal year. Severance
taxes totalled $61.2 million during fiscal year 1994-95, up 1.1% from the
previous fiscal year. In November, 1986, Florida voters approved a
constitutional amendment to allow Florida to operate a lottery. Fiscal year
1994-95 produced ticket sales of $2.19 billion of which education received
approximately $853.2 million.
Pursuant to a constitutional amendment which was ratified by the voters of
Florida on November 8, 1994, the rate of growth in State revenues in a given
fiscal year is limited to no more than the average annual growth rate in
Florida personal income over the previous five years. Revenues collected in
excess of the limitation are to be deposited into the Budget Stabilization Fund
unless two-thirds of the members of both houses of the Florida Legislature vote
to raise the limit. The revenue limit is determined by multiplying the average
annual growth rate in Florida personal income over the previous five year by
the maximum amount of revenue permitted under the cap for the previous year.
For the first year, which is fiscal year 1995-96, the limit is based on actual
revenues from fiscal year 1994-95. State revenues are defined as taxes,
licenses, fees and charges for services imposed by the Florida Legislature on
individuals, businesses or agencies outside of State government. The
definition of State revenues also includes the revenue from the sale of lottery
tickets. Included among the categories of State revenues which are exempt from
the revenue limitation, however, are funds used for debt service on State bonds
and other payments related to debt.
The Florida State Constitution does not permit a state or local personal income
tax. An amendment to the Florida State Constitution by the electors of Florida
is required to impose a personal income tax in Florida.
As of January 1, 1994, property valuations for homestead property are subject
to a growth cap. Growth in the assessed value of property qualifying for the
homestead exemption will be limited to 3% or the change in the Consumer Price
Index, whichever is less. If the property changes ownership or homestead
status, it is to be re-valued at full value on the next tax roll.
According to the Office of Comptroller, Department of Banking and Finance of
the State of Florida, as of February 15, 1995, Florida maintained a bond rating
of AA from Moody's, a bond rating of AA from S&P and a bond rating of AA from
Fitch on all of its general obligation bonds. Outstanding general obligation
bonds at June 30, 1994 totalled almost $6.1 billion and were issued to finance
capital outlay for educational projects of both local school districts,
community colleges and state universities, environmental protection and highway
construction.
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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, 1784 Rhode Island Tax-Exempt Income Fund and 1784
Florida 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
<PAGE>
-39-
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.
<PAGE>
-40-
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) each of the Equity Funds 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; or (c) an investment of all of the
investable assets of the 1784 International Equity Fund in a Qualifying
Portfolio.
<PAGE>
-41-
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 October 27, 1995. 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:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Bank of Boston Bank of Boston
Investment Investment
Fund Advisory Fees Advisory Fees
1994 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
1784 Tax-Free Money Market Fund $ 0 $ 1,471,000
1784 U.S. Treasury Money Market Fund $ 0 $ 69,000
1784 Institutional U.S. Treasury Money
Market Fund $ 0 $ 85,000
1784 U.S. Government Medium-Term Income
Fund $ 0 $ 679,000
1784 Tax-Exempt Medium-Term Income Fund $ 0 $ 602,000
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 Income Fund N/A $ 77,000
1784 Florida Tax-Exempt Income Fund N/A N/A
1784 Growth and Income Fund $ 12,000 $ 1,393,000
1784 Asset Allocation Fund $ 0 $ 23,000
1784 International Equity Fund N/A $ 0
1784 Growth Fund N/A N/A
- ------------------------------------------------------------------------------
Total $ 12,000 $ 5,707,000
- ------------------------------------------------------------------------------
</TABLE>
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.
<PAGE>
-42-
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, Marquis-SM- 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>
-43-
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, the Fixed Income Funds and
the Tax-Exempt Funds (other than the 1784 Tax-Free Money Market Fund), 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, the Fixed
Income Funds and the Tax-Exempt Funds (other than the 1784 Tax-Free Money
Market Fund), (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, the Fixed Income Funds and the Tax-Exempt Funds (other than the 1784 Tax-
Free Money Market Fund) 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>
-44-
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
(date of birth March 21, 1933). 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
(date of birth June 12, 1926). Senior Executive Vice President, Massachusetts
Financial Services Company, retired in 1991.
KENNETH A. FROOT - Trustee - Harvard University Graduate School of Business,
Boston, Massachusetts 02163 (date of birth July 5, 1957). 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 (date of birth November 30, 1958). 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 (date of birth August 17, 1946).
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 (date of birth December 30, 1943). 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
(date of birth October 3, 1951). Partner, Bingham, Dana & Gould, counsel to
the Trust, since 1983.
DAVID G. LEE - Senior Vice President & Assistant Secretary - 680 East
Swedesford Road, Wayne, Pennsylvania 19087 (date of birth April 16, 1952).
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 (date of birth April 15, 1961). 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.
<PAGE>
-45-
ROBERT CARROLL - Vice President & Assistant Secretary - 680 East Swedesford
Road, Wayne, Pennsylvania 19087 (date of birth February 26, 1960). 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 (date of birth October 18, 1953). 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 (date of birth July 12, 1965). 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 Annual from the Trust
Compensation Accrued as Benefits Upon and the Funds
Name of Trustee from the Part of Fund Retirement Paid to
Trust Expenses 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. $15,000 $ 0 $ 0 $15,000
Froot
Kathryn F. $15,000 $ 0 $ 0 $15,000
Muncil
Robert A. $0 $ 0 $ 0 $0
Nesher
</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 October 25, 1995, National Financial Services Corp., 200 Liberty Street,
New York, NY 10281, owned of record 17.96% of the outstanding Class A shares of
the 1784 U.S. Treasury Money Market Fund and 8.18% of the outstanding shares of
the 1784 Short-Term Income Fund; and Arnold Fortuna Lawner & Cabot Inc., 101
Arch Street, Boston, MA 02110, owned beneficially and of record 5.03% of the
outstanding shares of the 1784 Institutional U.S. Treasury Money Market Fund.
As of October 25, 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 - 84.23%; 1784 Institutional U.S. Treasury Money Market Fund
- - 44.60%; 1784 U.S. Government Medium-Term Income Fund - 84.74%; 1784 Tax-
Exempt Medium-Term Income Fund -
<PAGE>
-46-
94.45%; 1784 Massachusetts Tax-Exempt Income Fund - 66.21%; 1784 Growth &
Income Fund - 78.72%; 1784 Asset Allocation Fund - 24.61%; 1784 International
Equity Fund - 97.63%; 1784 Short-Term Income Fund - 67.83%; 1784 Income Fund -
92.32%; 1784 Connecticut Tax-Exempt Income Fund - 86.09%; and 1784 Rhode Island
Tax-Exempt Income Fund - 93.25%. 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.
<PAGE>
-47-
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. 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
<PAGE>
-48-
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. Section 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. Section 7-
400.
SYSTEMATIC WITHDRAWAL PLAN
A Shareholder (other than a Shareholder of the 1784 Institutional U.S. Treasury
Money Market Fund and holders of Class C or Class D shares of the 1784 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 (including shares of
each class of the 1784 U.S. Treasury Money Market 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
Growth Fund, 1784 U.S. Government Medium-Term Income Fund, 1784 Tax-Exempt
Medium-Term Income
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Fund, 1784 Massachusetts Tax-Exempt Income Fund, 1784 Connecticut Tax-Exempt
Income Fund, 1784 Rhode Island Tax-Exempt Income Fund, 1784 Florida 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. Net asset value per share of
each class of the 1784 U.S. Treasury Money Market Fund is calculated by adding
the value of securities and other assets attributable to that class,
subtracting liabilities attributable to that class and dividing by the number
of outstanding shares of that class.
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
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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
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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.
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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.
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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.
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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 such 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
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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
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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 Agreements with Bank of Boston
are 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 fifteen 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.
<PAGE>
-57-
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 (Accession Number 0000929638-95-000094), 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.
[Remainder of page intentionally left blank]
<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 GROWTH 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 FUND
New York, New York 10166 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
1784 CONNECTICUT TAX-EXEMPT INCOME FUND
DISTRIBUTOR 1784 FLORIDA TAX-EXEMPT INCOME FUND
1784 TAX-FREE MONEY MARKET FUND
SEI Financial Services Company 1784 U.S. TREASURY MONEY MARKET FUND
680 East Swedesford Road 1784 INSTITUTIONAL U.S. TREASURY MONEY
Wayne, PA 19087-1658 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 AS AMENDED JANUARY 2, 1996,
Boston, MA 02110 AS AMENDED FEBRUARY 28, 1996
____________________________________________________
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
<PAGE>
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART A (FOR THE 1784 GROWTH FUND AND
THE 1784 FLORIDA TAX-EXEMPT INCOME FUND):
Not applicable
FINANCIAL STATEMENTS INCLUDED IN PART B (FOR EACH OF FUNDS OF THE
REGISTRANT OTHER THAN THE 1784 GROWTH FUND AND THE 1784 FLORIDA
TAX-EXEMPT INCOME FUND):
Statements of Net Assets at May 31, 1995*
Statements of Operations for the period ended May 31, 1995*
Statements of Changes in Net Assets for the period ended May
31, 1995*
Financial Highlights for the period ended May 31, 1995*
_________________________
*Incorporated by reference in the two Annual Reports to Shareholders of the
Registrant for the period ended May 31, 1995, filed with the Securities and
Exchange Commission via the EDGAR system on November 17, 1995 (Accession Number
0000929638-95-000094).
(b) EXHIBITS
*(1) Declaration of Trust of the Registrant
**(2) By-Laws of the Registrant
(5) Investment Advisory Agreement between the
Registrant and The First National Bank of Boston
with Schedule reflecting advisory fees to be paid
by the Registrant on behalf of the 1784 Growth
Fund and the 1784 Florida Tax-Exempt Income Fund
*****(5)(a) Investment Advisory Agreement between the
Registrant and The First National Bank of Boston
with respect to the 1784 International Equity Fund
*****(5)(b) Investment Advisory Agreement between the
Registrant and Kleinwort Benson Investment
Management Americas Inc. with respect to the 1784
International Equity Fund
******(6) Amended and Restated Distribution Agreement
between the Registrant and SEI Financial Services
Company
***(8) Custodian Agreement
***(9)(a) Administration Agreement between the Registrant
and SEI Financial Management Corporation
(9)(b) Transfer Agency and Service Agreement between the
Registrant and State Street Bank and Trust Company
<PAGE>
***(9)(c) Fund Accounting Agreement between the Registrant
and The First National Bank of Boston
(11) Consent of Independent Accountants
******(15)(a) Amended and Restated Distribution Plan of the
Registrant
******(15)(b) Distribution Plan (Class C Shares) of the
Registrant
******(15)(c) Distribution Plan (Class D Shares) of the
Registrant
******(18) Multiple Class Plan of the Registrant
****(25) Powers of Attorney of Trustees of Registrant
*Incorporated by reference to Registrant's Statement on Form
N1-A filed ith the SEC on February 8, 1993.
**Incorporated by reference to Registrant's Pre-
Effective Amendment No. 2 filed with the SEC on May
18, 1993.
***Incorporated by reference to Registrant's Post-Effective
Amendment No. 2 filed with the SEC on January 31, 1994.
****Incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 filed with the SEC on May 18, 1993 (on
signature page).
*****Incorporated by reference to Registrant's Post-Effective
Amendment No. 5 filed with the SEC on September 28, 1994.
******Incorporated by reference to Registrant's Post-Effective
Amendment No. 8 filed with the SEC on November 1, 1995.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
See the Prospectuses and the Statement of Additional Information
regarding the Trust's control relationships. The Administrator is a
subsidiary of SEI Corporation which also controls the distributor of
the Registrant, SEI Financial Services Company, and other corporations
engaged in providing various financial and record keeping services,
primarily to bank trust departments, pension plan sponsors, and
investment managers.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders
-------------- ------------------------
Shares of beneficial interest, without par value As of October 24, 1995
1784 Growth and Income Fund 4,285
1784 Asset Allocation Fund 736
1784 Growth Fund 0
1784 U.S. Government Medium-Term Income Fund 1,008
1784 Short-Term Income Fund 977
1784 Income Fund 345
<PAGE>
1784 Tax-Exempt Medium-Term Income Fund 401
1784 Massachusetts Tax-Exempt Income Fund 716
1784 Rhode Island Tax-Exempt Income Fund 902
1784 Connecticut Tax-Exempt Income Fund 386
1784 Florida Tax-Exempt Income Fund 0
1784 Tax-Free Money Market Fund 872
1784 U.S. Treasury Money Market Fund (Class A) 1,192
1784 U.S. Treasury Money Market Fund (Class C) 0
1784 U.S. Treasury Money Market Fund (Class D) 0
1784 Institutional U.S. Treasury Money Market Fund 288
1784 International Equity Fund 277
ITEM 27. INDEMNIFICATION
Article VIII of the Agreement and Declaration of Trust filed as
Exhibit 1 to the Registration Statement is incorporated herein by
reference. The Trust participates in a group liability policy under
which the Trust and its trustees, officers and affiliated persons are
insured against certain liabilities.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The First National Bank of Boston ("Bank of Boston") offers a
wide variety of financial services to customers throughout New
England, the United States and internationally. As of December 31,
1994, Bank of Boston and its affiliates had assets of $44.6 billion,
including customer deposits of $31.4 billion and also managed more
than $13 billion in assets worldwide. Bank of Boston's principal
place of business is 100 Federal Street, Boston, Massachusetts 02110.
Other business, profession, vocation, or employment of a
substantial nature in which each director or principal officer of Bank
of Boston is or has been, at any time during the last two fiscal
years, engaged for his or her own account or in the capacity of
director, officer, employee, partner or trustee are as follows (each
Director of Bank of Boston is also a director of Bank of Boston
Corporation):
Name and Position Connection with and
with Investment Adviser Name of Other Company
- ---------------------- ---------------------
Wayne A. Budd,
Director Senior Partner, Goodwin, Procter & Hoar, Exchange
Place, Boston, MA 02109, since 1993. United
States Attorney, District of Massachusetts from
1989 to 1992; Associate Attorney General of the
United States Department of Justice from 1992 to
1993.
William F. Connell,
Director Chairman and Chief Executive Officer of Connell
Limited Partnership, One International Place,
Boston, MA 02109, since 1987. Director of Boston
Edison Company, Arthur D. Little, Inc., Harcourt
General, Inc. and North American Mortgage Company.
<PAGE>
Gary L. Countryman,
Director Chairman and Chief Executive Officer of Liberty
Mutual Insurance Company, 175 Berkeley Street,
Boston, MA 02117. President of Liberty Mutual
Insurance Company from 1981 to 1992, Chief
Executive Officer since 1987 and Chairman since
1991; Director of Boston Edison Company, The
Neiman-Marcus Group, Inc., and Alliance of
American Insurers.
Alice F. Emerson,
Director Senior Fellow, The Andrew W. Mellon Foundation,
140 East 62nd Street, New York, NY 10021, since
1991. President Emerita of Wheaton College;
Director of Eastman Kodak Company, Champion
International Corporation and AES Corporation.
Charles K. Gifford, Chairman and Chief Executive Officer of Bank of
Chairman, Chief Executive Boston and Bank of Boston Corporation since July
Officer and President of 1995; President of Bank of Boston and Bank of
Bank of Boston Corporation, Boston Corporation since 1989; Chief Operating
100 Federal Street, Officer of Bank of Boston and Bank of Boston
Boston, MA 02110 Corporation from 1993 to July 1995; Director of
Massachusetts Mutual Life Insurance Company and
Boston Edison Company.
Thomas J. May, Chairman and Chief Executive Officer of Boston
Director Edison Company, 800 Boylston Street, Boston, MA
02199, since July, 1994. Executive Vice President
of Boston Edison Company from 1990 to 1993 and
President and Chief Operating Officer from 1993 to
July, 1994; Director of New England Mutual Life
Insurance Company.
Donald F. McHenry, University Research Professor of Diplomacy and
Director International Relations, Georgetown University,
School of Foreign Service, Washington, D.C. 20057,
since 1981. President of the IRC Group since
1983; Director of American Telephone and Telegraph
Company, Coca-Cola Company, International Paper
Company, and SmithKline Beecham, PLC.
J. Donald Monan, S.J., President of Boston College, 18 Old Colony Road,
Director Chestnut Hill, MA 02167, since 1972.
<PAGE>
Paul C. O'Brien, President of The O'Brien Group, Inc., One
Director International Place, Boston, MA 02110. President
and Chief Executive Officer of New England
Telephone and Telegraph Company from 1988 to 1993
and Chairman of the Board from 1993 to December
1994. Director of Cambridge NeuroScience, Inc,
First Pacific Networks Inc. and Shiva
Corporation.
Edward A. O'Neal,
Vice Chairman of Bank of Senior Executive Vice President, Operating
Boston and Bank of Boston Services and Nationwide Consumer, Chemical
Corporation, 100 Federal Banking Corporation, in 1992; Executive Vice
Street, Boston, MA 02110 President of Bank of Boston Corporation,
and Group Executive of Bank of Boston's New
England Banking Group from 1992 to 1993 and
Vice Chairman of Bank of Boston Corporation
and Bank of Boston since 1993.
John W. Rowe, President and Chief Executive Officer of New
Director England Electric System, 25 Research Drive,
Westborough, MA 01582, since 1989. Director of
New England Electric System and UNUM Corporation.
William J. Shea,
Vice Chairman and Chief Partner at Coopers & Lybrand from 1983 to 1992 and
Financial Officer of Bank Vice Chairman from 1991 to 1992; Executive Vice of
Boston and Vice Chairman, President, Chief Financial Officer and Treasurer
Chief Financial Officer of Bank of Boston Corporation and Chief Financial
and Treasurer of Bank of Officer of Bank of Boston from January to October,
Boston Corporation, 100 1993 and Vice Chairman of both since 1993.
Federal Street, Boston,
MA 02100
Richard A. Smith, Chairman of the Board of Harcourt General, Inc.
Director and The Neiman-Marcus Group, Inc., 27 Bolyston
Street, Chestnut Hill, MA 02167, since 1991.
Chairman, President and Chief Executive Officer of
GC Companies Inc. since December, 1993; Chairman
and Chief Executive Officer of Harcourt General,
Inc. from 1985 to 1991 and Chairman and Chief
Executive Officer of the Neiman-Marcus Group, Inc.
from 1987 to 1991. Director of Liberty Mutual
Insurance Company and Liberty Mutual Fire
Insurance Company.
William C. Van Faasen, President and Chief Executive Officer of Blue
Director Cross and Blue Shield of Massachusetts, Inc., 100
Summer Street, Boston, Massachusetts 02110.
Executive Vice President and Chief Operating
Officer of Blue Cross and Blue Shield of
Massachusetts, Inc. from 1990 to 1992 and
President and Chief Executive Officer since 1992.
<PAGE>
Thomas B. Wheeler, President and Chief Executive Officer of
Director Massachusetts Mutual Life Insurance Company, 1295
State Street, Springfield, MA 01111. President of
Massachusetts Mutual Life Insurance Company since
1987 and Chief Executive Officer since 1988;
Director of Massachusetts Mutual Life Insurance
Company and Textron Inc.
Alfred M. Zeien, Chairman of the Board and Chief Executive Officer
Director of The Gillette Company, Prudential Tower
Building, Boston, MA 02199, since 1991. Director
of Polaroid Corporation, Raytheon Company,
Repligen Corporation, and Massachusetts Mutual
Life Insurance Company.
Kleinwort Benson Investment Management Americas Inc. ("Kleinwort
Benson") is the U.S. registered investment management subsidiary of
the London based Kleinwort Benson Group plc, a holding company for 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. As of December 31, 1994, Kleinwort
Benson had approximately $1.014 billion of assets under management.
Kleinwort Benson's principal place of business is 200 Park Avenue, New
York, New York 10166.
Other business, profession, vocation, or employment of a
substantial nature in which each director or principal officer of
Kleinwort Benson is or has been, at any time during the last two
fiscal years, engaged for his or her own account or in the capacity of
director, officer, employee, partner or trustee are as follows:
Name and Position Connection with and
with Investment Adviser Name of Other Company
- ----------------------- ---------------------
Lesley M. S. Knox, --
Director and Non-executive
Chairman
Simon M. Robertson, Deputy Chairman, Kleinwort Benson Group plc, 10
Director Fenchurch Street, London, England EC3M 3HB, since
1992.
John L. Duffy, Chief Financial Officer, Kleinwort Benson North
Director America, Inc. from May 1991 to July 1993.
Lynn C. Thurber, Managing Director and Chief Operating Officer,
Director Alex Brown Kleinwort Benson Realty Advisers
Corporation, 100 East Pratt Street, Baltimore, MD
21202, since July 1992. Principal, Morgan Stanley
Incorporated, from 1975 to July 1992.
Geraint E.B. Thomas Chief Executive Officer since 1994. Finance
Chief Executive Officer Director Kleinwort Benson from 1986 to 1994.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The Registrant's distributor, SEI Financial Services Company
("SFS"), acts as distributor for SEI Daily Income Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI Institutional
Managed Trust, SEI International 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., 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., Conestoga Family of Funds and Rembrandt Funds-Registered
Trademark-, pursuant to distribution agreements dated July 15, 1982,
November 29, 1982, December 3, 1982, July 10, 1985, January 22, 1987,
August 30, 1988, January 30, 1991, March 8, 1991, October 18, 1991,
November 14, 1991, February 28, 1992, May 1, 1992, May 29, 1992,
October 30, 1992, November 1, 1992, November 1, 1992, January 28,
1993, August 17, 1993, January 3, 1994, July 16, 1993, August 1, 1994,
December 27, 1994, December 30, 1994, January 27, 1995, March 1, 1995,
May 1, 1995 and December 31, 1992, respectively.
SFS provides numerous financial services to investment managers,
pension plan sponsors, and bank trust departments. These services
include fund evaluation, performance measurement, and consulting
services ("Funds Evaluation") and automated execution, clearing and
settlement of securities transactions ("MarketLink").
(b) The following are the directors and officers of SFS. Unless
otherwise noted, the business address of each director or officer is
680 East Swedesford Road, Wayne, PA 19087.
Position and Positions and
Name Officers with Underwriter Offices with Registrant
- ---- ------------------------- -----------------------
Alfred P. West, Jr. Director,Chairman and
Chief Executive Officer
Henry H. Greer Director, President & Chief
Operating Officer
Carmen V. Romeo Director, Executive Vice Treasurer & Assistant
President & Treasurer Secretary
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Charles A. Marsh Executive Vice President --
of Capital Resources Division --
Kenneth Zimmer Senior Vice President --
Leo J. Dolan, Jr. Senior Vice President --
<PAGE>
Carl A. Guarino Senior Vice President --
Jerome Hickey Senior Vice President --
David G. Lee Senior Vice President Senior Vice President &
Assistant Secretary
William Madden Senior Vice President --
A. Keith McDowell Senior Vice President --
Dennis J. McGonigle Senior Vice President --
Hartland J. McKeown Senior Vice President --
James V. Morris Senior Vice President --
Steven Onofrio Senior Vice President --
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Kevin P. Robins Senior Vice President, Vice President &
General Counsel & Secretary Assistant Secretary
Robert Crudup Managing Director --
Victor Galef Managing Director --
Kim Kirk Managing Director --
Carolyn McLaurin Managing Director --
John Krzeminski Managing Director --
Barbara Moore Managing Director --
Donald Pepin Managing Director --
Mark Samuels Managing Director --
Wayne M. Withrow Managing Director --
Mick Duncan Team Leader --
Robert Ludwig Team Leader --
Vicki Malloy Team Leader --
Sandra K. Orlow Vice President & Assistant Vice President &
Secretary Assistant Secretary
<PAGE>
Robert Aller Vice President --
Charles Baker Vice President --
Steve Bendinelli Vice President --
Chris Brookmeyer Vice President & Controller --
Gordon W. Carpenter Vice President --
Robert B. Carroll Vice President & Assistant Vice President &
Secretary Assistant Secretary
Ward Curtis Vice President --
Edward Daly Vice President --
Jeff Drennen Vice President --
Lucinda Dancalfe Vice President --
Kathy Heilig Vice President --
Larry Hutchison Vice President --
Michael Kantor Vice President --
Samuel King Vice President --
Donald H. Korytowski Vice President --
Robert S. Ludwig Vice President --
Jack May Vice President --
Larry Pokora Vice President --
Kim Rainey Vice President --
Paul Sachs Vice President --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant
Secretary --
William Zawaski Vice President --
James Dougherty Director, Brokerage Services --
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
The First National Bank of Boston (custodian, investment adviser
and portfolio accountant)
100 Federal Street
Boston, Massachusetts 02110
and
150 Royall Street,
Canton, Massachusetts 02021
Kleinwort Benson Investment Management Americas Inc. (investment
adviser)
200 Park Avenue
New York, NY 10166
and
10 Fenchurch Street
London, England EC3M 3HB
SEI Financial Management Corporation (administrator)
680 E. Swedesford Road
Wayne, PA 19087
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) The Registrant hereby undertakes to file a post-effective
amendment to this Registration Statement, containing reasonably
current financial statements that need not be certified, within
four to six months following the date shares of the 1784 Growth
Fund and the date shares of the 1784 Florida Tax-Exempt Income
Fund are sold to the public or operations for each such Fund
otherwise begin.
(c) The Registrant undertakes to furnish each person to whom an
applicable prospectus is delivered with a copy of its latest
Annual Reports to shareholders, upon request without charge.
NOTICE
A copy of the Agreement and Declaration of Trust for 1784 Funds is on
file with the Secretary of State of The Commonwealth of Massachusetts and notice
is hereby given that this Registration Statement has been executed on behalf of
the Trust by an officer of the Trust as an officer and by its Trustees as
trustees and not individually and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers, or
Shareholders individually but are binding only upon the assets and property of
the Trust.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this Post-
Effective Amendment No. 9 to its Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wayne, Commonwealth of Pennsylvania on the 15 day of December, 1995.
1784 FUNDS
By: Robert A. Nesher
--------------------------
Robert A. Nesher
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A has been signed below
by the following persons in the capacity on the date indicated.
Robert A. Nesher Trustee, President & Chief December 15, 1995
- ----------------- Executive Officer
Robert A. Nesher
* Treasurer & Assistant December 15, 1995
- ----------------- Secretary
Carmen V. Romeo
Stephen G. Meyer Controller December 15, 1995
- -----------------
Stephen G. Meyer
* Trustee December 15, 1995
- -----------------
David H. Carter
* Trustee December 15, 1995
- -----------------
Tarrant Cutler
* Trustee December 15, 1995
- -----------------
Kenneth A. Froot
* Trustee December 15, 1995
- -----------------
Kathryn F. Muncil
*By: Robert A. Nesher
-----------------
Robert A. Nesher
Executed by Robert A. Nesher, Attorney-in-fact on behalf of those
indicated, pursuant to Powers of Attorney previously filed.
<PAGE>
EXHIBIT INDEX
Exhibit Names
------- -----
5 Investment Advisory Agreement between the Registrant
and The First National Bank of Boston with Schedule
reflecting advisory fees to be paid by the Registrant
on behalf of the 1784 Growth Fund and the 1784 Florida
Tax-Exempt Income Fund
9(b) Transfer Agency and Service Agreement between the
Registrant and State Street Bank and Trust Company
11 Consent of Independent Accountants
<PAGE>
EXHIBIT 5
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 1st day of June, 1993, by and between 1784 Funds a
Massachusetts business trust (the "Trust"), and The First National Bank of
Boston, a national banking association (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended,
consisting of several series of shares, each having its own investment policies;
and
WHEREAS, the Trust has retained SEI Financial Management Corporation (the
"Administrator") to provide administration of the Trust's operations, subject to
the control of the Board of Trustees; and
WHEREAS, the Trust has retained The First National Bank of Boston (the
"Fund Accountant") to provide Fund Accounting and related Portfolio Accounting
services to the Trust;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to its 1784 Growth and Income Fund, 1784 Asset
Allocation Fund, 1784 U.S. Government Medium-Term Income Fund, 1784 Tax-Exempt
Medium-Term Income Fund, 1784 Massachusetts 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 portfolios and such other
portfolios as the Trust and the Adviser may agree upon (the "Portfolios"), and
the Adviser is willing to render such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. Duties of Adviser. The Trust employs the Adviser to manage the
investment and reinvestment of the assets, and to continuously review,
supervise, and administer the investment program of the Portfolios, to determine
in its discretion the securities to be purchased or sold, to provide the
Administrator and the Trust with records concerning the Adviser's activities
which the Trust is required to maintain, and to render regular reports to the
Administrator and to the Trust's Officers and Trustees concerning the Adviser's
discharge of the foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities subject to the
control of the Board of Trustees of the Trust and in compliance with such
policies as the Trustees may from time to time establish, and in compliance with
the objectives, policies, and limitations for each such Portfolio set forth in
the Trust's prospectus and statement of additional information as amended from
time to time, and applicable laws and regulations.
The Adviser accepts such employment and agrees, at its own expense, to
render the services and to provide the office space, furnishings and equipment
and the
<PAGE>
-2-
personnel required by it to perform the services on the terms and for the
compensation provided herein.
2. Portfolio Transactions. The Adviser is authorized to select the
brokers or dealers that will execute the purchases and sales of portfolio
securities for the Portfolios and is directed to use its best efforts to obtain
the best net results as described in the Trust's prospectus or prospectuses and
statement of additional information from time to time. The Adviser will
promptly communicate to the Administrator, the Fund Accountant and the officers
and the Trustees of the Trust such information relating to portfolio
transactions as they may reasonably request.
It is understood that the Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Trust or be in breach of
any obligation owing to the Trust under this Agreement, or otherwise, solely by
reason of its having directed a securities transaction on behalf of the Trust to
a broker-dealer in compliance with the provisions of Section 28(e) of the
Securities Exchange Act of 1934.
3. Compensation of the Adviser. For the services to be rendered by the
Adviser as provided in Sections 1 and 2 of this Agreement, the Trust shall pay
to the Adviser compensation at the rate specified in the Schedule(s) which are
attached hereto and made a part of this Agreement. Such compensation shall be
paid to the Adviser at the end of each month, and calculated by applying a daily
rate, based on the annual percentage rates as specified in the attached
Schedule(s), to the assets. The fee shall be based on the average daily net
assets for the month involved.
All rights of compensation under this Agreement for services performed as
of the termination date shall survive the termination of this Agreement.
4. Excess Expenses. If the expenses for any Portfolio for any fiscal
year (including fees and other amounts payable to the Adviser, but excluding
interest, taxes, brokerage costs, litigation, and other extraordinary costs) as
calculated every business day would exceed the expense limitations imposed on
investment companies by any applicable statute or regulatory authority of any
jurisdiction in which Shares are qualified for offer and sale, the Adviser shall
waive its fees, or reimburse to the Trust out of fees previously paid to the
Adviser for such year in the amount necessary to comply with the expense
limitation.
However, no waiver or reimbursement under the foregoing paragraph shall be
made which would result in the Trust's inability to qualify as a regulated
investment company under provisions of the Internal Revenue Code. Waivers or
reimbursements pursuant to this Section 4 shall be settled on a monthly basis
(subject to fiscal year end reconciliation) by a reduction in the fee payable to
the Adviser for such month pursuant to Section 3 and, if such reduction shall be
insufficient to offset such expenses, by reimbursing the Trust.
5. Reports. The Trust and the Adviser agree to furnish to each other, if
applicable, current prospectuses, proxy statements, reports to shareholders,
certified copies of their financial statements, and such other information with
regard to their affairs as each may reasonably request.
<PAGE>
-3-
6. Status of Adviser. The services of the Adviser to the Trust are not
to be deemed exclusive, and the Adviser shall be free to render similar services
to others so long as its services to the Trust are not impaired thereby. The
Adviser shall be deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed an agent of the Trust.
7. Certain Records. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1 and Rule 31a-2 promulgated under the
Investment Company Act of 1940 which are prepared or maintained by the Adviser
on behalf of the Trust are the property of the Trust and will be surrendered
promptly to the Trust on request.
8. Limitation of Liability of Adviser. The duties of the Adviser shall
be confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against the Adviser hereunder. The Adviser shall
not 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 carrying out its
duties hereunder, except a loss resulting from willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable state law which cannot be waived or
modified hereby. (As used in this Paragraph 8, the term "Adviser" shall include
directors, officers, employees and other corporate agents of the Adviser as well
as that corporation itself).
So long as the Adviser acts in good faith and with due diligence and
without gross negligence, the Trust assumes full responsibility and shall
indemnify the Adviser and hold it harmless from and against any and all actions,
suits and claims, whether groundless or otherwise, and from and against any and
all losses, costs, charges, reasonable counsel fees and disbursements, payments,
expenses and liabilities (including reasonable investigation expenses) arising
directly or indirectly out of said advisory relationship to the Trust or any
other service rendered to the Trust hereunder. The indemnity and defense
provisions set forth herein shall indefinitely survive the termination of this
Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Trust may be asked to indemnify or hold the
Adviser harmless, the Trust shall be fully and promptly advised of all pertinent
facts concerning the situation in question, and it is further understood that
the Adviser will use all reasonable care to identify and notify the Trust
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the Trust, but
failure to do so in good faith shall not affect the rights hereunder.
The Adviser may apply to the Trust at any time for instructions and may
consult counsel for the Trust or its own counsel and with accountants and other
experts with respect to any matter arising in connection with the Adviser's
duties, and
<PAGE>
-4-
the Adviser shall not be liable or accountable for any action taken or omitted
by it in good faith in accordance with such instruction or with the opinion of
such counsel, accountants or other experts.
Also, the Adviser shall be protected in acting upon any document which it
reasonably believes to be genuine and to have been signed or presented by the
proper person or persons. Nor shall the Adviser be held to have notice of any
change of authority of any officers, employee or agent of the Trust until
receipt of written notice thereof from the Trust.
9. Permissible Interests. Trustees, agents, and shareholders of the
Trust are or may be interested in the Adviser (or any successor thereof) as
directors, partners, officers, or shareholders, or otherwise; directors,
partners, officers, agents, and shareholders of the Adviser are or may be
interested in the Trust as Trustees, shareholders or otherwise; and the Adviser
(or any successor) is or may be interested in the Trust as a shareholder or
otherwise. In addition, brokerage transactions for the Trust may be effected
through affiliates of the Adviser if approved by the Board of Trustees, subject
to the rules and regulations of the Securities and Exchange Commission.
10. Duration and Termination. This Agreement, unless sooner terminated as
provided herein, shall remain in effect until two years from date of execution,
and thereafter, for periods of one year so long as such continuance thereafter
is specifically approved at least annually (a) by the vote of a majority of
those Trustees of the Trust who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the Trustees of the Trust or by vote of a
majority of the outstanding voting securities of each Portfolio; provided,
however, that if the shareholders of any Portfolio fail to approve the Agreement
as provided herein, the Adviser may continue to serve hereunder in the manner
and to the extent permitted by the Investment Company Act of 1940 and rules and
regulations thereunder. The foregoing requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of 1940 and the rules and
regulations thereunder.
This Agreement may be terminated as to any Portfolio at any time, without
the payment of any penalty by vote of a majority of the Trustees of the Trust or
by vote of a majority of the outstanding voting securities of the Portfolio on
not less than 30 days nor more than 60 days written notice to the Adviser, or by
the Adviser at any time without the payment of any penalty, on 90 days written
notice to the Trust. This Agreement will automatically and immediately
terminate in the event of its assignment.
As used in this Section 10, the terms "assignment", "interested persons",
and a "vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the Investment Company Act of 1940 and the
rules and regulations thereunder; subject to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
<PAGE>
-5-
11. Notice. Any notice required or permitted to be given by either party
to the other shall be deemed sufficient if sent by registered or certified mail,
postage prepaid, addressed by the party giving notice to the other party at the
last address furnished by the other party to the party giving notice: if to the
Trust, at 680 East Swedesford Road, Wayne, PA and if to the Adviser at: 100
Federal Street, Boston Massachusetts 02110, with copies to Janice B. Liva,
Assistant General Counsel, The First National Bank of Boston, 100 Federal
Street, 01-24-05, Boston Massachusetts 02110 and Allen W. Croessmann, Director
of Mutual Funds, The First National Bank of Boston, 100 Federal Street, 01-20-
02, Boston, Massachusetts 02110.
12. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Trust as Trustees,
and that the obligations of this instrument are not binding upon any of the
Trustees, officers, or shareholders of the Trust individually but binding only
upon the assets and property of the Trust.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the day and year first written above.
1784 Funds The First National Bank of Boston
By: Wayne M. Withrow, V.P. By: Edward G. Riley, Jr.
-------------------------- -------------------------------
Chief Investment Officer - Private Bank
Attest: Attest: Paul Auerbach
----------------------- ---------------------------
<PAGE>
Schedule A
to the
Investment Advisory Agreement
between 1784 Funds
and
The First National Bank of Boston
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
Portfolio Fee (in basis points)
- --------- ---------------------
1784 Growth and Income Fund 74
1784 Asset Allocation Fund 74
1784 Growth Fund 74
1784 U.S. Government Medium-Term Income Fund 74
1784 Tax-Exempt Medium-Term Income Fund 74
1784 Massachusetts Tax-Exempt Income Fund 74
1784 Florida Tax-Exempt Income Fund 74
1784 Rhode Island Tax-Exempt Income Fund 74
1784 Connecticut Tax-Exempt Income Fund 74
1784 Short-Term Income Fund 50
1784 Income Fund 74
1784 Tax-Free Money Market Fund 40
1784 U.S. Treasury Money Market Fund 40
1784 Institutional U.S. Treasury Money Market Fund 20
<PAGE>
EXHIBIT 9(b)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
1784 FUNDS
and
STATE STREET BANK AND TRUST COMPANY
1C-Domestic Trust/Series
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Terms of Appointment; Duties of the Bank . . . . . . . . 1
2. Fees and Expenses. . . . . . . . . . . . . . . . . . . . 3
3. Representations and Warranties of the Bank . . . . . . . 4
4. Representations and Warranties of the Fund . . . . . . . 4
5. Data Access and Proprietary Information. . . . . . . . . 5
6. Indemnification. . . . . . . . . . . . . . . . . . . . . 6
7. Standard of Care . . . . . . . . . . . . . . . . . . . . 7
8. Covenants of the Fund and the Bank . . . . . . . . . . . 8
9. Termination of Agreement . . . . . . . . . . . . . . . . 8
10. Additional Funds . . . . . . . . . . . . . . . . . . . . 9
11. Assignment . . . . . . . . . . . . . . . . . . . . . . . 9
12. Amendment. . . . . . . . . . . . . . . . . . . . . . . . 9
13. Massachusetts Law to Apply . . . . . . . . . . . . . . .10
14. Force Majeure. . . . . . . . . . . . . . . . . . . . . .10
15. Consequential Damages. . . . . . . . . . . . . . . . . .10
16. Merger of Agreement. . . . . . . . . . . . . . . . . . .10
17. Limitations of Liability of the Trustees or
Shareholders . . . . . . . . . . . . . . . . . . . . . .10
18. Counterparts . . . . . . . . . . . . . . . . . . . . . .10
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the 17th day of November, 1995, by and between 1784 Funds,
a Massachusetts business trust, having its principal office and place of
business at 680 East Swedesford Road, Wayne, PA 19087-1658 (the "Fund"), and
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its
principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series and within
such series, in separate classes, with each such series representing interests
in a separate portfolio of securities and other assets; and
WHEREAS, the Fund is currently offering shares in thirteen series: the 1784
Tax-Free Money Market Fund, 1784 U.S. Treasury Money Market Fund, 1784
Institutional U.S. Treasury Money Market 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 Growth and
Income Fund, 1784 Asset Allocation Fund, 1784 U.S. Government Medium-Term Income
Fund, 1784 Short-Term Income Fund, 1784 Income Fund and 1784 International
Equity Fund (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Article 10, being herein referred to as a "Portfolio", and collectively as the
"Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its
transfer agent, dividend disbursing agent and agent in connection with certain
other activities, and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. TERMS OF APPOINTMENT; DUTIES OF THE BANK
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund, on behalf of the Portfolios, hereby employs and appoints the
Bank to act as, and the Bank agrees to act as, transfer agent for the
Fund's authorized and issued shares of beneficial interest ("Shares"),
dividend disbursing agent and agent in connection with any
accumulation, open-account or similar plans provided to the
shareholders of each of the respective Portfolios of the Fund
("Shareholders") and set out in the currently effective prospectus and
statement of additional information ("prospectus") of the Fund on
behalf of the applicable Portfolio, including without limitation any
periodic investment plan or periodic withdrawal program.
<PAGE>
-2-
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time
by agreement between the Fund on behalf of each of the
Portfolios, as applicable, and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
thereof to the Custodian of the Fund authorized pursuant to
the Declaration of Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay
over or cause to be paid over in the appropriate manner such
monies as instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the
applicable Portfolio;
(viii) Issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon receipt
by the Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at its
option, may issue replacement certificates in place of
mutilated stock certificates upon presentation thereof and
without such indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of shares of the Fund which are authorized, based upon data
provided to it by
<PAGE>
-3-
the Fund, and issued and outstanding. The Bank shall also
provide the Fund on a regular basis with the total number of
shares which are authorized and issued and outstanding and
shall have no obligation, when recording the issuance of
shares, to monitor the issuance of such shares or to take
cognizance of any laws relating to the issue or sale of such
Shares, which functions shall be the sole responsibility of
the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall:
(i) perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in connection
with accumulation, open-account or similar plans (including
without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to: maintaining
all Shareholder accounts, preparing Shareholder meeting lists,
mailing proxies, mailing Shareholder reports and prospectuses to
current Shareholders, withholding taxes on U.S. resident and
non-resident alien accounts, preparing and filing U.S. Treasury
Department Forms 1099 and other appropriate forms required with
respect to dividends and distributions by federal authorities for
all Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing Shareholder account information
and (ii) provide a system which will enable the Fund to monitor
the total number of Shares sold in each State.
(c) The Fund shall identify to the Bank in writing those transactions
and assets to be treated as exempt from blue sky reporting for
each State. The Bank shall verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by
the Fund and the reporting of such transactions to the Fund as
provided above.
(d) Procedures applicable to certain of these services in Section 1
may be established from time to time by agreement between the
Fund on behalf of each Portfolio and the Bank.
(e) The Bank shall provide additional services on behalf of the Fund
(e.g., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
2. FEES AND EXPENSES
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee
<PAGE>
-4-
for each Shareholder account as set out in the initial fee schedule
attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.2 below may be changed from time to time
subject to mutual written agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees
on behalf of each of the Portfolios to reimburse the Bank for
out-of-pocket expenses, including but not limited to confirmation
production, postage, forms, telephone, microfilm, microfiche,
tabulating proxies, records storage, or advances incurred by the Bank
for the items set out in the fee schedule attached hereto. In
addition, any other expenses incurred by the Bank at the request or
with the consent of the Fund, will be reimbursed by the Fund on behalf
of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees
and reimbursable expenses within five days following the receipt of
the respective billing notice. Postage for mailing of dividends,
proxies, Fund reports and other mailings to all Shareholder accounts
shall be advanced to the Bank by the Fund at least seven (7) days
prior to the mailing date of such materials.
3. REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts.
4.2 It is empowered under applicable laws and by its Declaration of Trust
and By-Laws to enter into and perform this Agreement.
<PAGE>
-5-
4.3 All proceedings required by said Declaration of Trust and By-Laws have
been taken to authorize it to enter into and perform this Agreement.
4.4 It is an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended,
on behalf of each of the Portfolios is currently effective and will
remain effective, and appropriate state securities law filings have
been made and will continue to be made, with respect to all Shares of
the Fund being offered for sale.
5. DATA ACCESS AND PROPRIETARY INFORMATION
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Bank as part of the
Fund's ability to access certain Fund-related data ("Customer Data")
maintained by the Bank on data bases under the control and ownership
of the Bank or other third party ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information
(collectively, "Proprietary Information") of substantial value to the
Bank or other third party. In no event shall Proprietary Information
be deemed Customer Data. The Fund agrees to treat all Proprietary
Information as proprietary to the Bank and further agrees that it
shall not divulge any Proprietary Information to any person or
organization except as may be provided hereunder. Without limiting
the foregoing, the Fund agrees for itself and its employees and
agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance with
the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of
the Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose
of such information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data acquired
hereunder from being retransmitted to any other computer facility
or other location, except with the prior written consent of the
Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
<PAGE>
-6-
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal copyright
law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services do
not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make
no claim against the Bank arising out of the contents of such third-
party data, including, but not limited to, the accuracy thereof. DATA
ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS
USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE
BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE
EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect
the transfer or movement of cash or Shares or (ii) transmit
Shareholder information or other information, then in such event the
Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as
such instruction is undertaken in conformity with security procedures
established by the Bank from time to time.
6. INDEMNIFICATION
6.1 The Bank shall not be responsible for, and the Fund shall on behalf of
the applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required
to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or willful
misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty
of the Fund hereunder.
<PAGE>
-7-
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services
which (i) are received by the Bank or its agents or
subcontractors and furnished to it by or on behalf of the Fund,
and (ii) have been prepared, maintained or performed by the Fund
or any other person or firm on behalf of the Fund including but
not limited to any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors, of any instructions or requests of the Fund on
behalf of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in
such state or in violation of any stop order or other
determination or ruling by any federal agency or any state with
respect to the offer or sale of such Shares in such state.
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Bank under this Agreement, and the Bank and its agents or
subcontractors shall not be liable and shall be indemnified by the
Fund on behalf of the applicable Portfolio for any action taken or
omitted by it in reliance upon such instructions or upon the opinion
of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document
furnished by or on behalf of the Fund, reasonably believed to be
genuine and to have been signed by the proper person or persons, or
upon any instruction, information, data, records or documents provided
the Bank or its agents or subcontractors by machine readable input,
telex, CRT data entry or other similar means authorized by the Fund,
and shall not be held to have notice of any change of authority of any
person, until receipt of written notice thereof from the Fund. The
Bank, its agents and subcontractors shall also be protected and
indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the
officers of the Fund, and the proper countersignature of any former
transfer agent or former registrar, or of a co-transfer agent or
co-registrar.
6.3 In order that the indemnification provisions contained in this Section
6 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the
Fund of such assertion, and shall keep the Fund advised with respect
to all developments concerning such claim. The Fund shall have the
option to participate with the Bank in the defense of such claim or to
defend against said claim in its own name or in the name of the Bank.
The Bank shall in no case confess any claim or make any compromise in
any case in which the Fund may be required to indemnify the Bank
except with the Fund's prior written consent.
<PAGE>
-8-
7. STANDARD OF CARE
The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility
and shall not be liable for loss or damage due to errors unless said
errors are caused by its negligence, bad faith, or willful misconduct
or that of its employees.
8. COVENANTS OF THE FUND AND THE BANK
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish to
the Bank the following:
(a) A certified copy of the resolution of the Board of Trustees of
the Fund authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and
all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of share
certificates (if applicable), check forms and facsimile signature
imprinting devices, if any; and for the preparation or use, and for
keeping account of, such certificates, forms and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the Rules thereunder, the Bank agrees that all such
records prepared or maintained by the Bank relating to the services to
be performed by the Bank hereunder are the property of the Fund and
will be preserved, maintained and made available in accordance with
such Section and Rules, and will be surrendered promptly to the Fund
on and in accordance with its request.
8.4 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged
or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
8.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the
Fund and to secure instructions from an authorized officer of the
Fund as to such inspection. The Bank reserves the right, however, to
exhibit the Shareholder records to any person whenever it is advised
by its counsel that it may be held liable for the failure to exhibit
the Shareholder records to such person.
<PAGE>
-9-
9. TERMINATION OF AGREEMENT
9.1 This Agreement may be terminated by either party upon sixty (60) days
written notice to the other.
9.2 Should either party exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne as follows: (i) if the termination is for cause, the party not
exercising its right to terminate shall bear all such expenses or (ii)
if the termination is not for cause, the party exercising its rights
to terminate shall bear all such expenses.
10. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Shares in
addition to the 1784 Tax-Free Money Market Fund, 1784 U.S. Treasury
Money Market Fund, 1784 Institutional U.S. Treasury Money Market 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 Growth and Income Fund, 1784
Asset Allocation Fund, 1784 U.S. Government Medium-Term Income Fund,
1784 Short-Term Income Fund, 1784 Income Fund and 1784 International
Equity Fund with respect to which it desires to have the Bank render
services as transfer agent under the terms hereof, it shall so notify
the Bank in writing, and if the Bank agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.
11. ASSIGNMENT
11.1 Except as provided in Section 11.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party
without the written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., ("BFDS") a Massachusetts corporation, (ii) Boston
EquiServe, L.P., ("Boston EquiServe") a Delaware limited partnership
both BFDS and Boston EquiServe are duly registered as transfer agents
pursuant to Section 17A(c)(2) of the Securities Exchange Act of 1934,
as amended ("Section 17A(c)(2)") or (iii) a Boston EquiServe
affiliate or BFDS affliate duly registered as transfer agents pursuant
to Section 17A(c)(2); provided, however, that the Bank shall be as
fully responsible to the Fund for the acts and omissions of any
subcontractor as it is for its own acts and omissions.
<PAGE>
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12. AMENDMENT
This Agreement may be amended or modified by a written agreement
executed by both parties.
13. MASSACHUSETTS LAW TO APPLY
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth
of Massachusetts.
14. FORCE MAJEURE
In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment
or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be
liable for damages to the other for any damages resulting from such
failure to perform or otherwise from such causes.
15. CONSEQUENTIAL DAMAGES
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act
hereunder.
16. MERGER OF AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
17. LIMITATIONS OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby
given that this instrument is executed on behalf of the Trustees of
the Trust as Trustees and not individually and that the obligations of
this instrument are not binding upon any of the Trustees or
Shareholders individually but are binding only upon the assets and
property of the Fund.
18. COUNTERPARTS
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
<PAGE>
-11-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
1784 FUNDS
BY: R.B. Carroll
-------------------------
Vice President
ATTEST:
Patricia Arizini
- -------------------------
STATE STREET BANK AND
TRUST COMPANY
BY: Ronald E. Logue
-------------------------
Executive Vice President
ATTEST:
Francine S. Hayes
- -------------------------
<PAGE>
FEE INFORMATION FOR SERVICES AS
PLAN, TRANSFER AND DIVIDEND DISBURSING AGENT
1784 FUNDS
ANNUAL ACCOUNT SERVICE FEES
ACCOUNT FEE $ 11.00
EXISTING CUSIPS - BASE FEE (PER CUSIP) $ 14,000
NEW CUSIPS - BASE FEE (PER CUSIP) $ 10,000
CLOSED ACCOUNT FEE $ 1.50
EACH CLASS IS CONSIDERED A FUND AND WILL BE BILLED ACCORDINGLY.
FEES ARE BILLABLE ON A MONTHLY BASIS AT THE RATE OF 1/12 OF THE ANNUAL FEE. A
CHARGE IS MADE FOR AN ACCOUNT IN THE MONTH THAT AN ACCOUNT OPENS OR CLOSES.
ACCOUNT SERVICE FEES ARE THE HIGHER OF : OPEN ACCOUNT CHARGES PLUS CLOSED
ACCOUNT CHARGES OR THE FUND MINIMUM.
ACTIVITY BASED FEES
NEW ACCOUNT SET-UP $ 4.00/EACH
MANUAL TRANSACTION $ 1.00/EACH
TELEPHONE CALLS $ 2.50/EACH
CORRESPONDENCE $ 2.50/EACH
BANKING SERVICES, (IF APPLICABLE)
CHECKWRITING (PER DRAFT) $ 1.00
ACH $ 0.35
OTHER FEES
INVESTOR PROCESSING $ 1.80/INVESTOR
12B-1 COMMISSIONS $ 1.20/ACCOUNT
IRA CUSTODIAL FEES*
ANNUAL MAINTENANCE $ 10.00/ACCOUNT
OUT-OF-POCKET EXPENSES BILLED AS INCURRED
OUT-OF-POCKET EXPENSES INCLUDE BUT ARE NOT LIMITED TO: CONFIRMATION STATEMENTS,
POSTAGE, FORMS, AUDIO RESPONSE, TELEPHONE, RECORDS RETENTION, TRANSCRIPTS,
MICROFILM, MICROFICHE, AND EXPENSES INCURRED AT THE SPECIFIC DIRECTION OF THE
FUND.
<PAGE>
*IRA CUSTODIAL FEES WILL BE WAIVED FOR THE FIRST YEAR. IN YEAR TWO, CUSTODIAL
FEES WILL BE CAPPED AT $20,000.
1784 FUNDS STATE STREET BANK AND TRUST
COMPANY
BY ------------------------- BY -------------------------
TITLE ------------------------- TITLE -------------------------
DATE ------------------------- DATE -------------------------
<PAGE>
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANT'S
To the Shareholders and Board of Trustees of 1784 Funds:
We hereby consent to the incorporation by reference in
Post-Effective Amendment No. 9 to the Registration Statement of
1784 Funds (comprised of the 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, 1784
Asset Allocation Fund, and 1784 Institutional U.S. Treasury
Money Market Fund - referred to collectively herein as the
"Funds") on Form N-1A of our reports dated July 19, 1995 on our
audits of the financial statements and financial highlights of
the above referenced Funds, which reports are included in the
Annual Reports to Shareholders for the year ended May 31, 1995
which are incorporated by reference in the Registration
Statement. We further consent to the references to our Firm
under the captions "Financial Information" and "Independent
Accountants" in both the Prospectus and the Statement of
Additional Information.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 14, 1995
