1784 FUNDS, 497, 1996-03-01

1784 FUNDS
497, 1996-03-01

Previous: HERITAGE SERIES TRUST, N-30D, 1996-03-01

Next: INSURED MUNICIPALS INCOME TRUST 172ND INSURED MULTI SERIES, 497J, 1996-03-01

<PAGE>

- --------------------------------------------------------------------------------

PROSPECTUS Rule 497(c)
File Nos. 33-58004 and 811-7474

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 1, 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 1-800-252-1784. 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 1, 1996

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------

<TABLE>
<CAPTION>
Page
- --------------------------------------------------------
<S> <C>
Expense Summary 2
Summary 3
The Trust 5
Investment Objective 5
Investment Policies 5
Certain Investment Policies and Guidelines 6
Investment Limitations 8
The Adviser 9
The Administrator 10
The Shareholder Servicing Agent and
Transfer Agent 10
</TABLE>

<TABLE>
<CAPTION>
Page
- ---------------------------------------------------------
<S> <C>
The Distributor 10
Purchase of Shares 11
Redemption of Shares 13
Systematic Withdrawal Plan 15
Exchanges 15
Performance 15
Taxes 16
General Information 17
Description of Permitted Investments and
Techniques 18
</TABLE>

- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering price) None
Sales Charge Imposed on Reinvested Dividends
(as a percentage of the offering price) None
Deferred Sales Charge Imposed on Redemptions
(as a percentage of the offering price) None
Redemption Fees (1) None
Exchange Fee None
</TABLE>

Annual Operating Expenses
- --------------------------------------------------------------------------------
(as a percentage of average net assets)

<TABLE>
<S> <C>
Advisory Fees (2) 0.74%
12b-1 Fee (after fee waiver) (2) None
Other Expenses (2) 0.20%
- ---------------------------------------
Total Operating Expenses (2) 0.94%
</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 or waive additional portions of its
fees 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. 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 1.75%
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>
<CAPTION>
1 Year 3 Years
--------------------------------
<S> <C>
$10 $30
</TABLE>

Absent voluntary waivers by the Adviser, Distributor and Administrator and
contributions made by Bank of Boston, if any, the amounts for this example for
one year and three years would be $18 and $55, respectively. 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
2
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------
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 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."

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. The Fund emphasizes securities 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 values of the underlying portfolio
securities. 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 may 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 investing 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

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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 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."

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."

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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
- --------------------------------------------------------------------------------

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 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 1-800-252-1784.

INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------

The investment objective of the 1784 Growth 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
- --------------------------------------------------------------------------------

The 1784 Growth Fund (the "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 stocks 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

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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 the 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."

The Fund may, in the future, seek to achieve its investment objective by
investing all of its investable assets in a diversified, open-end management
investment company having the same investment objective and policies and
substantially the same investment restrictions as those applicable to the Fund.
In such event, the Fund's Advisory Agreement would be terminated. Such
investment would be made only if the Trustees of the Trust believe that the
aggregate per share expenses of the Fund and such other investment company will
be less than or approximately equal to the expenses which the Fund would incur
if it were to continue to retain the services of an investment adviser and the
assets of the Fund were to continue to be invested directly in portfolio
securities.

For more information regarding the permitted investments and investment
practices of the 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
- --------------------------------------------------------------------------------

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

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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 Fund securities will not affect cash income derived
from these securities, but there can be no guaranty that such cash income will
not be adversely affected. 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 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,
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

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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.

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, provided that this limitation does not apply to an investment of all
of the investable assets of the Fund in a diversified, open-end management
investment company having the same investment objective and policies and
substantially the same investment restrictions as those applicable to the Fund.
This restriction applies to 75% of 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, and provided further that this limitation
does not apply to an investment of all of the investable assets of the Fund in
a diversified, open-end management investment company having the same
investment objective and policies and substantially the same investment
restrictions as those applicable to the Fund. For purposes of this limitation
(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).

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.

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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, the Adviser had not served as the investment adviser for management
investment companies. The Adviser also manages the other portfolios 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, 1995, Bank of Boston and its
affiliates managed more than $15 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

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------
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 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.

10
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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, Jr. 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.

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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 1784 Funds, to 1784 Funds, 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 1-800-252-
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 1-800-252-1784. 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 1-800-252-1784.

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.

- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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 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 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 1-800-252-1784. 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.

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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 1-800-252-1784.

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 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.

- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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.

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 1-800-252-1784.

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.

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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 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. 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.

Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares just before the Fund makes a distribution may thus
pay the full price for the shares and then effectively receive a portion of the
purchase price back as a taxable distribution.

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

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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 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 apply backup withholding of
31% of taxable dividends and certain redemption proceeds paid to any
Shareholder (including a Shareholder who is neither a citizen nor a resident of
the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. Backup
withholding will not, however, be applied to payments that have been subject to
30% (or lower treaty rate) withholding.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

The Trust
- --------------------------------------------------------------------------------

The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated February 5, 1993. The Declaration of Trust permits the Trust to
issue an unlimited number of shares of beneficial interest of each of the
portfolios (referred to as "series") of the Trust, each of which is a separate
fund. In addition to the 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 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
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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 Boston Financial Data Services,
P.O. Box 8524, Boston, Massachusetts 02266-8524, at 1-800-252-1784.

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 at least semi-
annually. 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 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

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

stocks share some of the characteristics of both debt and equity and are
generally preferred over common stocks with respect to dividends and in
liquidation.

Convertible Securities -- Convertible securities have characteristics similar
to both fixed income and equity securities. Because of the conversion feature,
the market value of convertible securities tends to move together with the
market value of the underlying stock. As a result, 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 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

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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 will 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.

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

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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 transactions, including the following:
(1) the success of a hedging strategy may depend on the ability of the Adviser
to predict movements in the prices of individual securities, market
fluctuations and movements in interest rates; (2) there may be an imperfect
correlation between the movement in prices of securities held by 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 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.

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

("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, 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 -- 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.

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, except that the Fund may, in the future,
seek to achieve its investment objective by investing all of its investable
assets in a diversified, open-end management investment company having the same
investment objective and policies and substantially the same investment
restrictions as those applicable to the Fund.

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 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.

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.

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 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

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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 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.

Investment Company Securities -- The Fund may purchase shares of other
investment companies. In addition to the advisory fees and other expenses the
Fund bears directly in connection with its own operations, as a shareholder of
another investment company, the Fund would bear its pro rata portion of the
other investment company's advisory fees and other expenses. As such, the
Fund's Shareholders would indirectly bear the expenses of the other investment
company, some or all of which would be duplicated. The Fund may invest a
maximum of up to 10% of its total assets in securities of other investment
companies so long as not more than 5% of the Fund's assets are invested in any
one investment company and not more than 3% of the total outstanding voting
stock of any one investment company is held by the Fund, except that the Fund
may, in the future, seek to achieve its investment objective by investing all
of its investable assets in a diversified, open-end management company having
the same investment objective and policies and substantially the same
investment restrictions as those applicable to the Fund.

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
PROSPECTUS Rule 497(c)
File Nos. 33-58004 and 811-7474

[LOGO OF 1784 FUNDS]

Investment Adviser:
THE FIRST NATIONAL BANK OF BOSTON

FEBRUARY 1, 1996

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Page
- --------------------------------------------------------
<S> <C>
Expense Summary 2
Summary 3
The Trust 5
Investment Objective 5
Investment Policies 5
Certain Investment Policies and Guidelines 7
Investment Limitations 9
The Adviser 9
The Administrator 11
The Shareholder Servicing Agent and Transfer Agent 11
The Distributor 11
</TABLE>

<TABLE>
<CAPTION>
Page
- ---------------------------------------------------------
<S> <C>
Purchase of Shares 12
Redemption of Shares 13
Systematic Withdrawal Plan 15
Exchanges 15
Performance 16
Taxes 16
General Information 18
Description of Permitted Investments and Techniques 19
Appendix A/Description of Ratings A-1
Appendix B/Taxable Equivalent Yield Table B-1
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------
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.

<TABLE>
<CAPTION>
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None
Sales Charge Imposed on Reinvested Dividends (as a percentage of offering
price) None
Deferred Sales Charge Imposed on Redemptions (as a percentage of offering
price) None
Redemption Fees(1) None
Exchange Fee None

<CAPTION>
Annual Operating Expenses
- --------------------------------------------------------------------------------
(As a percentage of average net assets)

Advisory Fees (after fee waiver)(2) 0.60%
12b-1 Fee (after fee waiver)(2) None
Other Expenses(2) 0.20%
- --------------------------------------------------------------------------------
Total Operating Expenses(2) 0.80%
- --------------------------------------------------------------------------------
</TABLE>
(1) If proceeds of a redemption of Fund shares are paid by wire transfer, a
wire transfer charge (presently $12.00) will be imposed.
(2) Bank of Boston, which serves as the Adviser for the 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 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 2.03% 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
---------------
$8 $26
</TABLE>

Absent voluntary waivers by the Adviser, Distributor, and Administrator and
contributions made by Bank of Boston, if any, the amounts for this example for
one year and three years would be $21 and $64, respectively.

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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.

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. The Fund under normal market conditions will
invest at least 65% of its total assets in Municipal Securities of Florida
issuers.

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
3
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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."

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."

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.

Shares of the Fund are currently being offered without any sales charges. See
"The Distributor."

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 a dividend distribution will be entitled to the dividend,
except that shares will

4
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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 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 1-800-252-1784.

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.

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

5
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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 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 the close of each quarter of the

6
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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.

The Fund may, in the future, seek to achieve its investment objective by
investing all of its investable assets in an open-end management investment
company having the same investment objective and policies and substantially the
same investment restrictions as those applicable to the Fund. In such event,
the Fund's Advisory Agreement would be terminated. Such investment would be
made only if the Trustees of the Trust believe that the aggregate per share
expenses of the Fund and such other investment company will be less than or
approximately equal to the expenses which the Fund would incur if it were to
continue to retain the services of an investment adviser and the assets of the
Fund were to continue to be invested directly in portfolio securities.

For more information regarding the permitted investments and investment
practices of the 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.

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

7
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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 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

8
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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:

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.

9
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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.

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 portfolios comprising
the Trust.

10
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

I784 FUNDS

- --------------------------------------------------------------------------------

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 October 27, 1995, and the Trust has adopted a distribution plan (the
"Plan") 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, 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

11
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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
- --------------------------------------------------------------------------------

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.

By Mail
- --------------------------------------------------------------------------------

Account Applications can be obtained by calling the Distributor at 1-800-252-
1784.

By Telephone
- --------------------------------------------------------------------------------

12
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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 1-800-252-1784.

Other Information Regarding Purchases
- --------------------------------------------------------------------------------

Purchases may be made by ACH transactions, as well as by check or wire
transfer.

No certificates representing shares will be issued.

REDEMPTION OF SHARES
- --------------------------------------------------------------------------------

Shareholders may redeem their shares on any Business Day and shares may
ordinarily be redeemed by mail or
13
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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
- --------------------------------------------------------------------------------

Signature Guarantees
- --------------------------------------------------------------------------------

Other Information Regarding Redemptions
- --------------------------------------------------------------------------------

14
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

of loss relating to a purchase, redemption or exchange by telephone or a wire
transfer.

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
- --------------------------------------------------------------------------------

EXCHANGES
- --------------------------------------------------------------------------------

In the case of shares held of record by Bank of Boston or one of its affiliates
but beneficially owned by a Customer, to exchange such shares the Customer
should contact Bank of Boston or the affiliate, who will contact the
Distributor and effect the exchange on behalf of the Customer. If an exchange
request in good order is received by the Distributor by 4:00 p.m. ET on any
Business Day, the exchange usually will occur on that day; however, requests
for exchanges for shares of a money market fund must be received earlier than
4:00 p.m. ET (in cases when regular trading on the New York Stock Exchange
closes earlier than 4:00 p.m. ET, as early as 12:00 noon ET) for the exchange
to occur on that day. Any Shareholder or Customer who wishes to make an
exchange must have received a current prospectus of the portfolio in which he
or she wishes to invest before the exchange will be effected. Residents of any
state may only exchange shares for

15
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

shares of another portfolio of the Trust if that portfolio is registered in
that state.

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 end of each period and assuming the reinvestment of all
dividend and capital gain distributions.

TAXES
- --------------------------------------------------------------------------------

The following is a discussion of certain United States federal income tax and
certain Florida 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
- --------------------------------------------------------------------------------

16
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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 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.

Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares just before the Fund makes a distribution of net
capital gains or net short-term capital gains may thus pay the full price for
the shares and then effectively receive a portion of the purchase price back as
a taxable distribution.

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.

17
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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 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.

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 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.

Trustees of the Trust
- --------------------------------------------------------------------------------

The management and affairs of the Trust are supervised by its Board of
Trustees. The Trustees have approved

18
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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 Boston Financial Data Services,
P.O. Box 8524, Boston, Massachusetts 02266-8524, at 1-800-252-1784.

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 declared daily and
paid monthly. Shareholders of record on the record date for a dividend
distribution 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.

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

19
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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.

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.

20
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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.

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, except that the Fund may,
in the future, seek to achieve its investment objective by investing all of its
investable assets in an open-end management investment company having the same
investment objective and policies and substantially the same investment
restrictions as those applicable to the Fund. When 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.

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

21
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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 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.

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

22
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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.

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.

23
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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.

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

24
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

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.

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.

Investment Company Securities -- The Fund may purchase shares of other
investment companies. In addition to the advisory fees and other expenses the
Fund bears directly in connection with its own operations, as a shareholder of
another investment company, the Fund would bear its pro rata portion of the
other investment company's advisory fees and other expenses. As such, the
Fund's Shareholders would indirectly bear the expenses of the other investment
company, some or all of which would be duplicated. The Fund may invest a
maximum of up to 10% of its total assets in securities of other investment
companies so long as not more than 5% of the Fund's assets are invested in any
one investment company and not more than 3% of the total outstanding voting
stock of any one investment company is held by the Fund, except that the Fund
may, in the future, seek to achieve its investment objective by investing all
of its investable assets in an open-end management company having the same
investment objective and policies and substantially the same investment
restrictions as those applicable to the Fund.

25
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

APPENDIX A

DESCRIPTION OF RATINGS
- --------------------------------------------------------------------------------

The following descriptions are summaries of certain published ratings.

Description of Commercial Paper Ratings
- --------------------------------------------------------------------------------

The following descriptions of commercial paper ratings have been published by
Standard and Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") and Fitch Investors Service, Inc. ("Fitch").

S&P's ratings are graded into several categories of which A is the highest.
This category is divided into sub-categories as follows:

A-1 This highest sub-category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality, respectively, on the
basis of relative repayment capacity.

Commercial paper issues rated F-1+, F-1, and F-2 by Fitch are judged by Fitch
to be of "exceptionally strong" quality, "very strong" quality and "good"
quality, respectively, on the basis of relative repayment capacity.

Description of Corporate Bond Ratings
- --------------------------------------------------------------------------------

Bonds rated AAA by S&P have the highest rating S&P assigns to debt obligations.
Such a rating indicates an extremely strong capacity to repay principal and pay
interest. Bonds rated AA also qualify as high-quality debt obligations.
Capacity to repay principal and pay interest is very strong, and differs from
AAA issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher rated categories.

Bonds rated BBB by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than with Aaa securities.

Bonds which are rated A by Moody's possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Bonds which are rated Baa by Moody's are considered to be medium-grade
obligations (i.e., they are neither
A-1
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------

highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.

Bonds rated AAA by Fitch are considered to be investment grade and of very high
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.

Bonds rated AA by Fitch are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.

Bonds rated A by Fitch are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.

Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.

Description of Municipal Note Ratings
- --------------------------------------------------------------------------------

S&P's municipal note ratings reflect the liquidity concerns and market access
risks unique to notes. An SP-1 rating indicates a strong capacity to pay
principal and interest. Issues determined to possess very strong
characteristics are given a plus (+) designation. An SP-2 rating indicates a
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.

Moody's MIG-1/VMIG-1 designation denotes best quality. Municipal notes that
obtain this rating possess strong protection due to established cash flows,
superior liquidity support or demonstrated broad-based access to the market for
refinancing. Moody's MIG-2/VMIG-2 designation denotes high quality. Margins of
protection are ample although not so large as in the MIG-1/VMIG-1 group.

Municipal notes rated F-1+, F-1 and F-2 by Fitch are judged by Fitch to be of
"exceptionally strong" quality, "very strong" quality and "good" quality,
respectively, on the basis of the degree of assurance of timely payment.

A-2
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
1784 FUNDS
- --------------------------------------------------------------------------------
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 1996 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
tax bracket in the chart below to have a tax-
Taxable Income* 1996 Combined exempt yield of:
- ------------------------------------ Florida and Federal ---------------------------------------------------------
Single Joint Tax Bracket** 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- ----------------- ----------------- ------------------- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-- 24,000 $ 0-- 40,100 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
24,001-- 58,150 40,101-- 96,900 28.00% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
58,151--121,300 96,901--147,700 31.00% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
121,301--263,750 147,701--236,750 36.00% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
263,751 and more 236,751 and more 39.60% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59%
</TABLE>

*This amount represents taxable income as defined in the Internal Revenue
Code.
**For federal tax purposes, these combined rates reflect the applicable
marginal rates for 1996, including indexing for inflation.

B-1
- --------------------------------------------------------------------------------
<PAGE>

Rule 497(c)
File Nos. 33-58004 and 811-7474

Statement of
Additional Information
October 2, 1995,
as amended
January 2, 1996,
as amended
February 1, 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 1, 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.
<PAGE>

-2-

TABLE OF CONTENTS

Page
----

<S> <C>
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 54
and Brokerage
Servicemarks 56
Description of Shares 56
Shareholder Liability 57
Limitation of Trustees' Liability 57
Financial Information 57

</TABLE>
<PAGE>

-3-

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
<PAGE>

-4-

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
<PAGE>

-5-

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.
<PAGE>

-6-

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
<PAGE>

-7-

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
<PAGE>

-8-

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
<PAGE>

-9-

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.
<PAGE>

-10-

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
<PAGE>

-11-

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.
<PAGE>

-12-

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.
<PAGE>

-13-

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>

-14-

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>

-15-

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>

-16-

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>

-17-

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.
<PAGE>

-18-

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.
<PAGE>

-19-

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.
<PAGE>

-20-

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
<PAGE>

-21-

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.
<PAGE>

-22-

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
<PAGE>

-23-

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
<PAGE>

-24-

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
<PAGE>

-25-

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
<PAGE>

-26-

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
<PAGE>

-27-

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.
<PAGE>

-28-

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
<PAGE>

-29-

Program. Services will provide 80% of the new jobs created through 2000,
reflecting growth in business services, education, health care, and tourism.

Population growth is expected to average 0.4% annually during the fiscal years
1995 through 2000. Population declined 0.2% annually during the past three
years as a result of a weak job market, motivating out-migration. The shrinking
labor force contributed to the reduction of three points off the unemployment
rate since the spring of 1992. The unemployment rate is forecast to grow from
the currently forecast 6.4% for 1995 to 6.8% in 1996.

The gross State product has rebounded from -3.8% change in 1991 to a high of
3.1% in 1994; however, that tracked the overall growth rate of the U.S. economy.
Growth rates are expected to drop to 1.7% in 1995 and further to 1.2% in 1996.
Personal income growth also peaked in 1994, at 5.4%. Growth drops to 5.3% in
1995 and 4.3% in 1996 before rebounding in 1997.

Revenue Estimates. Current revenue estimates are those adopted by the Revenue
Estimating Conference for fiscal 1995 and fiscal 1996 on May 10, 1995. They are
based on current law. Thus, they do not include the cigarette tax increase, the
retention of an additional one cent of the existing gas tax by the Department of
Transportation as recommended by the Governor, nor do they include extension of
the existing nursing home tax currently under discussion.

The Conference estimated revenues of $1.633 billion for fiscal 1995 and $l.565
billion for fiscal 1996. These represent 4.7% growth in fiscal 1995 and -3.5%
in fiscal 1996.

When adjusted for tax law changes, they represent -1.3% in fiscal 1995 and 2.1%
for fiscal 1996. Major changes include the nursing home tax, the hospital
license fee, and the public utilities gross earnings tax phase out for
manufacturing energy. The fiscal 1995 decrease is in disproportionate share
Medicaid receipts.

Personal Income Tax. The personal income tax estimate for fiscal 1995 of $531.0
million is a downward revision of $37.0 million. The fiscal 1996 estimate of
$550.0 million is a downward revision of $47.0 million, reflecting fiscal 1995
change as well as reduction in estimated growth from 5.1% to 3.6% to reflect the
revised economic forecast.

Income tax returns to date have presented a mixed picture to estimators. Through
April, 1995 withholding receipts were 6.4% above the same period in fiscal 1994.
However, estimated payments and final payments were 13.7% and 5.6% below,
respectively. Refunds were 9.3% ahead. It appears possible that over withholding
may be occurring again -- it had been virtually eliminated in 1991 when the IRS
re-based the withholding tables.

Insurance Company Gross Premiums Tax. The estimators lowered the estimates by
$6.0 million in fiscal 1995 and $8.0 million in fiscal 1996 based upon payments
to date and the March estimated filings. Companies are required to file 40% of
their tax year estimated liability in March and the remaining 60% in June. The
estimate of $35.0 million and $36.0 million reflects -6.9 percent and 2.9%
growth rates for fiscal 1995 and fiscal 1996, respectively.

Sales Tax. The estimates are $454.0 million for fiscal 1995 and $465.0 million
for fiscal 1996. These are downward revisions of: $1.0 million for fiscal 1995,
representing a drop in the growth rate from 8.4% to 8.2%; and $7.0 million in
fiscal 1996, representing a drop in the projected growth from 3.7% to 2.4%.
Review of monthly returns shows decreasing six-month average collections as
shown here:
<PAGE>

-30-

Period Monthly Average
<S> <C>

July - December $39.1
August - January 39.1
September - February 37.9
October - March 36.9
November - April 36.8
</TABLE>

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
<PAGE>

-31-

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.
<PAGE>

-32-

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-
<PAGE>

-33-

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
<PAGE>

-34-

taxpayers will pay exclusively at the new 3% rate. In addition, the Governor is
proposing to phase down the Corporation Business Tax beginning January 1, 1997
from 10.5% to 8% by January 1, 1999. These two changes, when combined with
other miscellaneous revenue modifications, are expected to result in a $218
million revenue loss in fiscal 1995-96 and a $343 million revenue loss in fiscal
1996-97.

In order to achieve a balanced budget, the Governor, after a thorough review of
all State budget programs and functions, has recommended expenditure reductions
from estimated current services of approximately $1,020 million in fiscal 1995-
96 and an additional $632 million in fiscal 1996-97. The Governor's budget
proposes significant changes to the welfare system aimed at promoting economic
self-sufficiency. These include permitting recipients to earn more before
eliminating their benefits, imposing an 18 month time limit for receipt of
benefits, and reducing the AFDC payment levels with no additional benefits for
additional children. In fiscal 1995-96 these changes will reduce AFDC
expenditures by $36 million from fiscal 1994-95 and General Assistance
expenditures by $27 million. Include in the Governor's budget is a
restructuring of the numerous categorical grants to municipalities. The
Education Cost Sharing grant, the State's largest, will be consolidated with
other reduction related grants. Overall, the Governor's budget pares back 95%
of the projected increase in education grants to towns. The Governor's budget
also proposes to cut in half, to $500 million, the amount of bonds annually
authorized by the State to rein in debt service costs.

The Governor's Recommended Budget also calls for the reissuance of a portion of
the fiscal 1995-96 Economic Recovery Fund payment and extending the payment over
three additional years. This change will decrease the fiscal 1995-96 payment
from $328.1 million to $91.9 million and increases the fiscal 1996-97 payment
form zero to $91.3 million, the fiscal 1997-98 payment from zero to $87.2
million and the fiscal 1998-99 payment from zero to $86.6 million. This
revision will result in a projected additional interest expense of $28.8 million
over the period.

The budget recommended by the Governor for fiscal year 1995-1996 anticipates
General Fund expenditures of $8,489,700,000 and General Fund revenues of
$8,495,300,000. For fiscal 1996-1997, the adopted budget anticipates General
Fund expenditures of $8,115,600,000 and General Fund revenues of $8,629,900,000.
No assurance can be given that subsequent projections will not indicate changes
in the anticipated General Fund result.

On November 3, 1992, Connecticut voters approved a constitutional amendment
which requires a balanced budget for each year and imposes a cap on the growth
of expenditures. The statutory spending cap limits the growth of expenditures
to either (1) the average of the annual increase in personal income in the State
for each of the preceding five years, or (2) the increase in the consumer price
index for urban consumers during the preceding twelve-month period, whichever is
greater. Expenditures for the payment of bonds, notes and other evidences of
indebtedness are excluded from the constitutional and statutory definitions of
general budget expenditures.

By statute, no bonds, notes or other evidences of indebtedness for borrowed
money payable from General Fund tax receipts of the State shall be authorized by
the General Assembly except as shall not cause the aggregate amount of (1) the
total amount of bonds, notes or other evidences of indebtedness payable from
General Fund tax receipts authorized by the General Assembly but which have not
been issued and (2) the total amount of such indebtedness (excluding short-term
and certain other indebtedness) which has been issued and remains outstanding,
to exceed 1.6 times the total estimated General Fund tax receipts of the State
for the fiscal year in which any such authorization will become effective. As a
result, the State had a debt incurring margin as of March 1, 1995 of
$1,716,182,730.54.
<PAGE>

-35-

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
<PAGE>

-36-

national per capita income increased an average of 5.1%. Real personal income is
estimated to increase 4.6% in 1995-96 and increase 3.8% in 1996-97 while real
personal income per capita in Florida is projected to grow at 2.7% in 1995-96
and 1.9% in 1996-97.

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 5.6%
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 nearly 113,200 units, while
increasing to 115,100 in 1996-97. Total construction expenditures are
forecasted to increase 4.0% in 1995-96 and increase by 5.3% 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 $15,286.2 million, a 3.1%
increase over 1994-95. With combined General Revenue Fund, Working Capital Fund
and Budget Stabilization Fund appropriations at $14,808.2 million, unencumbered
reserves at the end of 1995-96 are estimated at $478.0 million. For fiscal year
1996-97, the estimated General Revenue plus Working Capital and Budget
Stabilization funds available total $15,922.0 million, a 4.2% 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 revenues totalled $437.3 million for the fiscal year ending June 30, 1995.
The receipts of the
<PAGE>

-37-

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.
<PAGE>

-38-

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 or the 1784 Growth 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 such Fund or an investment of all of
the investable assets of the 1784 Florida Tax-Exempt Income Portfolio in an
open-end management investment company having the same investment objective
and policies and substantially the same investment restrictions as those
applicable to the 1784 Florida Tax-Exempt Income Fund (in each case, 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 or the 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, the 1784 Growth Fund or the 1784 Florida Tax-Exempt Income 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
<PAGE>

-39-

that Fund's total assets and then only as a temporary measure
for extraordinary or emergency purposes (which may include the need to meet
Shareholder redemption requests). This borrowing provision is included
solely to facilitate the orderly sale of fund securities to accommodate
heavy redemption requests if they should occur and is not for investment
purposes. A Fund will not purchase any securities for its portfolio at any
time at which its borrowings equal or exceed 5% of its total assets (taken
at market value), and any interest paid on such borrowings will reduce
income.

6. In the case of the Equity Funds, the Money Market Funds, the 1784 U.S.
Government Medium-Term Income Fund, the 1784 Tax-Exempt Medium-Term Income
Fund and the 1784 Massachusetts Tax-Exempt Income Fund, pledge, mortgage or
hypothecate assets except to secure temporary borrowings permitted by (5)
above in aggregate amounts not to exceed 10% of total assets taken at
current value at the time of the incurrence of such loan, except as
permitted with respect to securities lending.

7. Purchase or sell real estate, including real estate limited partnership
interests, commodities and commodities contracts but excluding interests in
a pool of securities that are secured by interests in real estate.
However, subject to its permitted investments, any Fund may invest in
companies which invest in real estate commodities or commodities contracts.
Each of the Funds may invest in futures contracts and options thereon to
the extent described in the prospectus by which shares of that Fund are
offered and elsewhere in this Statement of Additional Information.

8. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term credits
as necessary for the clearance of security transactions.

9. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter under federal securities laws in selling a security
held by the Fund.

10. Purchase securities of other investment companies except as permitted by
the 1940 Act and the rules and regulations thereunder. Under these rules
and regulations, each of the Funds is prohibited from acquiring the
securities of other investment companies if, as a result of such
acquisition, (a) such Fund owns more than 3% of the total voting stock of
the company; (b) securities issued by any one investment company represent
more than 5% of the total assets of such Fund; or (c) securities (other
than treasury stock) issued by all investment companies represent more than
10% of the total assets of such Fund, provided, that with respect to the
1784 International Equity Fund, the 1784 Growth Fund and the 1784 Florida
Tax-Exempt Income Fund, the limitations do not apply to an investment of
all of the investable assets of such 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
<PAGE>

-40-

orders from the Securities and Exchange Commission exempting such
instruments from the definition of investment company.

11. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the Securities and Exchange Commission.

12. Write or purchase puts, calls, or other options or combinations thereof,
except that each Fund may write covered call options with respect to any or
all of the securities it holds, subject to any limitations described in the
prospectus offering shares of that Fund or elsewhere in this Statement of
Additional Information and each Fund may purchase and sell other options as
described in the prospectus by which shares of that Fund are offered.

Non-Fundamental Policies

The following policies are not fundamental and may be changed by the Trust with
respect to any Fund without approval by the Shareholders of that Fund.

No Fund may invest in warrants except that (i) 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, the 1784 Growth Fund or the 1784
Florida Tax-Exempt Income 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
<PAGE>

-41-

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, the 1784 Growth Fund or the 1784 Florida Tax-Exempt Income Fund in a
Qualifying Portfolio.

The foregoing percentages will apply at the time of the purchase of a security
and shall not be considered violated unless an excess occurs or exists
immediately after and as a result of a purchase of such security.

THE ADVISERS

The Trust has entered into separate advisory agreements (each, an "Advisory
Agreement") with The First National Bank of Boston ("Bank of Boston") and, with
respect to the 1784 International Equity Fund, Kleinwort Benson Investment
Management Americas Inc. ("Kleinwort Benson"). The Advisory Agreement with Bank
of Boston for the Funds other than the 1784 International Equity Fund is dated
as of June 1, 1993 and the Advisory Agreement with Bank of Boston for the 1784
International Equity Fund is dated as of November 28, 1994. The Advisory
Agreement with Kleinwort Benson for the 1784 International Equity Fund is dated
as of 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:

Bank of Boston Bank of Boston
Investment Investment
Fund Advisory Fees 1994 Advisory Fees 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 $ 0 $ 85,000
Market Fund
1784 U.S. Government Medium-Term Income $ 0 $ 679,000
Fund
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>
<PAGE>

-42-

The foregoing table does not reflect contributions to the Funds made by Bank of
Boston in order to assist the Funds in maintaining competitive expense ratios.

For the fiscal year ended May 31, 1995, the Trust paid $199,000 to Kleinwort
Benson under the Advisory Agreement to which Kleinwort Benson is a party with
respect to the 1784 International Equity Fund.

The continuance of each Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are neither parties to the
Advisory Agreement nor "interested persons" of any party thereto, cast in person
at a meeting called for the purpose of voting on such approval. Each Advisory
Agreement will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to any Fund, by a majority of the outstanding shares of that Fund, on
not less than 30 nor more than 60 days' written notice to the applicable
Adviser, or by the applicable Adviser on 90 days' written notice to the Trust.

Each Advisory Agreement provides that neither the Adviser nor its personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution of
security transactions for the Trust or any Fund, except that the Adviser and its
personnel shall not be protected against any liability to the Trust, any Fund or
its Shareholders by reason of willful misfeasance, bad faith or gross negligence
on its or their part in the performance of its or their duties or from reckless
disregard of its or their obligations or duties thereunder.

THE ADMINISTRATOR

The Trust and SEI Financial Management Corporation (the "Administrator") are
parties to an administration agreement (the "Administration Agreement"). The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement has an initial term of three years starting in May,
1993 and may be renewed for one additional two-year term unless either party
gives notice of non-renewal to the other party not less than 90 days prior to
the expiration of the initial term.

SEI Financial Management Corporation, a wholly owned subsidiary of SEI
Corporation ("SEI"), was organized as a Delaware corporation in 1969 and has its
principal business offices at 680 East Swedesford Road, Wayne, PA 19087.
Alfred P. West, Jr., Carmen V. Romeo, and Henry H. Greer constitute the Board of
Directors of the Administrator. Mr. West is the Chairman of the Board and Chief
Executive Officer of the Administrator. Mr. West serves as the Chairman of the
Board of Directors, and Chief Executive Officer of SEI. SEI and its
subsidiaries are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors and money managers. The Administrator
also serves as administrator to the following other institutional mutual funds:
SEI Daily Income Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Index
Funds, SEI International Trust, SEI Institutional Managed Trust, Stepstone
Funds, The Compass Capital Group of Funds, FFB Lexicon Funds, The Advisors'
Inner Circle Fund, The Pillar Funds, CUFund, STI Classic Funds, CoreFunds, Inc.,
First American Funds, Inc., First American Investment Funds, Inc., Rembrandt
Funds/R/, The Arbor Fund, Marquis/sm/ Funds, Morgan Grenfell Investment Trust,
<PAGE>

-43-

The PBHG Funds, Inc., Inventor Funds, Inc., The Achievement Funds Trust,
Insurance Investment Products Trust, Bishop Street Funds, CrestFunds, Inc. and
Conestog a Family of Funds.

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 October
27, 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
<PAGE>

-44-

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.

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
<PAGE>

-45-

Administrator and the Distributor since 1994. Vice President of SEI, the
Administrator and the Distributor from 1991 to 1994. Vice President of SEI, the
Administrator and the Distributor from 1992 to 1994. Associate, Morgan, Lewis &
Bockius (law firm) prior to 1992.

ROBERT CARROLL - Vice President & Assistant Secretary - 680 East Swedesford
Road, Wayne, Pennsylvania 19087 (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.

Compensation Table
<TABLE>
<CAPTION>
Pension or Total
Retirement Estimated Compensation
Aggregate Benefits Accrued Annual Benefits from the Trust
Compensation as Part of Fund Upon and the Funds
Name of Trustee from the Trust Expenses Retirement Paid to Trustee
====================================================================================================================================

<S> <C> <C> <C> <C>
David H. Carter $15,000 $0 $0 $15,000
- ------------------------------------------------------------------------------------------------------------------------------------

Tarrant Cutler $15,000 $0 $0 $15,000
- ------------------------------------------------------------------------------------------------------------------------------------

Kenneth A. Froot $15,000 $0 $0 $15,000
- ------------------------------------------------------------------------------------------------------------------------------------

Kathryn F. Muncil $15,000 $0 $0 $15,000
- ------------------------------------------------------------------------------------------------------------------------------------

Robert A. Nesher $ 0 $0 $0 $ 0

- ------------------------------------------------------------------------------------------------------------------------------------

</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 December 13, 1995, National Financial Services Corp., 200 Liberty Street,
New York, NY 10281, owned of record 20.90% of the outstanding Class A shares of
the 1784 U.S. Treasury Money Market Fund, 6.22% of the outstanding shares of the
1784 Massachusetts Tax-Exempt Income Fund, 5.10% of the outstanding shares of
the 1784 Asset Allocation Fund, and 9.72% of the outstanding shares of the 1784
Short-Term Income Fund.
<PAGE>

-46-

As of December 13, 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 - 84.10%; 1784 Institutional U.S. Treasury Money Market Fund -
44.97%; 1784 U.S. Government Medium-Term Income Fund - 85.06%; 1784 Tax-Exempt
Medium-Term Income Fund - 94.49%; 1784 Massachusetts Tax-Exempt Income Fund -
66.82%; 1784 Growth & Income Fund - 77.44%; 1784 Asset Allocation Fund - 28.83%;
1784 International Equity Fund - 97.62%; 1784 Short-Term Income Fund - 66.85%;
1784 Income Fund - 92.22%; 1784 Connecticut Tax-Exempt Income Fund - 85.74%; and
1784 Rhode Island Tax-Exempt Income Fund - 92.98%. 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.
<PAGE>

-47-

Yields are one basis upon which investors may compare these Funds with other
money market funds; however, yields of other money market funds and other
investment vehicles may not be comparable because of the factors set forth above
and differences in the methods used in valuing fund instruments.

From time to time, the Trust may advertise a 30-day yield for each of the Equity
Funds and each of the Fixed Income Funds. These figures will be based on
historical earnings and are not intended to indicate future performance. The
yield of these Funds refers to the annualized net investment income per share
generated by an investment in the Funds over a specified 30-day period. The
yield is calculated by assuming that the income generated by the investment
during that 30-day period is generated over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:

Yield = 2 [((a-b)/cd + 1)/6/ - 1]

where a = dividends and interest earned during the period; b = expenses accrued
for the period (net of reimbursement); c = the current daily number of shares
outstanding during the period that were entitled to receive dividends; and d =
the maximum offering price per share on the last day of the period.

The Trust may also advertise a "tax-equivalent yield" for each of the Tax-Exempt
Funds. 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
<PAGE>

-48-

Securities and Exchange Commission by rule or regulation) as a result of
disposal or valuation of the Fund's securities is not reasonably practicable, or
for such other periods as the Securities and Exchange Commission has by order
permitted. The Trust also reserves the right to suspend sales of shares of the
Fund for any period during which any of the New York Stock Exchange, an Adviser,
the Administrator or the Custodian is not open for business.

Purchase and redemption of shares of the 1784 U.S. Treasury Money Market Fund by
Connecticut municipalities and other Connecticut municipal corporations and
authorities pursuant to the provisions of Section 7-400 of the Connecticut
General Statutes, as from time-to-time amended ("Con. Gen. Stat. (S) 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. (S) 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
<PAGE>

-49-

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 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
<PAGE>

-50-

dividends or from future dividends of the affected Fund while each other Fund
must annually distribute at least 90% of its investment company taxable income.

In valuing each of the Equity Funds', the Fixed Income Funds' and the Tax-Exempt
Funds' assets, short-term obligations are valued by the amortized cost method,
which involves valuing a security at its cost on the date of purchase and
thereafter (absent unusual circumstances) assuming a constant amortization to
maturity of any discount or premium regardless of the impact of fluctuations in
general market rates of interest on the value of the instrument. This
constitutes fair value as determined by the Board of Trustees of the Trust. A
security listed on an exchange will be valued at its last sale price on that
exchange using quotations on the exchange on which the security is traded most
extensively. Lacking any sales, the security will be valued at the mean between
the closing asking price and the closing bid price. Unlisted securities which
are quoted on the National Association of Securities Dealers' National Market
System, for which there have been sales of such securities, shall be valued at
the last sale price reported on such system. If there are no such sales, the
value shall be the high, or "inside" bid, which is the bid supplied by the NASD
on its NASDAQ Screen for such securities in the over-the-counter market. The
value of such securities quoted on the NASDAQ System, but not listed on the
National Market System, shall be valued at the high or "inside" bid. Unlisted
securities which are not quoted on the NASDAQ System and for which over-the-
counter market quotations are readily available will be valued at the mean
between the current bid and asked prices for such securities in the over-the-
counter market. Other unlisted securities (and listed securities subject to
restriction on sale) will be valued at their fair value as determined in good
faith by the Board of Trustees of the Trust although the actual calculation may
be done by others. Open futures contracts are valued at the most recent
settlement price, unless such price does not reflect the fair value of the
contract, in which case such positions will be valued by or under the direction
of the Board of Trustees of the Trust.

TAXES

Tax Status of the Funds

Each of the Funds is treated as a separate entity for federal income tax
purposes under subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). Each Fund has elected to be treated and intends to qualify each
year as a "regulated investment company" under Subchapter M by meeting all
applicable requirements of Subchapter M, including requirements as to the nature
of the Fund's gross income, the amount of Fund distributions (as a percentage of
both the Fund's overall income and, in the case of the Tax-Exempt Funds, its
tax-exempt income), and the composition and holding period of the Fund's
portfolio assets. Because each Fund intends to distribute all of its net
investment income and net realized capital gains to shareholders in accordance
with the timing requirements imposed by the Code, it is not expected that the
Funds will be required to pay any federal income or excise taxes, although a
Fund's foreign-source income may be subject to foreign withholding taxes. If a
Fund should fail to qualify as a "regulated investment company" in any year, the
Fund would incur a regular corporate federal income tax upon its taxable income
and the Fund's distributions would generally be taxable as ordinary dividend
income to its shareholders.

Each of the Funds is organized as a series of a Massachusetts business trust and
is not subject to any Massachusetts income or excise taxes as long as it
qualifies as a regulated investment company under the Code.
<PAGE>

-51-

Tax Status of the Shareholders

Distributions by Funds Other Than the Tax-Exempt Funds. Shareholders of Funds
- ------------------------------------------------------
other than the Tax-Exempt Funds will have to pay federal income taxes and may be
subject to state or local income taxes on the dividends and capital gain
distributions they receive from those Funds. Dividends from ordinary income and
any distributions from net short-term capital gains are taxable to shareholders
as ordinary income for federal income tax purposes, whether paid in cash or in
additional shares. Distributions of net capital gains (i.e., the excess of net
long-term capital gains over net short-term capital losses), whether paid in
cash or in additional shares, are taxable to shareholders as long-term capital
gains without regard to the length of time the shareholders have held their
shares.

Distributions by the Tax-Exempt Funds. The portion of each Tax-Exempt Fund's
- -------------------------------------
distributions of net investment income that is attributable to interest from
tax-exempt securities will be designated by that Fund as an "exempt-interest
dividend" under the Code and will generally be exempt from federal income tax in
the hands of shareholders so long as at least 50% of the total value of the
Fund's assets consists of tax-exempt securities at the close of each quarter of
the Fund's taxable year. Distributions of tax-exempt interest earned from
certain securities may, however, be treated as an item of tax preference for
shareholders under the federal alternative minimum tax, and all exempt-interest
dividends may increase a corporate shareholder's alternative minimum tax. The
percentage of income designated as tax-exempt will be applied uniformly to all
distributions by the Fund of net investment income made during each fiscal year
of the Fund and may differ from the percentage of distributions consisting of
tax-exempt interest in any particular month. Shareholders are required to
report exempt-interest dividends received from the Fund on their federal income
tax returns.

Shareholders of the Tax-Exempt Funds will have to pay federal income taxes and
may be subject to state or local income taxes on the non exempt-interest
dividends (including dividends from earnings from taxable securities and
repurchase transactions) and capital gain distributions they receive from the
Funds. That portion of net investment income distributions not designated as
tax-exempt and any distributions from net short-term capital gains are taxable
to shareholders as ordinary income for federal income tax purposes, whether the
distributions are paid in cash or in additional shares. Distributions of net
capital gains, whether paid in cash or in additional shares, are taxable to
shareholders as long-term capital gains without regard to the length of time the
shareholders have held their shares.

The exemption of exempt-interest dividends for federal income tax purposes does
not necessarily result in exemption under the tax laws of any state or local
taxing authority. For a discussion of the state and local tax consequences of
an exempt-interest dividend from any Fund investing in state or local
obligations, see that Fund's prospectus.

Distributions -- General. The Money Market Funds are not expected to make any
- ------------------------
capital gain distributions. Because the Funds other than the Equity Funds do
not expect to earn any dividend income, it is expected that none of their
dividends will qualify for the dividends received deduction for corporations. A
portion of the Equity Funds' ordinary income dividends (but none of their
capital gain distributions) is normally eligible for the dividends received
deduction for corporations if the recipient otherwise qualifies for that
deduction with respect to its holding of Fund shares. Availability of the
deduction for particular shareholders is subject to certain limitations, and
deducted amounts may be subject to the alternative minimum tax or result in
certain basis adjustments. Any Fund
<PAGE>

-52-

dividend that is declared in October, November, or December of a calendar year,
that is payable to shareholders of record in such a month, and that is paid the
following January will be treated as if received by the shareholders on December
31 of the year in which the dividend is declared. The Trust will notify
shareholders regarding the federal tax status of distributions after the end of
each calendar year.

Except in the case of the Money Market Funds, any Fund distribution (or, in the
case of the Fixed Income Funds and the Tax-Exempt Funds, any Fund distribution
of net capital gains or net short-term capital gains) will have the effect of
reducing the per share net asset value of shares in the Fund by the amount of
the distribution. Shareholders purchasing shares shortly before the record date
of any such distribution 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
<PAGE>

-53-

purchased at a market discount will cause the Fund to recognize income prior to
the receipt of cash payments with respect to those securities. In order to
distribute this income and avoid a tax on the Fund, a Fund may be required to
liquidate portfolio securities that it might otherwise have continued to hold,
potentially resulting in additional taxable gain or loss to the Fund.

An investment by a Fund in residual interests of a CMO that has elected to be
treated as a REMIC can create complex tax problems, especially if the Fund has
state or local governments or other tax-exempt organizations as shareholders.

Fund transactions in options, futures contracts, and forward contracts will be
subject to special tax rules that may affect the amount, timing, and character
of Fund income and distributions to shareholders. For example, certain
positions held by a Fund on the last business day of each taxable year will be
marked to market (i.e., treated as if closed out) on that day, and any gain or
loss associated with the positions will be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held by a Fund that
substantially diminish its risk of loss with respect to other positions in its
portfolio may constitute "straddles," and may be subject to special tax rules
that would cause deferral of Fund losses, adjustments in the holding periods of
Fund securities, and conversion of short-term into long-term capital losses.
Certain tax elections exist for straddles that may alter the effects of these
rules. The Funds will limit their activities in options, futures contracts,
forward contracts, and swaps and related transactions to the extent necessary to
meet the requirements of Subchapter M of the Code.

Special tax considerations apply with respect to a Fund's foreign investments.
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source; the Funds (other
than the 1784 International Equity Fund) do not expect to be able to pass
through to shareholders foreign tax credits or deductions with respect to such
foreign taxes. The United States has entered into tax treaties with many
foreign countries that may entitle the Funds to a reduced rate of tax or an
exemption from tax on such income; the Funds intend to qualify for treaty
reduced rates where available. It is not possible, however, to determine a
Fund's effective rate of foreign tax in advance since the amount of the Fund's
assets to be invested within various countries is not known. If the 1784
International Equity Fund holds more than 50% of its assets in foreign stock and
securities at the close of its taxable year, the Fund may elect to "pass
through" to the Fund's Shareholders foreign income taxes paid. If the Fund so
elects, Shareholders will be required to treat their pro rata portion of the
foreign income taxes paid by the Fund as part of the amounts distributed to them
by the Fund and thus includable in their gross income for federal income tax
purposes. Shareholders who itemize deductions would then be allowed to claim a
deduction or credit (but not both) on their federal income tax returns for such
amounts, subject to certain limitations. Shareholders who do not itemize
deductions would (subject to such limitations) be able to claim a credit but not
a deduction. No deduction will be permitted to individuals in computing their
alternative minimum tax liability. If the Fund does not qualify or elect to
"pass through" to the Fund's Shareholders foreign income taxes paid by it,
Shareholders will not be able to claim any deduction or credit for any part of
the foreign taxes paid by the Fund.

Foreign exchange gains and losses realized by a Fund will generally be treated
as ordinary income and losses. Use of foreign currencies for non-hedging
purposes may be limited in order to avoid a tax on the applicable Fund. While
it is not intended for the Funds generally to do so, a Fund may from time to
time invest in stock of foreign issuers deemed to be "passive foreign investment
companies" for U.S. tax purposes; any Fund making such an
<PAGE>

-54-

investment may be liable for U.S. income taxes on certain distributions and
realized capital gains from stock of such issuers.

Foreign Shareholders

Taxable dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at a rate of 30%, although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. The
Funds intend to withhold tax payments at the rate of 30% (or the lower treaty
rate) on taxable dividends and other payments to Non-U.S. Persons that are
subject to such withholding. Any amounts overwithheld may be recovered by such
persons by filing a claim for refund with the U.S. Internal Revenue Service
within the time period appropriate to such claims. Distributions received from
the Funds by Non-U.S. Persons also may be subject to tax under the laws of their
own jurisdiction.

Backup Withholding

Each of the Funds is also required in certain circumstances to apply backup
withholding at the rate of 31% on taxable dividends and redemption proceeds paid
to any shareholder (including a Non-U.S. Person) who does not furnish to the
Fund certain information and certifications or who is otherwise subject to
backup withholding. Backup withholding will not, however, be applied to
payments that have been subject to 30% (or lower treaty rate) withholding.

FUND TRANSACTIONS; TRADING PRACTICES AND BROKERAGE

Fund Transactions

None of the Advisers has any obligation to deal with any dealer or group of
dealers in the execution of transactions in Fund securities. Subject to
policies established by the Trustees, each Adviser to a Fund is responsible for
placing the orders to execute transactions for 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
<PAGE>

-55-

Equity Fund, by portfolio managers who are employees of Bank of Boston or of
Kleinwort Benson and who are appointed and supervised by the senior officers of
Bank of Boston or by senior officers of Kleinwort Benson. Changes in a Fund's
investments are reviewed by the Board of Trustees of the Trust. A portfolio
manager may serve other clients of either of the Advisers or of an affiliate of
either of the Advisers in a similar capacity.

Each Adviser selects brokers or dealers to execute transactions for the purchase
or sale of securities for the Funds on the basis of its judgment of their
professional capability to provide the service. The primary consideration is to
have brokers or dealers execute transactions at best price and execution. Best
price and execution refers to many factors, including the price paid or received
for a security, the commission charged, the promptness and reliability of
execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. Each Adviser's determination of what are reasonably competitive
rates is based upon the professional knowledge of its portfolio managers as to
rates paid and charged for similar transactions throughout the securities
industry. In some instances, a Fund pays a minimal share transaction cost when
the transaction presents no difficulty. Some trades are made on a net basis
where a Fund either buys securities directly from the dealer or sells them to
the dealer. In these instances, there is no direct commission charged but there
is a spread (the difference between the buy and sell price) which is the
equivalent of a commission.

Each Adviser may allocate, out of all commission business generated by all of
the funds and accounts under its management, brokerage business to brokers or
dealers who provide brokerage and research services. These research services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software used in security
analyses; and providing fund performance evaluation and technical market
analyses. Such services are used by each Adviser in connection with its
investment decision-making process with respect to one or more portfolios under
its management and may not be used exclusively with respect to the fund or
account generating the brokerage. Not all brokerage and research services are
useful or of value in advising any particular Fund.

As provided in the Securities Exchange Act of 1934 (the "1934 Act"), higher
commissions may be paid to broker/dealers who provide brokerage and research
services than to broker/dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to
broker/dealers who provide such brokerage and research services, the commissions
paid to such broker/dealers are not, in general, expected to be higher than
commissions that would be paid to broker/dealers not providing such services;
further, in general, any such commissions are reasonable in relation to the
value of the brokerage and research services provided. Unless otherwise
directed by the Trust, a commission higher than one charged elsewhere will not
be paid to a broker/dealer solely because it provided research services to an
Adviser. In addition, fund transactions which generate commissions or their
equivalent are directed to broker/dealers who provide daily fund pricing
services to the Funds. Subject to best price and execution, commissions used
for pricing may or may not be generated by the Funds receiving the pricing
service.

Bank of Boston may place a combined order for two or more Funds (or for a Fund
and another account under the Bank of Boston's management) engaged in the
purchase or sale of the same security if, in the Bank of Boston's judgment,
joint execution is in the best interest
<PAGE>

-56-

of each participant and will result in best price and execution. Transactions
involving commingled orders are allocated in a manner deemed equitable to each
Fund or account. It is believed that the ability of the Funds to participate in
volume transactions will generally be beneficial to them. Although it is
recognized that, in some cases, the joint execution of orders could adversely
affect the price or volume of the security that a particular Fund may obtain, it
is the opinion of the Bank of Boston and the Board of Trustees of the Trust that
the advantages of combined orders outweigh the possible disadvantages of
separate transactions.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, an
Adviser may place orders for a Fund with broker/dealers which have agreed to
defray certain Trust expenses such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of shares of the Trust as a factor
in the selection of brokers and dealers to execute Fund transactions.

It is expected that an Adviser may execute brokerage or other agency
transactions through the Distributor or such Adviser or an affiliate of such
Adviser, for a commission in conformity with the 1940 Act, the 1934 Act and
rules promulgated by the Securities and Exchange Commission such policies as the
Board of Trustees of the Trust may determine. Under these provisions, the
Distributor or such Adviser or an affiliate of such Adviser is permitted to
receive and retain compensation for effecting transactions for a Fund on an
exchange if a written contract is in effect between the Distributor and the
Trust expressly permitting the Distributor or such Adviser or an affiliate of
such Adviser to receive and retain such compensation. These rules further
require that commissions paid to the Distributor, such Adviser or any such
affiliate by the Trust for such exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." In addition, an Adviser may direct commission business to one or more
designated broker/dealers in connection with such broker/dealer's provision of
services to the Trust or the Funds or payment of certain Trust expenses, such as
custody, pricing and professional fees. The Trustees, including those who are
not "interested persons" of the Trust, have adopted procedures for evaluating
the reasonableness of commissions paid to the Distributor and will review these
procedures periodically.

SERVICEMARKS

The servicemark 1784 Funds and the "eagle" logo are used by permission of Bank
of Boston, and in the event that the Advisory 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
<PAGE>

-57-

consideration is invested would belong to that series and would be subject to
the liabilities related thereto. Share certificates representing shares will not
be issued.

Shares of each series of the Trust are entitled to vote separately to approve
advisory agreements or changes in investment policies, but shares of all series
of the Trust vote together in the election or selection of Trustees, principal
underwriters and accountants.

The Declaration of Trust may be amended as authorized by vote of Shareholders of
the Trust. Matters not affecting all series or classes of shares shall be voted
on only by the shares of the series or classes affected. Shares of the Trust
may be voted in person or by proxy, and any action taken by Shareholders may be
taken without a meeting by written consent of a majority of Shareholders
entitled to vote on the matter.

SHAREHOLDER LIABILITY

The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the Shareholders' incurring financial loss for that reason
appears remote because the Trust's Declaration of Trust contains an express
disclaimer of Shareholder liability for obligations of the Trust and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any Shareholder held personally liable for the
obligations of the Trust.

LIMITATION OF TRUSTEES' LIABILITY

The Declaration of Trust provides that the Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any officer, agent,
employee, investment adviser or administrator, principal underwriter or
custodian, nor shall any Trustee be responsible for the act or omission of any
other Trustee, and no Trustee shall be liable to the Trust or any Shareholder.
The Declaration of Trust also provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with actual or threatened litigation in which they may be involved because of
their offices with the Trust unless it is determined, in the manner provided in
the Declaration of Trust, that they have not acted in good faith in the
reasonable belief that their actions were in the best interests of the Trust.
However, nothing in the Declaration of Trust shall protect or indemnify a
Trustee against any liability for his or her willful misfeasance, bad faith,
gross negligence or reckless disregard of his or her duties.

FINANCIAL INFORMATION

The Statements of Net Assets at May 31, 1995, the Statements of Operations for
the period ended May 31, 1995, the Statements of Changes in Net Assets for the
period ended May 31, 1995, the Financial Highlights for the period ended May 31,
1995, the Notes to the Financial Statements and the Report of Independent
Accountants, each of which is included in the two Annual Reports to Shareholders
of the Trust (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.
<PAGE>

-58-

<TABLE>
<CAPTION>
INVESTMENT ADVISERS 1784 FUNDS
<S> <C>
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 MARKET FUND
WAYNE, PA 19087-1658

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 1, 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

</TABLE>