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Rule 497(e) -
File Nos. 33-58004
and 811-7474
INDEX
OF
ENCLOSURES
[LOGO OF 1784 FUNDS APPEARS HERE]
I. MONEY MARKET FUNDS PROSPECTUS
. 1784 Tax-Free Money Market Fund
. 1784 U.S. Treasury Money Market Fund
II. BOND FUNDS PROSPECTUS
. 1784 U.S. Government Medium-Term Income Fund
. 1784 Income Fund
. 1784 Short-Term Income Fund
III. TAX-EXEMPT INCOME FUNDS PROSPECTUS
. 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
IV. STOCK FUNDS PROSPECTUSES
. 1784 Growth and Income Fund
. 1784 Asset Allocation Fund
. 1784 International Equity Fund
. 1784 Growth Fund
V. INSTITUTIONAL FUND PROSPECTUS
. 1784 Institutional U.S. Treasury Money Market Fund
--Not part of the prospectus--
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PROSPECTUS
[LOGO OF 1784 FUNDS APPEARS HERE]
Investment Adviser:
THE FIRST NATIONAL BANK OF BOSTON
1784 FUNDS (the "Trust") is a mutual fund consisting of several professionally
managed portfolios, or funds, of securities. The Trust provides a convenient
way to invest in one or more of these funds. This Prospectus relates to shares
of the 1784 TAX-FREE MONEY MARKET FUND and Class A shares of the 1784 U.S.
TREASURY MONEY MARKET FUND. The 1784 Tax-Free Money Market Fund and the 1784
U.S. Treasury Money Market Fund are referred to herein as the "Funds" or the
"Money Market Funds."
The Fund shares described in this Prospectus ("Shares") are offered primarily
to individuals and institutional investors, including accounts for which The
First National Bank of Boston ("Bank of Boston"), its affiliates and
correspondents, and other financial institutions act in a fiduciary, agency or
custodial capacity. Investors in Shares are referred to hereinafter as
"Shareholders." Shares are currently offered without any sales charges or
distribution fees.
AN INVESTMENT IN THE MONEY MARKET FUNDS IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT ANY MONEY MARKET FUND
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANK OF BOSTON OR ANY OF ITS AFFILIATES. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING RISK
TO PRINCIPAL.
This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing in the Funds.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information, dated October 2, 1995, has
been filed with the Securities and Exchange Commission (the "SEC") and is
available without charge through the Distributor, SEI Financial Services
Company, 680 East Swedesford Road, Wayne, PA 19087 or by calling 1-800-252-
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.
OCTOBER 2, 1995
AS SUPPLEMENTED DECEMBER 4, 1995
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1784 FUNDS
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TABLE OF CONTENTS
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<TABLE>
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Page
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<S> <C>
Expense Summary 2
Summary 3
Condensed Financial Information 5
The Trust 6
Investment Objective 6
Investment Policies 6
Certain Investment Policies and Guidelines 7
Investment Limitations 8
The Adviser 9
The Administrator 10
The Shareholder Servicing Agent and Transfer Agent 10
The Distributor 10
</TABLE>
<TABLE>
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<S> <C>
Purchase of Shares 11
Redemption of Shares 13
Systematic Withdrawal Plan 14
Exchanges 14
Checkwriting 15
Performance 15
Taxes 16
General Information 17
Description of Permitted Investments and Techniques 19
Appendix A/Description of Ratings A-1
Appendix B/Taxable Equivalent Yield Table B-1
</TABLE>
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EXPENSE SUMMARY
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Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of the 1784 Tax-Free Money Market Fund and Class A shares of the 1784
U.S. Treasury Money Market Fund and annual operating expenses of the Funds, and
(ii) an example illustrating the dollar cost of such expenses on a hypothetical
$1,000 investment in shares of each of the Funds.
Shareholder Transaction Expenses
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<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering price) None
Sales Charge Imposed on Reinvested Dividends
(as a percentage of the offering price) None
Deferred Sales Charge Imposed on Redemptions (as a percentage of the of-
fering price) None
Redemption Fees (1) None
Exchange Fee None
</TABLE>
Annual Operating Expenses
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(As a percentage of average net assets)
<TABLE>
<CAPTION>
1784 U.S.
Treasury
1784 Tax- Money Market
Free Fund
Money Market Class A
Fund Shares
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<S> <C> <C>
Advisory Fees (after fee waiver) (2) 0.33% 0.40%
Other Expenses (2) 0.20% 0.25%
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Total Operating Expenses (2) 0.53% 0.65%
</TABLE>
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(1) If proceeds of a redemption of Fund shares are paid by wire transfer, a
wire transfer charge (presently $12.00) will be imposed.
(2) Bank of Boston, which serves as the Adviser for the Trust, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
each of the Money Market Funds to not more than 0.65% of that Fund's average
daily net assets on an annualized basis; this limitation would not apply to any
brokerage commissions, interest expense or taxes or to extraordinary expense
items, including but not limited to litigation expenses. SEI Financial
Management Corporation, which acts as the Trust's Administrator, has agreed to
waive its fee from certain funds of the Trust to assist these funds in
maintaining a competitive expense ratio. Bank of Boston contributes to the
Funds in order to limit other operating expenses and to assist the Funds in
maintaining a competitive expense ratio. Fee waivers by the Adviser and the
Administrator, and contributions by the Bank of Boston, are voluntary and may
be terminated at any time. From time to time the Adviser may also waive
additional portions of its fees to reduce net operating expense to less than
that shown in the table above. Certain other parties may also agree to waive
portions of their fees from time to time on a month to month basis. Additional
information may be found under "The Adviser" and "The Administrator." Absent
waivers, the Adviser's investment advisory fee is calculated at an annual rate
of 0.40% of the average daily net assets of each Fund. Absent the waiver of
fees by the Adviser and Administrator, and voluntary contributions by the Bank
of Boston, other expenses and estimated total operating expenses would be as
follows: 0.24% and 0.64% of average daily net assets of the 1784 Tax-Free Money
Market Fund and 0.67% and 0.97% of average daily net assets represented by
Class A shares of the 1784 U.S. Treasury Money Market Fund. Other expenses are
based on actual expenses for each Fund's fiscal year ended May 31, 1995, and
include expense items described under "General Information -- The Trust." A
person who purchases shares through a financial institution may be charged
separate fees by the financial institution.
Example
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An investor would pay the following expenses on a hypothetical $1,000
investment assuming a 5% annual
2
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total return and redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C>
1784 Tax-Free Money Market Fund $5 $17 $30 $66
1784 U.S. Treasury Money Market Fund Class A
Shares $ 7 $21 $36 $81
</TABLE>
Absent voluntary waivers by the Adviser and Administrator and contributions
made by the Bank of Boston, the amounts for this example for one year, three
years, five years and ten years would be $7, $20, $36 and $80 for shares of the
1784 Tax-Free Money Market Fund and $10, $31, $54 and $119 for Class A shares
of the 1784 U.S. Treasury Money Market Fund. The example is based on actual
expenses for each Fund's fiscal year ended May 31, 1995. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN AND ACTUAL
EXPENSES AND RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of
this table is to assist the investor in understanding the various costs and
expenses that may be directly or indirectly borne by investors in the Funds.
Additional information may be found under "General Information -- The Trust,"
"The Adviser," and "The Administrator."
SUMMARY
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The following information is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information.
1784 Funds (the "Trust") is an open-end management investment company which
provides a convenient way to invest in one or more professionally managed funds
of securities. The following provides basic information about the 1784 Tax-Free
Money Market Fund and 1784 U.S. Treasury Money Market Fund (each, a "Fund" or a
"Money Market Fund," and collectively, the "Funds" or the "Money Market
Funds"). Each of the Money Market Funds is a diversified fund.
What Is the Investment Objective? The investment objective of the 1784 Tax-Free
Money Market Fund is to preserve principal value and maintain a high degree of
liquidity while providing current income exempt from federal income taxes. The
investment objective of the 1784 U.S. Treasury Money Market Fund is to preserve
principal value and maintain a high degree of liquidity while providing current
income. Each Fund's investment objective may be changed only with the consent
of holders of a majority of that Fund's outstanding shares. There can be no
assurance that any Money Market Fund will achieve its investment objective. See
"Investment Objective" and "Investment Limitations."
What Are the Permitted Investments? Each of the Funds will limit its
investments to "eligible securities" under applicable SEC rules which are
deemed to present minimal credit risks. The securities in each Fund's portfolio
mature or are deemed to mature within 397 days, and the average maturity of the
investments in each Fund's portfolio (on a dollar-weighted basis) is 90 days or
less. The 1784 Tax-Free Money Market Fund under normal circumstances invests at
least 80% of its net assets in securities issued by or on behalf of the states,
territories and possessions of the United States, the District of Columbia and
their respective political subdivisions, agencies and instrumentalities, the
interest on which, in the opinion of counsel for the issuer, is exempt from
federal income tax and not included as a preference item under the alternative
minimum tax. The 1784 U.S. Treasury Money Market Fund under normal
circumstances invests at least 65% of its total assets in U.S. Treasury
Obligations and repurchase agreements involving such obligations. Under normal
circumstances the Fund intends to invest the balance of its investable assets
in other securities issued or guaranteed as to principal and interest by the
U.S. Government or any of its agencies or instrumentalities (collectively,
"U.S. Government Obligations") and repurchase agreements involving such
obligations. Distributions of the 1784 U.S. Treasury Money Market Fund derived
from interest on obligations of the U.S. Government and certain of its agencies
and instrumentalities may be exempt from state and local
3
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taxes in certain states. See "Taxes," "Investment Policies," "Description of
Permitted Investments and Techniques" and "Certain Investment Policies and
Guidelines."
Who Is the Adviser? The First National Bank of Boston ("Bank of Boston" or the
"Adviser") serves as the Adviser for the Trust and is entitled to a fee which
is calculated daily and paid monthly at an annual rate of 0.40% of the average
daily net assets of each of the Funds. The Adviser has agreed for an indefinite
period of time to waive all or a portion of its fee in order to limit the total
operating expenses of the Money Market Funds on an annualized basis to not more
than 0.65% of the average daily net assets of each of the Funds. Bank of Boston
contributes to the Funds in order to limit operating expenses and to assist the
Funds in maintaining a competitive expense ratio. Fee waivers and contributions
may be terminated at any time. See "The Adviser."
Who Is the Administrator? SEI Financial Management Corporation serves as the
Administrator for the Trust under an Administration Agreement and is entitled
to a fee which is calculated daily and paid monthly at an annual rate of 0.15%
of the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Each Money Market Fund's
portion of such fee is based on that Fund's average daily net assets. The
Administrator has agreed to waive a portion of its fees on a month to month
basis under certain circumstances. See "The Administrator."
Who are the Shareholder Servicing Agent and Transfer Agent? Boston Financial
Data Services acts as dividend disbursing agent and shareholder servicing agent
for the Funds. State Street Bank and Trust Company acts as transfer agent for
the Funds. See "The Shareholder Servicing Agent and Transfer Agent."
Who Is the Distributor? SEI Financial Services Company acts as distributor of
the Trust's shares. No compensation is paid to the Distributor for distribution
services for shares of the 1784 Tax-Free Money Market Fund or Class A shares of
the 1784 U.S. Treasury Money Market Fund. See "The Distributor."
How Do I Purchase Shares? Purchases may be made through the Distributor by the
close of business Monday through Friday except on days when the New York Stock
Exchange or the Federal Reserve Bank of Boston is closed ("Business Days").
Shares may also be purchased through broker-dealers which have established
dealer agreements with the Distributor. Purchase orders submitted through
broker-dealers normally will be received by the Distributor on the Business Day
after they are received by the broker-dealer.
A purchase order will be effective as of the Business Day the order is received
by the Distributor if the Distributor receives a purchase order in good form
and payment of federal funds before 12:00 noon Eastern Time ("ET") on that day.
The purchase price for shares of the 1784 Tax-Free Money Market Fund and Class
A shares of the 1784 U.S. Treasury Money Market Fund is the net asset value per
share (normally $1.00) next determined after the purchase order and federal
funds are received and accepted by the Distributor. When a Shareholder
purchases shares by check, the order is considered received by the Distributor
when the check is converted into federal funds, normally within two Business
Days. Shares purchased will begin accruing dividends on the date of purchase.
The minimum initial investment is $1,000; all subsequent purchases must be at
least $250. Minimum investment requirements are lower for accounts established
for automatic investment programs and under tax-deferred retirement programs
(including IRAs). See "Purchase of Shares."
How Do I Redeem Shares? Redemptions may be made through the Shareholder
Servicing Agent on any Business Day. Redemption orders must be placed in good
form prior to 12:00 noon ET on any Business Day to be effective on that day.
See "Redemption of Shares."
How Are Distributions Paid? Substantially all of the net investment income
(exclusive of capital gains) of each
4
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of the Funds is determined and declared on each Business Day as a dividend to
shareholders of record as of the close of business on that day. On redemption,
a Shareholder will receive dividends up to but not including the day a valid
redemption request is received by the Shareholder Servicing Agent. Any capital
gains will be distributed at least annually. Distributions are paid in
additional shares of the 1784 Tax-Free Money Market Fund or Class A shares of
the 1784 U.S. Treasury Money Market Fund, as applicable, unless the Shareholder
elects to take the payment in cash. See "Dividends and Distributions."
How Do I Make Exchanges? Once payment for Shares has been received by the
Distributor, those shares may be exchanged for shares of one or more other
portfolios of the Trust at net asset value, provided the amount of the exchange
meets the minimum investment requirements for the other portfolio of the Trust.
There are no charges for an exchange. If an exchange request in good order is
received by the Distributor by 12:00 noon ET on any Business Day, the exchange
usually will occur on that day. A Shareholder must obtain and should read the
prospectus of the other portfolio and consider the differences in investment
objectives and policies before making any exchange. See "Exchanges."
CONDENSED FINANCIAL INFORMATION
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The following table provides condensed financial information about the Money
Market Funds for the period from the commencement of operations (June 7, 1993
for the 1784 U.S. Treasury Money Market Fund and June 14, 1993 for the 1784
Tax-Free Money Market Fund) through May 31, 1995. The information should be
read in conjunction with the financial statements appearing in the Funds'
Annual Report to Shareholders, which are incorporated by reference in the
Statement of Additional Information. The financial statements and notes, as
well as the table below, covering the period through May 31, 1995 have been
audited by Coopers & Lybrand L.L.P., independent accountants, whose report is
included in the Funds' Annual Report. Copies of the Annual Report may be
obtained without charge from the Distributor. Only Class A shares of the 1784
U.S. Treasury Money Market Fund were outstanding during the period covered by
the table.
FINANCIAL HIGHLIGHTS
Shares of the 1784 Tax-Free Money Market Fund and Class A Shares of the 1784
U.S. Treasury Money Market Fund
For the Period Ended May 31, 1995
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For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Ratio Ratio of
Net Net Ratio of Expenses Net Income
Asset Dividends Net Assets Ratio of Net to Average to Average
Value Net from Net Asset Value End of Expenses Income Net Assets Net Assets
Beginning Investment Investment End Total of Period to Average to Average (Excluding (Excluding
of Period Income Income of Period Return (000) Net Assets Net Assets Waivers) Waivers)
--------- ---------- ---------- ----------- ------ --------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAX-FREE
MONEY MARKET(1)
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- --------------------
6/14/93-5/31/94 $1.00 0.02 (0.02) $1.00 2.31%* $407,448 0.27%** 2.39%** 0.71%** 1.95 %**
6/1/94-5/31/95 $1.00 0.03 (0.03) $1.00 3.29% $539,412 0.50% 3.28% 0.61% 3.17 %
U.S. TREASURY
MONEY MARKET(2)
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- --------------------
6/7/93-5/31/94 $1.00 0.03 (0.03) $1.00 2.64%* $ 5,593 0.65%** 2.91%** 6.42%** (2.86)%**
6/1/94-5/31/95 $1.00 0.05 (0.05) $1.00 4.81% $55,068 0.60% 5.13% 0.92% 4.81 %
</TABLE>
* Returns are for the period indicated and have not been annualized.
** Ratios for this period have been annualized.
(1) The Tax-Free Money Market Fund commenced operations on June 14, 1993.
(2) The U.S. Treasury Money Market Fund commenced operations on June 7, 1993.
-------------
5
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THE TRUST
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1784 Funds (the "Trust") is an open-end management investment company that
offers units of beneficial interest, or shares, in several separate
professionally managed investment portfolios, or funds. Shares of the funds may
be offered in one or more classes. Each share of each fund or class represents
an undivided, proportionate interest in that fund or the assets of that fund
allocated to that class. Shares of the 1784 U.S. Treasury Money Market Fund are
offered through three separate classes, Class A, Class C and Class D, which
differ by the amount of distribution costs associated with each class. This
Prospectus relates to Class A shares of the Trust's 1784 U.S. Treasury Money
Market Fund and shares of the Trust's 1784 Tax-Free Money Market Fund, each of
which is a diversified fund. Information regarding Class C and Class D shares
of the 1784 U.S. Treasury Money Market Fund and shares of the Trust's other
funds is contained in separate prospectuses that may be obtained from the
Trust's distributor, SEI Financial Services Company (the "Distributor"), 680
East Swedesford Road, Wayne, Pennsylvania 19087, or by calling 1-800-252-1784.
INVESTMENT OBJECTIVE
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The investment objective of the 1784 Tax-Free Money Market Fund is to preserve
principal value and maintain a high degree of liquidity while providing current
income exempt from federal income taxes.
The investment objective of the 1784 U.S. Treasury Money Market Fund is to
preserve principal value and maintain a high degree of liquidity while
providing current income.
There can be no assurance that the investment objective of any Money Market
Fund will be met. The investment objective of each Fund is a fundamental policy
of that Fund, and therefore cannot be changed without the consent of holders of
a majority of that Fund's outstanding shares. See "Investment Limitations."
INVESTMENT POLICIES
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Each of the Money Market Funds is required to comply with regulations of the
SEC applicable to money market funds using the amortized cost method for
calculating net asset value. These regulations impose certain quality, maturity
and diversification restraints on investments by each of the Funds. Under these
regulations, a Fund will invest only in U.S. dollar-denominated securities,
will maintain an average maturity on a dollar-weighted basis of 90 days or
less, and will acquire only "eligible securities" (as defined under applicable
SEC rules) that have a maturity of 397 days or less and that present minimal
credit risks as determined by or on behalf of the Board of Trustees of the
Trust. In certain circumstances, the maturity of a security will be deemed to
be the period remaining until the next interest rate adjustment date or until
payment of the security may be demanded. For a further discussion of these
rules (including the definition of "eligible securities"), see "Description of
Permitted Investments and Techniques -- Restraints on Investments by Money
Market Funds."
The 1784 Tax-Free Money Market Fund is a diversified fund which, as a matter of
fundamental policy, will invest at least 80% of its net assets under normal
market conditions in eligible securities issued by or on behalf of the states,
territories and possessions of the United States and the District of Columbia
and their respective political subdivisions, agencies and instrumentalities,
the interest on which, in the opinion of counsel for the issuer, is exempt from
federal income tax and not included as a preference item under the alternative
minimum tax (collectively, "Municipal Securities").
The 1784 Tax-Free Money Market Fund may purchase municipal obligations with
demand features, including floating or variable rate obligations. In addition,
the Fund may invest in commitments to purchase securities on a "when-issued"
basis, and reserves the right to purchase securities subject to a standby
commitment. The Adviser has discretion to invest up to 20% of the Fund's net
assets in securities subject to the alternative minimum tax and the following
types of taxable money
6
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market instruments: (1) securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; (2) repurchase agreements; (3) bank
obligations described under "Description of Permitted Investments and
Techniques;" (4) asset-backed securities; and (5) commercial paper, other
short-term debt instruments and variable and floating rate instruments. All
such taxable money market instruments must comply with the limitations on
investments described under "Description of Permitted Investments and
Techniques -- Restraints on Investments by Money Market Funds."
For more information regarding the permitted investments and investment
practices of the 1784 Tax-Free Money Market Fund, the purposes of these
investments and investment practices and certain risks associated with certain
of these investments and investment practices, see "Certain Investment Policies
and Guidelines" and "Description of Permitted Investments and Techniques."
The 1784 U.S. Treasury Money Market Fund is a diversified fund which will under
normal circumstances invest at least 65% of its total assets in bills, notes,
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal Reserve book-entry system (such component parts of obligations are
commonly referred to as "STRIPS" and all of the foregoing obligations are
referred to collectively as "U.S. Treasury Obligations") and in repurchase
agreements involving U.S. Treasury Obligations. In addition to U.S. Treasury
Obligations, the Fund may invest in other securities issued or guaranteed as to
principal and interest by the U.S. Government or any of its agencies and
instrumentalities (the foregoing obligations are referred to collectively as
"U.S. Government Obligations") and repurchase agreements involving U.S.
Government Obligations. Under normal circumstances the Fund intends to invest
all of its investable assets in U.S. Treasury Obligations, U.S. Government
Obligations and repurchase agreements involving U.S. Treasury Obligations or
U.S. Government Obligations.
For more information regarding the permitted investments and investment
practices of the 1784 U.S. Treasury Money Market Fund, the purposes of these
investments and investment practices and certain risks associated with certain
of these investments and investment practices, see "Certain Investment Policies
and Guidelines" and "Description of Permitted Investments and Techniques."
CERTAIN INVESTMENT POLICIESAND GUIDELINES
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A Money Market Fund's investments in STRIPS will be limited to securities with
maturities of less than 397 days. Investing in these securities entails certain
risks, including that these interest components may be more volatile in market
value than Treasury bills of comparable maturity, as further described in
"Description of Permitted Investments and Techniques." No Money Market Fund may
invest more than 20% of its total assets in STRIPS or actively trade STRIPS
(i.e., combine the components of STRIPS to create derivative securities).
Each Money Market Fund may invest in when-issued securities and variable rate
and floating rate obligations. When investing in when-issued securities, a Fund
will not accrue income until delivery of the securities and will invest in such
securities only for the purpose of actually acquiring the securities and not
for the purpose of leveraging. Investing in when-issued securities may have the
effect of leveraging. A Fund may invest up to 25% of its total assets in
forward commitments or commitments to purchase securities on a when-issued
basis. While awaiting delivery of securities purchased on such basis, a Fund
will establish a segregated account consisting of cash, short-term money market
instruments or high quality debt securities equal to the amount of the
commitments to purchase securities on such basis.
In addition, each Money Market Fund may, from time to time, engage in
securities lending; however, loans made by a Fund of the securities it holds
may not exceed 33 1/3% of that Fund's total assets.
7
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INVESTMENT LIMITATIONS
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The investment objective of each Fund and the following investment limitations
are fundamental policies of that Fund. It is also a fundamental policy of the
1784 Tax-Exempt Money Market Fund to invest at least 80% of its net assets
under normal market conditions in Municipal Securities. Fundamental policies
cannot be changed with respect to a Fund without the consent of the holders of
a majority of that Fund's outstanding shares. The term "majority of the
outstanding shares" means the vote of (i) 67% or more of the Fund's shares
present at a meeting, if more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (ii) more than 50% of the Fund's
outstanding shares, whichever is less.
A Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if as a result more than 5% of the total assets of
the Fund would be invested in the securities of such issuer or more than 10% of
the outstanding voting securities of such issuer would be owned by the Fund;
provided, however, that the 1784 Tax-Free Money Market Fund may invest up to
25% of its total assets without regard to this restriction as permitted by
applicable law. The U.S. Treasury Money Market Fund will be diversified with
respect to 100% of its assets provided that the Fund may invest up to 25% of
its total assets in a single issuer for a period of up to three business days
if such securities qualify as "first tier securities" under applicable SEC
rules. The 1784 Tax-Free Money Market Fund will be diversified with respect to
75% of its total assets. For purposes of these limitations, loan participations
are considered to be issued by both the issuing bank and the underlying
corporate borrower, and a repurchase agreement is deemed to be an acquisition
of the underlying securities, provided that the seller's obligation to
repurchase the securities from the Fund is fully collateralized.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry or securities the
interest upon which is paid from revenue of similar type of industrial
development projects, provided that this limitation does not apply to (i)
investments in obligations issued or guaranteed by the U.S. Government or any
of its agencies and instrumentalities and repurchase agreements involving such
securities; (ii) obligations issued by domestic banks, foreign branches of
domestic banks and U.S. branches of foreign banks, to the extent that the Fund
may under the Investment Company Act of 1940, as amended, reserve freedom of
action to concentrate its investments in such securities; and (iii) in the case
of the 1784 Tax-Free Money Market Fund, tax-exempt securities issued by
governments or political subdivisions of governments. Each of the Money Market
Funds has reserved its freedom of action to concentrate its investments in
government securities and bank instruments described in the foregoing clause
(ii). For purposes of these limitations, (i) loan participations are considered
to be issued by both the issuing bank and the underlying corporate borrower;
(ii) utility companies will be divided according to their services; for
example, gas, gas transmission, electric and telephone will each be considered
a separate industry; and (iii) financial service companies will be classified
according to the end users of their services; for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry.
3. Make loans, except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies, (b) enter into
repurchase agreements, and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
4. Borrow, except that a Fund may borrow money from banks and may enter into
reverse repurchase agreements, in either case in an amount not to exceed 33
1/3% of the Fund's total assets and then only as a temporary measure for
extraordinary or emergency purposes (e.g., to meet Shareholder redemption
requests). A Fund will not purchase any securities for
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its portfolio at any time at which its borrowings equal or exceed 5% of its
total assets (taken at market value).
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISER
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The First National Bank of Boston ("Bank of Boston" or the "Adviser") manages
the assets of each Fund pursuant to an Investment Advisory Agreement (the
"Advisory Agreement") with the Trust. Subject to such policies as the Board of
Trustees of the Trust may determine, the Adviser makes investment decisions for
each Fund. For its services under the Advisory Agreement, the Adviser receives
from each Fund a fee accrued daily and paid monthly at an annual rate equal to
0.40% of the average daily net assets of that Fund. However, the Adviser has
agreed for an indefinite period of time to waive all or a portion of its fees
in order to limit the total operating expenses of each of the Funds on an
annualized basis to not more than 0.65% of its average daily net assets; this
limitation would not apply to any brokerage commissions, interest expense or
taxes or to extraordinary expense items, including but not limited to
litigation expenses. Fee waivers may be terminated at any time. From time to
time the Adviser may also waive additional portions of its fees to reduce net
operating expenses to less than the amount specified above. For the fiscal year
ended May 31, 1995, the fees payable to Bank of Boston under the Advisory
Agreement with respect to each of the Funds were as follows: for 1784 Tax-Free
Money Market Fund, $1,876,167, of which $405,489 was voluntarily waived (after
giving effect to such waiver, 0.31% of such Fund's average daily net assets for
that period); and for 1784 U.S. Treasury Money Market Fund, $101,839, of which
$32,878 was voluntarily waived (after giving effect to such waiver, 0.27% of
such Fund's average daily net assets for that period). In addition, the Bank of
Boston contributed $101,116 to the 1784 Tax-Free Money Market Fund and $14,629
to the 1784 U.S. Treasury Money Market Fund to decrease the Funds' other
operating expenses and to assist the Funds in maintaining a competitive expense
ratio. The Funds may execute brokerage or other agency transactions through the
Adviser or an affiliate.
Bank of Boston, a national banking association, is the successor to a number of
banking institutions, the first of which was chartered in 1784. All of the
capital stock of Bank of Boston (except directors' qualifying shares) is owned
by Bank of Boston Corporation, a registered bank holding company. Bank of
Boston is engaged in providing a wide variety of financial services to
individuals, corporate and institutional customers, governments, and other
financial institutions throughout New England, the United States and
internationally. These services include individual and community banking,
consumer finance, mortgage origination and servicing, domestic corporate and
investment banking, leasing, international banking services, commercial real
estate lending, private banking, trust services, correspondent banking, and
securities and payments processing. Bank of Boston's principal business address
is 100 Federal Street, Boston, MA 02110. Prior to the organization of the Trust
in 1993, the Adviser had not served as the investment adviser for management
investment companies. The Adviser also manages the other funds comprising the
Trust.
Bank of Boston has been providing asset management services since 1890. Its
portfolio managers are responsible for investing in money market, equity, and
fixed income securities and they have earned national recognition and respect.
The investment management group within Bank of Boston which manages the Money
Market Funds is the same group which has managed Bank of Boston's collective
trust funds with similar investment objectives. As of December 31, 1994, Bank
of Boston and its affiliates managed more than $13 billion in assets worldwide.
Bank of Boston and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Funds, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of
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securities so purchased. Bank of Boston and its affiliates deal, trade and
invest for their own account in certain types of securities purchased on behalf
of the Funds. Bank of Boston and its affiliates may sell such securities to and
purchase them from other investment companies sponsored by SEI Financial
Services Company or its affiliates. The Adviser has informed the Trust that, in
making its investment decisions, it does not obtain or use material inside
information in the possession of any division or department of Bank of Boston
or in the possession of any affiliate of Bank of Boston.
The Glass-Steagall Act prohibits certain financial institutions, such as Bank
of Boston, from engaging in the business of underwriting securities of open-end
investment companies, such as the Funds. Bank of Boston takes the position,
based on the advice of counsel, that the investment advisory services it
provides under the Advisory Agreement do not constitute underwriting activities
and are consistent with the requirements of the Glass-Steagall Act and other
relevant federal and state legal and regulatory precedent. State laws on this
issue may differ from applicable federal law, and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Future changes in either federal or state statutes or
regulations relating to the permissible activities of banks, as well as future
judicial or administrative decisions and interpretations of present and future
federal and state statutes and regulations, could prevent Bank of Boston from
continuing to perform such services for the Trust. If Bank of Boston were to be
prevented from acting as the Adviser, the Trust would seek alternative means
for obtaining such services.
THE ADMINISTRATOR
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SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), and the Trust are parties to an
administration agreement dated as of June 1, 1993 (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
provides the Trust with administrative services other than investment advisory
services, including all regulatory reporting, necessary office space,
equipment, personnel, and facilities.
The Administrator is entitled to a fee which is calculated daily and paid
monthly at an annual rate of 0.15% of the Trust's first $300 million of average
daily net assets, 0.12% of the Trust's second $300 million of average daily net
assets and 0.10% of the Trust's average daily net assets over $600 million.
Each Money Market Fund's portion of such fee is based on the average daily net
assets of such Fund. The Administrator has agreed to waive a portion of its
fees on a month to month basis under certain circumstances for certain of the
portfolios of the Trust.
THE SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
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Boston Financial Data Services acts as dividend disbursing agent and
shareholder servicing agent (the "Shareholder Servicing Agent") for the Funds,
and receives a fee for these services. The principal business address for 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 Funds, and receives a fee for these services. The principal business
address for the Transfer Agent is 225 Franklin Street, Boston, MA 02110-2875.
THE DISTRIBUTOR
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SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") dated as of June 1, 1993. No compensation is paid to
the Distributor for distribution services with respect to shares of the 1784
Tax-Free Money Market Fund or Class A shares of the 1784 U.S. Treasury Money
Market Fund. Financial institutions that are the record owner of shares for the
accounts of their customers may impose separate fees for the account services
to their customers. The Money Market Funds may execute brokerage or other
agency transactions through the Distributor, for which the Distributor receives
compensation.
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From time to time the Distributor may provide incentive compensation to
employees of banks (including Bank of Boston), broker-dealers and investment
counselors, and to its own employees, in connection with the sale of shares of
the Funds or other portfolios of the Trust. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation, including merchandise, airline vouchers, trips and vacation
packages. Such promotional incentives will be offered uniformly to all program
participants and will be predicated upon the amount of shares of the Funds and
other portfolios of the Trust sold by the participant.
PURCHASE OF SHARES
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Shares of the 1784 Tax-Free Money Market Fund and Class A shares of the 1784
U.S. Treasury Money Market Fund ("Shares") are sold on a continuous basis and
may be purchased directly from the Trust's Distributor, either by mail or by
telephone. Shares may also be purchased through a broker-dealer which has
established a dealer agreement with the Distributor.
Purchases of Shares may be made Monday through Friday except on days when the
New York Stock Exchange or the Federal Reserve Bank of Boston is closed
("Business Days"). Current holidays for the New York Stock Exchange and/or the
Federal Reserve Bank of Boston are New Year's Day, Martin Luther King Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Thanksgiving and Christmas. Except as provided below, the minimum
initial investment is $1,000 and all subsequent purchases of Shares must be at
least $250. Minimum investment amounts may be waived at the Distributor's
discretion. No minimum purchase amount applies to subsequent purchases made by
reinvestment of dividends.
The purchase price for Shares is their net asset value (normally $1.00 per
share) next determined after the order is received and accepted by the
Distributor. Net asset value per share of each of the Funds is determined as of
12:00 noon ET on each Business Day.
A purchase order for Shares will be effective as of the Business Day the order
is received by the Distributor if the Distributor receives a purchase order in
good form and payment of federal funds before 12:00 noon ET on that day. Shares
may also be purchased through broker-dealers which have established dealer
agreements with the Distributor. Purchase orders submitted through broker-
dealers normally will be received by the Distributor on the Business Day after
they are received by the broker-dealer. When a Shareholder purchases Shares by
check, the order is considered received by the Distributor when the check is
converted into
federal funds, normally within two Business Days.
By Mail
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Investors may purchase Shares by completing and signing an Account Application
and mailing it, along with a check (or other negotiable bank instrument or
money order) payable to the Fund in which such Shares are being purchased,
e.g., "1784 Tax-Free Money Market Fund" or "1784 U.S. Treasury Money Market
Fund," to the Fund, P.O. Box 8524, Boston, MA 02266-8524. Subsequent purchases
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
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If a Shareholder has previously submitted an Account Application, that
Shareholder may also purchase Shares by telephone by calling the Distributor
toll-free at 1-800-252-1784. Orders by telephone will not be executed until an
Account Application and payment of federal funds have been received.
Tax-Deferred Retirement Programs
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The 1784 U.S. Treasury Money Market Fund is eligible for purchase by tax-
deferred programs such as IRAs, KEOGHs and 401(k) plans, and the minimum
initial investment requirement for Class A shares for an
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account established under such a program is $250. Bank of Boston offers a
number of tax-deferred retirement plans through which Class A shares of the
1784 U.S. Treasury Money Market Fund may be purchased. All Fund accounts
established under a tax-deferred retirement program must elect to have all
dividends reinvested in the Fund.
Systematic Investment Plan (SIP)
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A Shareholder of any Fund may also arrange for periodic additional investments
in the Fund through automatic deductions by Direct Deposit (if available from a
Shareholder's employer) or by Automated Clearing House ("ACH") from a checking
account by completing the appropriate section of the Account Application. The
Systematic Investment Plan is subject to account minimum initial purchase
amounts and minimum maintained balance requirements. The minimum pre-authorized
investment amount is $50 per month. An Account Application may be obtained by
contacting the Distributor at 1-800-252-1784.
Other Information Regarding Purchases
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Shares may also be purchased through financial institutions, including Bank of
Boston, which provide shareholder services or other assistance to the Trust.
Texas residents may only purchase Shares through the Distributor. Shares
purchased by persons ("Customers") through financial institutions may be held
of record by the financial institution. Financial institutions may impose cut-
off times for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Distributor. Customers should
contact their financial institution for information as to the institution's
procedures for transmitting purchase, exchange or redemption orders to the
Distributor. The Distributor's receipt of an order may be delayed by one or
more Business Days.
Customers who desire to transfer the registration of Shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change. Other Shareholders who desire to
transfer the registration of their Shares should contact the Shareholder
Servicing Agent.
Purchases may be made by ACH transactions, as well as by check or wire
transfer.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution.
No certificates representing Shares will be issued.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such offer. Each Fund will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. These
procedures will include verification of a caller's identity by asking for his
or her name, address, telephone number, Social Security number, and account
number. If these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine are not followed, the Fund may be liable
for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
For all purchases, if payment is not made or a check received for purchases of
Shares does not clear, the purchase will be canceled and the investor could be
liable for any losses or fees incurred.
The net asset value per share of each Fund is determined by dividing the value
of the Fund's investments and other assets, less any liabilities, by the total
outstanding shares of the Fund. It is anticipated that the net asset value of
each share of each Fund will remain constant at $1.00 (although there can be no
assurance that any Fund will be able to maintain this stable net asset value).
Securities of the Funds are valued based on the amortized cost method described
in the Statement of Additional Information.
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REDEMPTION OF SHARES
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Shareholders may redeem their Shares on any Business Day and Shares may
ordinarily be redeemed by mail or telephone, with proceeds payable by check,
ACH or wire transfer. A redemption is treated, for federal and state income tax
purposes, as a sale of the Shares redeemed; a redemption could, therefore,
result in taxable gain or loss to the Shareholder. If proceeds are paid by wire
transfer, a wire transfer charge (presently $12.00) will be imposed.
By Mail
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A written request for redemption must be received by the 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
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Shares may be redeemed by telephone if the Shareholder elects that option on
the Account Application (unless a written redemption request, with the
Shareholder's signature guaranteed, is required; see "Signature Guarantees"
below). Telephone redemption orders must be placed with the Shareholder
Servicing Agent prior to 12:00 noon ET on any Business Day to be effective on
such day. The Shareholder may have the proceeds mailed to his or her address or
wired to a commercial bank account previously designated on the Account
Application. Under most circumstances, payments will be transmitted on the next
Business Day following receipt of a valid request for redemption. Telephone
redemption requests may be made by calling the 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 Funds' address for overnight deliveries is 1784 Funds, c/o Boston Financial
Data Services, 2 Heritage Drive, North Quincy, MA 02171.
Signature Guarantees
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If a Shareholder requests a redemption for an amount in excess of $25,000, a
redemption of any amount to be payable to anyone other than the Shareholder of
record or a redemption of any amount to be sent to any address other than the
Shareholder's address of record with the applicable Fund (or in the case of ACH
or wire transfers, other than as provided in the Shareholder's Account
Application), all account holders on the Shareholder's account must sign a
written redemption request and their signatures must be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange or by another
eligible guarantor institution. The Trust and the Shareholder Servicing Agent
reserve the right to amend these requirements for the applicable Fund at any
time without notice. For questions about the proper form of redemption
requests, call 1-800-252-1784.
Other Information Regarding Redemptions
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All redemption orders for Shares 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. Each Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. These procedures will include verification of a caller's
identity by asking for his or her name, address, telephone number, Social
Security number, and account number. If these or other reasonable procedures to
confirm that instructions communicated by telephone are genuine are not
followed, the Fund may be liable
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for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
Forwarding of redemption proceeds for Shares purchased, or received in exchange
for Shares purchased, by check (including certified or cashier's checks) may be
delayed for 15 or more days to ensure that payment has been collected for the
purchase of such Shares. Each Fund intends to pay cash for all Shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in Fund securities with a market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem, at net asset value, the Shares of any Shareholder
if, because of redemptions of Shares by or on behalf of the Shareholder (and
not solely because of market declines), the account of such Shareholder in the
Fund has a value of less than the minimum initial purchase amount for that Fund
(normally $1,000). Accordingly, an investor purchasing Shares in only the
minimum investment amount may be subject to such involuntary redemption if the
investor thereafter redeems any of these Shares. Before the Fund exercises its
right to redeem such Shares and to send the proceeds to the Shareholder, the
Shareholder will be given notice that the value of such shares in his or her
account is less than the minimum amount and will be allowed 60 days to make an
additional investment in the Fund in an amount which will increase the value of
the account to at least the minimum amount. Accounts established under a tax-
deferred retirement program may be subject to involuntary redemption as
described above only if such account has a value of less than $250, the minimum
initial purchase amount for such accounts.
The right of any Shareholder to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or to the extent otherwise
permitted by the Investment Company Act of 1940 if an emergency exists. See
"Purchase and Redemption of Shares" in the Statement of Additional Information
for examples of when the right of redemption may be suspended.
SYSTEMATIC WITHDRAWAL PLAN
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A Shareholder may direct the Shareholder Servicing Agent to send him or her
regular monthly, quarterly, semi-annual or annual payments, as designated on
the Account Application and based upon the value of his or her account. Each
payment under a systematic withdrawal plan must be at least $100, except in
certain limited circumstances. A withdrawal payment under the plan is treated,
for federal and state income tax purposes, as a sale of a number of Fund shares
sufficient to fund the payment; such payment could, therefore, result in
taxable gain or loss to the Shareholder.
EXCHANGES
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Some or all of the Shares for which payment has been received by the
Distributor (i.e., an established account) may be exchanged at their net asset
value for shares of one or more of the other portfolios of the Trust, including
Shares of the other Money Market Fund. Exchanges will be made only after
instructions in writing or by telephone are received for an established account
by the Distributor.
In the case of Shares held of record by Bank of Boston or one of its affiliates
but beneficially owned by a Customer, to exchange such shares the Customer
should contact Bank of Boston or the affiliate, who will contact the
Distributor and effect the exchange on behalf of the Customer. If an exchange
request in good order is received by the Distributor by 12:00 noon ET on any
Business Day, the exchange usually will occur on that day. Any Shareholder or
Customer who wishes to make an exchange must have received a current prospectus
of the portfolio of the Trust in which he or
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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 each of the Money Market Funds reserves the right, upon not
less than 60 days' written notice, to charge Shareholders a nominal fee in
accordance with rules promulgated by the SEC. Each of the Money Market Funds
also reserves the right to reject any exchange request in whole or in part. The
exchange privilege (or any aspect of it) may be changed or terminated at any
time.
Other portfolios of the Trust may impose distribution fees based on their net
assets. Class C and Class D shares of the 1784 U.S. Treasury Money Market Fund
are subject to distribution fees.
An exchange is treated, for federal or state income tax purposes, as a sale of
the Shares exchanged; an exchange could, therefore, result in taxable gain or
loss to the Shareholder.
CHECKWRITING
- --------------------------------------------------------------------------------
A Shareholder in any Fund may redeem Shares by writing checks on his or her
account for $250 or more. Once a Shareholder has signed and returned a
signature card agreement, that Shareholder will receive a supply of checks.
A check may be made payable to any person, and the Shareholder's account will
continue to earn dividends until the check clears. The checkwriting privilege
is available on the terms specified in the signature card agreement and may be
terminated or changed by the applicable Fund at any time.
Because of the difficulty of determining in advance the exact value of a Fund
account, a Shareholder may not use a check to close his or her account. These
checks are currently free, i.e., there is no charge for this service; however,
the Shareholder's account will be charged a fee for stopping payment of a check
upon a Shareholder's request or if the check cannot be honored because of
insufficient funds or for other valid reasons.
PERFORMANCE
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From time to time the Trust advertises the "current yield" and "effective
yield" (also referred to as "effective compound yield") of the Funds. Both
yield figures are based on historical earnings and are not intended to indicate
future performance. The "current yield" of a Fund refers to the income
generated by an investment in that Fund over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That
is, the amount of income generated by the investment during that week is
assumed to be generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "current yield" because of
the compounding effect of this assumed reinvestment. The Trust may also
advertise a "tax-equivalent yield" for the 1784 Tax-Free Money Market Fund; the
"tax-equivalent yield" is calculated by determining the yield that would have
to be achieved on a fully taxable investment to produce the after-tax
equivalent of the 1784 Tax-Free Money Market Fund's yield, assuming certain tax
brackets for a Shareholder.
The Trust may periodically compare performance of a Fund to that of other
mutual funds tracked by mutual fund rating services, to that of broad groups of
comparable mutual funds or to that of unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs.
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TAXES
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The following is a discussion of certain United States federal income tax
considerations relevant to the purchase, ownership, and disposition of Shares
in the Money Market Funds. The discussion, which is based on current tax laws,
regulations, rulings, and judicial decisions (all of which are subject to
change at any time by legislative, judicial, or administrative action), is not
intended to be complete; therefore, prospective investors should consult their
own tax advisers as to the tax consequences to them of an investment in the
Money Market Funds. Additional Information concerning taxes is set forth in the
Statement of Additional Information.
Tax Status of the Money Market Funds
- --------------------------------------------------------------------------------
Each Money Market Fund is treated as a separate entity for federal income tax
purposes, and is not combined with the other Money Market Funds or the Trust's
other portfolios. The Trust intends to qualify each Money Market Fund each year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and to make distributions to its
Shareholders in accordance with the timing requirements set out in the Code. As
a result, it is expected that the Money Market Funds will not be required to
pay any federal income or excise taxes.
Tax Treatment of Shareholders
- --------------------------------------------------------------------------------
1784 U.S. Treasury Money Market Fund
Shareholders of the 1784 U.S. Treasury Money Market Fund generally will have to
pay federal income taxes and may be subject to state or local taxes on the
dividends and capital gain distributions they receive from the Fund, whether
paid in cash or in additional shares. Distributions from net investment income
and short-term capital gains will be taxable to Shareholders as ordinary
income, while distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) will be taxable to
Shareholders as long-term capital gains, regardless of how long the
Shareholders have held their shares.
Distributions of the Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but
generally not from capital gains realized upon the disposition of such
obligations) may be exempt from state and local taxes. The Fund intends to
advise Shareholders of the extent, if any, to which their respective
distributions consist of such interest. Shareholders are urged to consult their
tax advisers regarding the possible exclusion of such portion of their
dividends for state and local income tax purposes.
1784 Tax-Free Money Market Fund
The Trust expects that dividends paid to Shareholders by the 1784 Tax-Free
Money Market Fund from interest on Municipal Securities will be exempt from
federal income tax because the 1784 Tax-Free Money Market Fund intends to
satisfy certain requirements of the Code. One such requirement is that at the
close of each quarter of its taxable year, at least 50% of the value of the
Fund's total assets consist of obligations whose interest is exempt from
federal income tax.
Distributions of income from capital gains, from investments in taxable
securities, and from certain other transactions (including repurchase
agreements) will be taxable to the Shareholders, whether paid in cash or in
additional shares. Distributions from taxable net investment income and short-
term capital gains will be taxable to Shareholders as ordinary income, while
distributions of net capital gains will be taxable to Shareholders as long-term
capital gains, regardless of how long the Shareholders have held their shares.
Depending on the nature of the distribution and the residence of the
Shareholder, certain 1784 Tax-Free Money Market Fund distributions will be
subject to state and local income taxes.
Interest on indebtedness incurred by Shareholders to purchase or carry shares
of the 1784 Tax-Free Money
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Market Fund will not be deductible for federal income tax purposes. Dividends
from interest on Municipal Securities are taken into account in calculating the
amount of social security and railroad retirement benefits that may be subject
to federal income tax. Certain distributions of exempt-interest dividends may
also be a tax preference item for purposes of the federal individual and
corporate alternative minimum tax and all exempt-interest dividends may
increase a corporate Shareholder's alternative minimum tax. Entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by private activity bonds should consult their tax advisers
before purchasing shares of the 1784 Tax-Free Money Market Fund.
General
The Trust expects that none of the dividends received from the Money Market
Funds will be eligible for the dividends received deduction for corporations.
Any Money Market Fund dividend that is declared in October, November, or
December of a calendar year, payable to shareholders of record in such a month,
and that is paid the following January will be treated as if received by the
Shareholders on December 31 of the year in which the dividend is declared.
The Trust will make annual reports to Shareholders of the federal income tax
status of all Money Market Fund distributions.
The exchange or redemption of Shares is a taxable event to the Shareholder,
although the Trust intends to attempt to maintain a stable share price of $1.00
per share. Under certain circumstances, realized losses may be disallowed or
short-term capital losses may be converted into long-term capital losses.
The Funds will generally withhold tax payments at the rate of 30% on dividends
and other payments that are subject to such withholding and that are made to
persons who are neither citizens nor residents of the U.S., although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. Each
Fund is also required in certain circumstances to withhold 31% of taxable
dividends and certain redemption proceeds paid to any Shareholder (including a
shareholder who is neither a citizen nor a resident of the U.S.) who does not
furnish to the Fund certain information and certifications or who is otherwise
subject to backup withholding. Backup withholding will not, however, be applied
to payments that have been subject to 30% (or lower treaty rate) withholding.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust
- --------------------------------------------------------------------------------
The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated February 5, 1993. The Declaration of Trust permits the Trust to
issue an unlimited number of shares of beneficial interest of each of the
portfolios (referred to as "series") of the Trust, each of which is a separate
fund. In addition to the Money Market Funds, the Trust includes the following
funds: 1784 Institutional U.S. Treasury Money Market Fund, 1784 U.S. Government
Medium-Term Income Fund, 1784 Short-Term Income Fund, 1784 Income Fund, 1784
Tax-Exempt Medium-Term Income Fund, 1784 Connecticut Tax-Exempt Income Fund,
1784 Rhode Island Tax-Exempt Income Fund, 1784 Massachusetts Tax-Exempt Income
Fund, 1784 Growth and Income Fund, 1784 Asset Allocation Fund and 1784
International Equity Fund. All consideration received by the Trust for shares
of any fund and all assets of such fund belong to that fund and are subject to
liabilities related thereto. The Trust reserves the right to create and issue
additional series of shares, and reserves the right to create and issue shares
of additional classes of any or all series.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses and reports to Shareholders,
costs of custodian services and registering the shares of the Funds and other
series under federal and state
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securities laws, pricing, insurance expenses, brokerage costs, interest
charges, taxes, amortization of organization expenses, and any extraordinary
expenses including but not limited to litigation expenses. For the fiscal year
ended May 31, 1995, the total expenses of each of the Funds were as follows:
for the 1784 Tax-Free Money Market Fund, $2,859,695, of which $512,760 was
voluntarily waived or reimbursed by the Bank of Boston (after giving effect to
such waiver, 0.50% of such Fund's average daily net assets for that period);
and for the 1784 U.S. Treasury Money Market Fund, $236,501, of which $82,688
was voluntarily waived or reimbursed by the Bank of Boston (after giving effect
to such waiver, 0.60% of such Fund's average daily net assets for that period).
Under applicable law, Shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the risk of a
Shareholder incurring financial loss on account of such Shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations and inadequate insurance existed. The Trust believes that the
likelihood of such circumstances is remote.
Trustees of the Trust
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The management and affairs of the Trust are supervised by its Board of
Trustees. The Trustees have approved contracts under which, as described above,
certain companies provide 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
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The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
Shareholder Inquiries
- --------------------------------------------------------------------------------
Shareholder inquiries should be directed to SEI Financial Management
Corporation, P.O. Box 1784, Wayne, Pennsylvania, 19087-8784, at 1-800-252-1784.
Dividends and Distributions
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The net investment income (exclusive of capital gains) of each Money Market
Fund is determined and declared on each business day as a dividend for
Shareholders of record as of the close of business on that day. On redemption,
a Shareholder will receive dividends up to but not including the day a valid
redemption request is received by the Shareholder Servicing Agent. Currently,
capital gains of the Money Market Funds, if any, are distributed at least
annually.
Dividends are paid by the Money Market Funds in additional Shares, unless the
Shareholder has elected to take such payment in cash, on the first business day
of each month. Shareholders may change their election by providing written
notice to the Administrator at least 15 days prior to the change.
If dividend payments are returned and unclaimed within 30 days, they will be
reinvested and the Shareholder will be deemed to have elected to receive future
dividend and capital gain distributions in additional Shares.
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Counsel and Independent Accountants
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Bingham, Dana & Gould LLP, Boston, MA, serve as counsel to the Trust. Coopers &
Lybrand L.L.P., Boston, MA, serve as the independent accountants of the Trust.
Custodian
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Bank of Boston, 100 Federal Street, Boston, MA 02110, acts as Custodian of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940. Under a separate agreement,
Bank of Boston also provides certain accounting services for the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS AND TECHNIQUES
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The following is a description of the permitted investments and investment
techniques for the Funds.
U.S. Treasury Obligations -- U.S. Treasury obligations include bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
Reserve book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS"). STRIPS are sold as zero coupon securities.
These securities are usually structured with two classes that receive different
portions of the interest and principal payments from the underlying obligation.
The yield to maturity on the interest-only class is extremely sensitive to the
rate of principal payments on the underlying obligation. The market value of
the principal-only class generally is unusually volatile in response to changes
in interest rates. See "Zero Coupon Securities" below for more information on
these securities. Each Fund also may invest in Treasury Receipts, which are
unmatured interest coupons of U.S. Treasury bonds and notes which have been
separated and resold in a custodial receipt program administered by the U.S.
Treasury.
U.S. Government Obligations -- Certain Federal agencies such as the Government
National Mortgage Association ("GNMA") have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States (e.g., GNMA) or supported by the issuing agencies' right to borrow from
the Treasury. The issues of other agencies are supported only by the credit of
the instrumentality (e.g., Federal National Mortgage Association, "FNMA"). Each
Fund may invest in securities issued by any Federal agency or instrumentality.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by the Funds may carry variable or floating rates of interest and may involve a
conditional or unconditional demand feature permitting the holder to demand
payment of principal at any time, or at specified intervals. Such obligations
may include variable amount master demand notes. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a Federal Reserve composite index. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security; therefore, a Fund
will not invest more than 10% of its net assets in such instruments and other
illiquid securities.
The interest rate on these securities may be reset daily, weekly, quarterly, or
some other reset period and may have a floor or ceiling on interest rate
charges. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates.
A demand instrument with an unconditional demand feature may be an "eligible
security" or "first tier security," depending on whether the unconditional
demand feature is, respectively, an eligible security or first-tier security. A
demand instrument without an unconditional demand feature may be an eligible
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security or a first tier security only if it meets the requirements for those
categories and the demand instrument or the long-term debt securities of its
issuer have been rated by at least two nationally recognized statistical rating
organizations (one if it is the only organization rating such obligation or
issuer) in one of the two highest long-term rating categories or, if unrated,
determined to be of comparable quality. See "Restraints on Investments by Money
Market Funds" below.
Standby Commitments -- A Money Market Fund may acquire securities subject to a
standby commitment which permits a Fund to sell the security at a fixed price
prior to maturity. The underlying municipal securities subject to a standby
commitment may be sold at any time at the market rates. In certain cases, a
premium may be paid for a standby commitment. A premium paid will have the
effect of reducing the yield otherwise payable on the underlying security. The
purpose of engaging in transactions involving standby commitments is to
maintain flexibility and liquidity to permit the Fund to meet redemptions and
remain as fully invested as possible in municipal securities. Each Fund will
limit standby commitment transactions to institutions which the Adviser
believes present minimal credit risk, pursuant to guidelines adopted by the
Trust's Board of Trustees.
There is no limit to the percentage of Fund securities that any Fund may
purchase subject to a standby commitment but the amount paid directly or
indirectly for a standby commitment held by any Fund will not exceed 1/2 of 1%
of the value of the total assets of the Fund.
Repurchase Agreements -- A repurchase agreement is an agreement by which a
person obtains a security and simultaneously commits to return the security to
the seller at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days from the date of purchase. The
Custodian or its agent will hold the security as collateral for the repurchase
agreement. Collateral must be maintained at a value at least equal to 100% of
the purchase price. A Fund bears a risk of loss in the event the other party
defaults on its obligations and the Fund is delayed or prevented from its right
to dispose of the collateral securities or if the Fund realizes a loss on the
sale of the collateral securities. The Adviser will enter into repurchase
agreements on behalf of a Fund only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
guidelines established and periodically reviewed by the Trustees. Pursuant to
an exemptive order of the SEC, each of the Funds may enter into repurchase
agreements on a pooled basis with other portfolios of the Trust.
Forward Commitments or Purchases On a When-Issued Basis -- The Money Market
Funds may enter into forward commitments or purchase securities on when-issued
basis, which means that the price of the securities is fixed at the time of
commitment and that the delivery and payment will ordinarily take place beyond
customary settlement time. The interest rate realized on these securities is
fixed as of the purchase date and no interest accrues to the Fund before
settlement. These securities are subject to market fluctuation due to changes
in market interest rates and will have the effect of leveraging the Fund's
assets; the securities are also subject to fluctuation in value pending
settlement based upon public perception of the creditworthiness of the issuer
of these securities. Securities purchased on a when-issued or forward
commitment basis may expose a Fund to risk because such securities may
experience such fluctuations in value prior to their actual delivery.
Agreements to purchase securities on a when-issued or forward commitment basis
will only be made with the intention of taking delivery and not for speculative
purposes. A Fund may invest up to 25% of its assets in forward commitments or
commitments to purchase securities on a when-issued basis. While awaiting
delivery of securities purchased on such bases, a Fund will establish a
segregated account consisting of cash, short-term money market instruments or
high quality debt securities equal to the amount of the commitments to purchase
securities on such bases.
Securities Lending -- In order to generate additional income, a Money Market
Fund may lend the securities in which it is invested pursuant to agreements
requiring
20
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that the loan be continuously secured by cash, U.S. Treasury Obligations, U.S.
Government Obligations or any combination of cash and such securities as
collateral equal at all times to 100% of the market value of the securities
lent. A Fund may lend up to 33 1/3% of the value of its total assets. The Fund
will continue to receive interest on the securities lent while simultaneously
earning interest on the investment of cash collateral in U.S. Treasury
Obligations or U.S. Government Obligations. Collateral is marked to market
daily to provide a level of collateral at least equal to the market value of
the securities lent. There may be risks of delay in recovery of the securities
or even loss of rights in the collateral should the borrower of the securities
fail financially. However, loans will only be made to borrowers deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from such securities loans
justifies the attendant risk.
Zero Coupon Securities -- Zero coupon securities are fixed income securities
that have been stripped of their unmatured interest coupons. A zero coupon
security pays no interest or principal to its holder during its life. A zero
coupon security is sold at a discount, frequently substantial, and redeemed at
face value at its maturity date. The amount of the discount fluctuates with the
market price of the security, and is accreted over the life of the security.
Such accretion constitutes the income earned on the security for both
accounting and tax purposes. The market prices of zero coupon securities are
generally more volatile than the market prices of securities of similar
maturity that pay interest periodically, and zero coupon securities are likely
to respond to a greater degree to interest rate changes than are non-zero
coupon securities with similar maturity and credit qualities.
Money Market Funds -- A Fund may not invest more than 5% of its assets in any
one money market fund or more than 10% of its assets in other investment
companies, including money market funds. When a Fund invests in a money market
fund, a Shareholder bears not only his or her proportionate share of the Fund's
expenses, but also indirectly his or her share of the expenses of the money
market fund, including management fees. The 1784 U.S. Treasury Money Market
Fund does not intend to invest in other money market funds.
The 1784 Tax-Free Money Market Fund may also invest in the following types of
securities:
Receipts -- Receipts represent interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
or brokerage firms and are created by depositing U.S. Treasury obligations into
a special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Investment Growth Receipts" ("TIGRs"), and "Certificates of Accrual
on Treasury Securities" ("CATS"). TIGRs and CATS are sold as zero coupon
securities. See "Zero Coupon Securities" for more information on these
securities.
Bank Obligations -- Bank obligations include certificates of deposit, time
deposits (including Eurodollar time deposits) and bankers' acceptances and
other short-term debt obligations issued by domestic banks, foreign
subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. The Fund may invest in such obligations, however, only if
the issuer (or the parent company, in the case of subsidiaries or branches) has
assets of at least $1 billion.
Bankers' Acceptances -- A banker's acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
Certificates of Deposit -- A certificate of deposit is a negotiable interest-
bearing instrument with a specific maturity. Certificates of deposit are issued
by banks and savings and loan institutions in exchange for the deposit of funds
and normally can be traded in the secondary market prior to maturity.
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Time Deposits -- A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities; therefore, the Fund will not invest more
than 10% of its net assets in such time deposits and other illiquid securities.
Commercial Paper -- Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from one to 270 days.
Municipal Securities -- Municipal securities the 1784 Tax-Free Money Market
Fund may purchase include (i) debt obligations issued by or on behalf of public
authorities to obtain funds to be used for various public facilities, for
refunding outstanding obligations, for general operating expenses, and for
lending such funds to other public institutions and facilities, and (ii)
certain private activity and industrial development bonds issued by or on
behalf of public authorities to obtain funds to provide for the construction,
equipment, repair, or improvement of privately operated facilities. Municipal
notes include (but are not limited to) general obligation notes, tax
anticipation notes, revenue anticipation notes, bond anticipation notes,
certificates of indebtedness, demand notes, and construction loan notes.
Municipal bonds include (but are not limited to) general obligation bonds,
revenue or special obligation bonds, private activity and industrial
development bonds. General obligation bonds are backed by the taxing power of
the issuing municipality. Revenue bonds are backed by the revenues of a project
or facility; tolls from a toll bridge for example. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed
as security for such payment.
Municipal securities also include participations in municipal leases. These are
undivided interests in a portion of an obligation in the form of a lease or
installment purchase issued by state or local government to acquire equipment
or facilities. Municipal leases frequently have special risks not normally
associated with general obligation bonds or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by
the appropriate legislative body on a yearly or other periodic basis. Although
the obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In light of these concerns, the Trust
has adopted and follows procedures for determining whether municipal lease
securities purchased by the Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures require
that a number of factors be used in evaluating the liquidity of a municipal
lease security, including the frequency of trades and quotes for the security,
the number of dealers willing to purchase or to sell the security and the
number of other potential purchasers, the willingness of dealers to undertake
to make a market in the security, the nature of the marketplace in which the
security trades, the credit quality of the security, and other factors which
the Adviser may deem relevant.
Restraints on Investments by Money Market Funds -- Investments by the Money
Market Funds are subject to limitations imposed under regulations adopted by
the SEC. Under these regulations money market funds may acquire only
obligations that present minimal credit risks and that are "eligible
securities," which means they are (i) rated, at the time of investment, by at
least
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two nationally recognized statistical rating organizations (one if it is the
only organization rating such obligation) in the highest short-term rating
category or, if unrated, determined to be of comparable quality (a "first tier
security"), or (ii) rated according to the foregoing criteria in the second
highest short-term rating category (or rated by one nationally recognized
statistical rating organization in the highest short-term rating category and
by another organization in the second highest short-term rating category) or,
if unrated, determined to be of comparable quality ("second tier security"). A
security is not considered to be unrated if its issuer has outstanding
obligations of comparable priority and security that have a short-term rating.
The Adviser will determine that an obligation presents minimal credit risks or
that unrated instruments are of comparable quality in accordance with
guidelines established by the Trustees. Under normal circumstances, the 1784
U.S. Treasury Money Market Fund intends to invest all of its investable assets
in U.S. Treasury Obligations, U.S. Government Obligations and repurchase
agreements involving U.S. Treasury Obligations or U.S. Government Obligations.
The Board of Trustees of the Trust has certain obligations, in the event that a
security ceases to be a first-tier security or ceases to be a second-tier
security, to reassess whether such security continues to present only minimal
credit risks.
Each Money Market Fund will invest only in U.S. dollar-denominated securities,
will maintain an average maturity on a dollar-weighted basis of 90 days or less
and will acquire only "eligible securities" that have or are deemed to have a
maturity of 397 days or less and that present minimal credit risks as
determined by or on behalf of the Board of Trustees of the Trust. Each Fund
will comply with the various requirements of Rule 2a-7 under the Investment
Company Act of 1940, which regulates money market funds. In particular, each
Fund will determine the effective maturity of its investments (including
certain variable rate instruments, where maturity may be deemed to be the
period remaining until the next interest rate adjustment date or until payment
of the security may be demanded) according to Rule 2a-7 as in effect from time
to time.
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APPENDIX A
DESCRIPTION OF RATINGS
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The following descriptions are summaries of certain published ratings.
Description of Commercial Paper Ratings
- --------------------------------------------------------------------------------
The following descriptions of commercial paper ratings have been published by
Standard and Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Service, Inc. ("Fitch"), Duff and Phelps, Inc.
("Duff"), and IBCA Limited and IBCA, Inc. (together, "IBCA"). As of the date
hereof, each of S&P, Moody's, Fitch, Duff and IBCA is a nationally recognized
statistical rating organization within the meaning of applicable SEC rules.
S&P's ratings are graded into several categories of which A is the highest.
This category is divided into sub-categories as follows:
A-1 This highest sub-category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality, respectively, on the
basis of relative repayment capacity.
Commercial paper issues rated F-1+, F-1 and F-2 by Fitch are judged by Fitch to
be of "exceptionally strong" quality, "very strong" quality and "good" quality,
respectively, on the basis of relative repayment capacity.
The rating Duff-1+ is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1+ is regarded as having the highest certainty of timely
payment with outstanding liquidity factors and safety just below risk free U.S.
Treasury short-term obligations. Paper rated Duff-1 is regarded as having a
very high certainty of timely payment, excellent liquidity factors and good
fundamental protection factors. Risk factors are minor.
The designation A1 by IBCA indicates that the obligation is supported by the
highest capacity for timely repayment. Where issues possess a particularly
strong credit feature, a rating of A1+ is assigned. Obligations rated A2 are
supported by a good capacity for timely repayment.
Description of Municipal Note Ratings
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S&P's municipal note ratings reflect the liquidity concerns and market access
risks unique to notes. An SP-1 rating indicates a strong capacity to pay
principal and interest. Issues determined to possess very strong
characteristics are given a plus (+) designation. An SP-2 rating indicates a
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
Moody's MIG-1/VMIG-1 designation denotes best quality. Municipal notes that
obtain this rating possess strong protection due to established cash flows,
superior liquidity support or demonstrated broad-based access to the market for
refinancing. Moody's MIG-2/VMIG-2 designation denotes high quality. Margins of
protection are ample although not so large as in the MIG-1/VMIG-1 group.
A-1
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APPENDIX B
TAXABLE EQUIVALENT YIELD TABLE
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This table is for illustrative purposes only and is not intended to predict the
actual return an individual would earn on an investment in the 1784 Tax-Free
Money Market Fund. No assurance can be made that the Fund will attain any
particular yield. The tax rates used in these tables are based upon published
1995 marginal tax rates currently available and scheduled to be in effect. The
tables do not take into account changes in tax rates that are proposed from
time to time. Investors should consult their tax advisers to determine their
actual tax rates.
1784 TAX-FREE MONEY MARKET FUND
Find your Federal tax bracket based on your taxable income.
<TABLE>
<CAPTION>
You would need the taxable yield
listed opposite the Federal
1995 tax bracket in the chart below to
Taxable Income* Federal have a tax-exempt yield of:
- --------------------------------- Marginal -----------------------------------
Single Joint Rate 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
- ------------ ------------------- -------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 23,351--
56,550 $ 39,001-- 94,250 28.00% 2.08% 2.78% 3.47% 4.17% 4.86% 5.56%
56,551--
117,950 94,251--143,600 31.00% 2.17% 2.90% 3.62% 4.35% 5.07% 5.80%
117,951--
256,500 143,601--256,500 36.00% 2.34% 3.13% 3.91% 4.69% 5.47% 6.25%
256,501 and
more 256,501 and more 39.60% 2.48% 3.31% 4.14% 4.97% 5.79% 6.62%
</TABLE>
*This amount represents taxable income as defined in the Internal Revenue Code.
Note: Information in this table is provided as of June 30, 1995.
B-1
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PROSPECTUS
[LOGO OF 1784 FUNDS APPEARS HERE]
Investment Adviser:
THE FIRST NATIONAL BANK OF BOSTON
1784 FUNDS (the "Trust") is a mutual fund consisting of several professionally
managed portfolios, or funds, of securities. The Trust provides a convenient
way to invest in one or more of these funds. This Prospectus relates to shares
of the following fixed income funds (the "Funds" or the "Fixed Income Funds"):
1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
1784 INCOME FUND
1784 SHORT-TERM INCOME FUND
Shares of the Funds are offered primarily to individuals and institutional
investors, including accounts for which The First National Bank of Boston
("Bank of Boston"), its affiliates and correspondents, and other financial
institutions act in a fiduciary, agency or custodial capacity. Investors in
shares of the Funds are referred to hereinafter as "Shareholders." Shares of
the Funds are currently offered without any sales charges.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANK OF BOSTON OR ANY OF ITS AFFILIATES. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING RISK
TO PRINCIPAL.
This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing in the Funds.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information, dated October 2, 1995, has
been filed with the Securities and Exchange Commission (the "SEC") and is
available without charge through the Distributor, SEI Financial Services
Company, 680 East Swedesford Road, Wayne, PA 19087 or by calling 1-800-252-
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.
October 2, 1995
as supplemented December 4, 1995
<PAGE>
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I784 FUNDS
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
- --------------------------------------------------------
<S> <C>
Expense Summary 2
Summary 3
Condensed Financial Information 6
The Trust 7
Investment Objective 7
Investment Policies 7
Certain Investment Policies and Guidelines 9
Investment Limitations 10
The Adviser 11
The Administrator 13
The Shareholder Servicing Agent and Transfer Agent 13
</TABLE>
<TABLE>
<CAPTION>
Page
- ---------------------------------------------------------
<S> <C>
The Distributor 13
Purchase of Shares 14
Redemption of Shares 16
Systematic Withdrawal Plan 18
Exchanges 18
Checkwriting 18
Performance 19
Taxes 19
General Information 20
Description of Permitted Investments and Techniques 22
Appendix/Description of Ratings A-1
</TABLE>
<PAGE>
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EXPENSE SUMMARY
- --------------------------------------------------------------------------------
Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of each of the Fixed Income Funds and annual operating expenses of
the Funds, and (ii) an example illustrating the dollar cost of such expenses on
a hypothetical $1,000 investment in each of the Funds.
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None
Sales Charge Imposed on Reinvested Dividends (as a percentage of offering
price) None
Deferred Sales Charge Imposed on Redemptions (as a percentage of offering
price) None
Redemption Fees (1) None
Exchange Fee None
</TABLE>
Annual Operating Expenses
- --------------------------------------------------------------------------------
(As a percentage of average net assets)
<TABLE>
<CAPTION>
1784 U.S.
Government
Medium- 1784
Term 1784 Short-Term
Income Fund Income Fund Income Fund
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees (after
fee waiver) (2) 0.60% 0.60% 0.45%
12b-1 Fee (after fee waiver) (2) None None None
Other Expenses 0.20% 0.20% 0.20%
- ---------------------------------------------------------------------
Total Operating Expenses (2) 0.80% 0.80% 0.65%
- ---------------------------------------------------------------------
</TABLE>
(1) If proceeds of a redemption of Fund shares are paid by wire transfer, a
wire transfer charge (presently $12.00) will be imposed.
(2) Bank of Boston, which serves as the Adviser for the Trust, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
each of the Fixed Income Funds to not more than 1.25% (1.00% for the 1784
Short-Term Income Fund) of average daily net assets on an annualized basis;
this limitation would not apply to any brokerage commissions, interest expense
or taxes or to extraordinary expense items, including but not limited to
litigation expenses. SEI Financial Services Company, which acts as Distributor
of the Trust's shares, has agreed to waive its 12b-1 fee, which is computed at
an annual rate of 0.25% of each Fund's average daily net assets. If the
Distributor should terminate this waiver, after a substantial period of time
annual payment of this fee may total more than the maximum sales charge that
would have been permissible if imposed entirely as an initial sales charge. SEI
Financial Management Corporation, which acts as the Trust's Administrator, has
agreed to waive its fee from certain funds of the Trust to assist these funds
in maintaining a competitive expense ratio. Bank of Boston contributes to the
Funds in order to limit other operating expenses and to assist the Funds in
maintaining a competitive expense ratio. Fee waivers by the Adviser,
Administrator and Distributor, and contributions by the Bank of Boston, are
voluntary and may be terminated at any time. From time to time the Adviser may
also waive additional portions of its fees to reduce net operating expenses to
less than that shown in the table above. Certain other parties may also agree
to waive portions of their fees from time to time on a month to month basis.
Additional information may be found under "The Adviser," "The Administrator"
and "The Distributor." Absent waivers, the Adviser's investment advisory fee is
calculated at an annual rate of 0.74% (0.50% for the 1784 Short-Term Income
Fund) of average daily net assets of each Fund. Absent the waiver of fees by
the Distributor, Adviser and Administrator, and voluntary contributions by the
Bank of Boston, other expenses and estimated total operating expenses would be
as follows: 0.28% and 1.27% of average daily net assets of the 1784 U.S.
Government Medium-Term Income Fund, 0.28% and 1.23% of average daily net assets
of the 1784 Income Fund, and 0.69% and 1.27% of average daily net assets of the
1784 Short-Term Income Fund, in each case on an annualized basis. Other
expenses are based on actual expenses for each Fund's fiscal year ended May 31,
1995, and include expense items described under "General Information -- The
Trust." A person who purchases shares through a financial institution may be
charged separate fees by the financial institution.
2
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Example
- --------------------------------------------------------------------------------
An investor would pay the following expenses on a hypothetical $1,000
investment assuming a 5% annual total return and redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1784 U.S. Government Medium-Term Income Fund $ 8 $26 $44 $99
1784 Income Fund $8 $26 $44 $99
1784 Short-Term Income Fund $7 $21 $36 $81
</TABLE>
Absent voluntary waivers by the Adviser, Distributor and Administrator and
contributions made by the Bank of Boston, the amounts for this example for one
year, three years, five years and ten years would be $13, $40, $70, $153 for
the 1784 U.S. Government Medium-Term Income Fund, $13, $40, $70 and $153 for
the 1784 Income Fund and $15, $46, $79 and $172 for the 1784 Short-Term Income
Fund. The example is based on actual expenses for each Fund's fiscal year ended
May 31, 1995. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RETURN, AND ACTUAL EXPENSES AND RETURN MAY BE GREATER OR
LESS THAN THOSE SHOWN. The purpose of this table is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in the Funds. Additional information may be found under
"General Information -- The Trust," "The Adviser," "The Administrator" and "The
Distributor."
SUMMARY
- --------------------------------------------------------------------------------
The following information is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information.
1784 Funds (the "Trust") is an open-end management investment company which
provides a convenient way to invest in one or more professionally managed funds
of securities. The following provides basic information about the 1784 U.S.
Government Medium-Term Income Fund, 1784 Income Fund and 1784 Short-Term Income
Fund (each, a "Fund" or a "Fixed Income Fund," and collectively, the "Funds" or
the "Fixed Income Funds"). Each of the Fixed Income Funds is a diversified
fund.
What Is the Investment Objective? The investment objective of the 1784 U.S.
Government Medium-Term Income Fund is current income consistent with
preservation of capital. The investment objective of the 1784 Income Fund and
the 1784 Short-Term Income Fund is to maximize current income. Preservation of
capital is a secondary objective for these two Funds. Each Fund's investment
objective may be changed only with the consent of holders of a majority of that
Fund's outstanding shares. There can be no assurance that any Fixed Income Fund
will achieve its investment objective. See "Investment Objective" and
"Investment Limitations."
What Are the Permitted Investments? The 1784 U.S. Government Medium-Term Income
Fund under normal circumstances invests at least 65% of its total assets in
U.S. Government securities, which include obligations issued or guaranteed as
to principal and interest by the U.S. Government or any of its agencies or
instrumentalities, and repurchase agreements involving U.S. Government
securities. Distributions of the 1784 U.S. Government Medium-Term Income Fund
derived from interest on obligations of the U.S. Government and certain of its
agencies and instrumentalities may be exempt from state and local taxes in
certain states. See "Taxes." Each of the 1784 Income Fund and the 1784 Short-
Term Income Fund under normal circumstances invests at least 80% of its net
assets in debt securities or securities with debt-like characteristics, such as
bonds, debentures, notes, mortgage-backed securities and asset-backed
securities of domestic and foreign issuers and municipal obligations. The Trust
expects each of these Funds,
3
<PAGE>
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under normal circumstances, to invest at least 65% of its net assets in debt
securities described above rated A or better by Standard & Poor's Ratings
Group, Duff & Phelps Credit Rating Company, Fitch Investors Service, Inc. or
Moody's Investors Service, Inc. or of comparable quality at the time of
purchase as determined by the Adviser. Under normal circumstances, the 1784
Income Fund maintains a dollar-weighted average portfolio maturity of from
seven to thirty years, with no security having a maturity of longer than thirty
years. Under normal circumstances, the 1784 Short-Term Income Fund maintains a
dollar-weighted average effective portfolio maturity of not more than three
years. Within this limitation, the Fund may purchase individual securities with
effective maturities greater than three years. Effective maturity takes into
account estimates of average life of mortgage-backed and asset-backed
securities and anticipated exercises of calls and prepayment rights.
What Are Some of the Risks? The investment policies of each of the Fixed Income
Funds entail certain risks and considerations of which an investor should be
aware. For example, the net asset value per share of each of the Fixed Income
Funds is not fixed and should be expected to fluctuate. In addition, values of
fixed income securities tend to vary inversely with interest rates and may be
affected by other market and economic factors as well; mortgage-backed
securities are subject to prepayment of the underlying mortgages and may not be
an effective means of locking in long-term interest rates; the longer maturity
securities in which the 1784 Income Fund may invest are subject to greater
market fluctuations as a result of changes in interest rates; and foreign
securities may subject the 1784 Income and 1784 Short-Term Income Funds to
different risks than those attendant to investments in securities of U.S.
issuers.
For further information, see "Investment Policies," "Certain Investment
Policies and Guidelines" and "Description of Permitted Investments and
Techniques" herein and in the Statement of Additional Information.
Who Is the Adviser? The First National Bank of Boston ("Bank of Boston" or the
"Adviser") serves as the Adviser for the Trust and is entitled to a fee which
is calculated daily and paid monthly at an annual rate of 0.74% (0.50% for the
1784 Short-Term Income Fund) of the average daily net assets of each of the
Fixed Income Funds. The Adviser has agreed for an indefinite period of time to
waive all or a portion of its fee in order to limit the total operating
expenses of the Fixed Income Funds to not more than 1.25% (1.00% for the 1784
Short-Term Income Fund) of each Fund's average daily net assets. Bank of Boston
contributes to the Funds in order to limit operating expenses and to assist the
Funds in maintaining a competitive expense ratio. Fee waivers and contributions
may be terminated at any time. See "The Adviser."
Who Is the Administrator? SEI Financial Management Corporation serves as the
Administrator for the Trust under an Administration Agreement and is entitled
to a fee which is calculated daily and paid monthly at an annual rate of 0.15%
of the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Each Fixed Income Fund's
portion of such fee is based on that Fund's average daily net assets. The
Administrator has agreed to waive a portion of its fees on a month to month
basis under certain circumstances. See "The Administrator."
Who Are the Shareholder Servicing Agent and Transfer Agent? Boston Financial
Data Services acts as dividend disbursing agent and shareholder servicing agent
for the Funds. State Street Bank and Trust Company acts as transfer agent for
the Funds. 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 each Fixed Income Fund's
4
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I784 FUNDS
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average daily net assets; the Distributor can use all or a portion of this fee
to compensate broker-dealers and other financial institutions that provide
services to Shareholders or to their customers who beneficially own shares of
the Fixed Income Funds. The Distributor has agreed to waive its 12b-1 fee.
However, distribution fees may be imposed in the event that the Distributor
determines to terminate its waiver of such fees. The Trust may create one or
more additional classes of shares, without distribution fees, of one or more of
the Funds. See "The Distributor."
How Do I Purchase Shares? Purchases of Fund shares may be made through the
Distributor by the close of business Monday through Friday except on days when
the New York Stock Exchange or the Federal Reserve Bank of Boston is closed
("Business Days"). Shares may also be purchased through broker-dealers which
have established dealer agreements with the Distributor. Purchase orders
submitted through broker-dealers normally will be received by the Distributor
on the Business Day after they are received by the broker-dealer.
A purchase order for shares representing an investment in a Fixed Income Fund
will be effective as of the Business Day the order is received by the
Distributor if the Distributor receives a purchase order in good form for the
shares and payment (by wire transfer or check) for the shares before 4:00 p.m.
Eastern Time ("ET") on that day. Shares are sold at their net asset value
determined as of the end of the day the order is effective. Shares purchased
will begin accruing dividends on the day following the date of purchase.
The minimum initial investment in a Fixed Income Fund is $1,000; all subsequent
purchases must be at least $250. Minimum investment requirements are lower for
accounts established for automatic investment programs and under tax-deferred
retirement programs (including IRAs). See "Purchase of Shares."
Shares of each of the Fixed Income Funds are currently being offered without
any sales charges. See "The Distributor."
How Do I Redeem Shares? Redemptions of shares of a Fixed Income Fund may be
made through the Shareholder Servicing Agent on any Business Day. Redemption
orders must be placed in good form before 4:00 p.m. ET on any Business Day to
be effective on that day. The redemption price is the net asset value per share
determined as of the end of the day the order is effective. See "Redemption of
Shares."
How are Distributions Paid? Substantially all of the net investment income
(exclusive of capital gains) of each of the Funds is distributed in the form of
dividends which are declared daily and paid monthly. Shareholders of record on
the record date for the dividend distribution will be entitled to the
dividends, except that shares will not begin accruing dividends until the day
following the date of their purchase. On redemption, a shareholder will receive
dividends through and including the day a valid redemption request is received
by the Shareholder Servicing Agent. Any capital gain is distributed at least
annually. Distributions are paid in additional shares unless the Shareholder
elects to take the payments in cash. See "Dividends and Distributions."
How Do I Make Exchanges? Once payment for shares of a Fixed Income Fund has
been received by the Distributor, those shares may be exchanged for shares of
one or more other portfolios of the Trust at net asset value, provided the
amount of the exchange meets the minimum investment requirements for the other
portfolio of the Trust. There are no charges for an exchange. If an exchange
request in good order is received by the Distributor by 4:00 p.m. ET on any
Business Day, the exchange usually will occur on that day; however, requests
for exchange for shares of a money market fund must be received earlier than
4:00 p.m. ET (in cases when regular trading on the New York Stock Exchange
closes earlier than 4:00 p.m. ET, as early as 12:00 noon ET) for the exchange
to occur on that day. A Shareholder must obtain and should read the prospectus
of the other portfolio and consider the differences in investment objectives
and policies before making any exchange. An exchange is treated, for federal
and state income tax purposes, as a sale of
5
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the Fixed Income Fund shares exchanged, and could result in gain or loss to the
Shareholder. See "Exchanges."
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following table provides condensed financial information about the 1784
U.S. Government Medium-Term Income Fund for the period from June 7, 1993
(commencement of operations) through May 31, 1995, and about the 1784 Short-
Term Income Fund and 1784 Income Fund for the period from July 1, 1994
(commencement of operations) through May 31, 1995. The information should be
read in conjunction with the financial statements appearing in the Funds'
Annual Report to Shareholders, which is incorporated by reference in the
Statement of Additional Information. The financial statements and notes, as
well as the table below, covering the period through May 31, 1995 have been
audited by Coopers & Lybrand L.L.P., independent accountants, whose report is
included in the Funds' Annual Report. Copies of the Annual Report may be
obtained without charge from the Distributor.
FINANCIAL HIGHLIGHTS
For the Period Ended May 31, 1995
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net Ratio
Asset Realized and Dividends Net Assets Ratio of Net
Value Net Unrealized from Net Asset Value End of Expenses Income
Beginning Investment Gains or (Losses) Investment End Total of Period to Average to Average
of Period Income on Investments Income of Period Return (000) Net Assets Net Assets
--------- ---------- ----------------- ---------- ----------- ------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
MEDIUM-TERM
INCOME(1)
- --------------------
- --------------------
6/7/93-5/31/94 $10.00 0.59 (0.64) (0.59) $ 9.36 (0.65)%* $ 92,387 0.31%** 6.08%**
6/1/94-5/31/95 $ 9.36 0.58 0.21 (0.58) $ 9.57 8.79% $130,081 0.80% 6.24%
SHORT-TERM
INCOME FUND(2)
- -----------------
- -----------------
7/1/94-5/31/95 $10.00 0.56 0.09 (0.56) $10.09 6.74%* $ 52,581 0.48%** 6.31%**
INCOME FUND(2)
- -----------------
- -----------------
7/1/94-5/31/95 $10.00 0.62 0.39 (0.62) $10.39 10.69%* $196,515 0.55%** 7.01%**
<CAPTION>
Ratio Ratio of
of Expenses Net Income
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ---------- ---------
<S> <C> <C> <C>
U.S. GOVERNMENT
MEDIUM-TERM
INCOME(1)
- --------------------
- --------------------
6/7/93-5/31/94 1.35%** 5.04%** 144.77%
6/1/94-5/31/95 1.27% 5.77% 142.14%
SHORT-TERM
INCOME FUND(2)
- -----------------
- -----------------
7/1/94-5/31/95 1.27%** 5.52%** 84.54%
INCOME FUND(2)
- -----------------
- -----------------
7/1/94-5/31/95 1.23%** 6.33%** 80.53%
</TABLE>
* Returns are for the period indicated and have not been annualized.
** Ratios for this period have been annualized.
(1) The U.S. Government Medium-Term Income Fund commenced operations on June 7,
1993.
(2) The Short-Term Income Fund and the Income Fund commenced operations on July
1, 1994.
6
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THE TRUST
- --------------------------------------------------------------------------------
1784 Funds (the "Trust") is an open-end management investment company that
currently offers units of beneficial interest ("shares") in several separate
professionally managed investment portfolios, or funds. Each share of each fund
represents an undivided, proportionate interest in that fund. This Prospectus
relates to shares of the Trust's 1784 U.S. Government Medium-Term Income Fund,
1784 Short-Term Income Fund, and 1784 Income Fund, each of which is a
diversified fund. The Trust's other funds include the 1784 U.S. Treasury Money
Market Fund, 1784 Institutional U.S. Treasury Money Market Fund, 1784 Tax-Free
Money Market Fund, 1784 Growth and Income Fund, 1784 Asset Allocation Fund,
1784 International Equity Fund, 1784 Tax-Exempt Medium-Term Income Fund, 1784
Massachusetts Tax-Exempt Income Fund, 1784 Connecticut Tax-Exempt Income Fund,
and 1784 Rhode Island Tax-Exempt Income Fund. Information regarding the Trust's
other funds is contained in separate prospectuses that may be obtained from the
Trust's distributor, SEI Financial Services Company (the "Distributor"), 680
East Swedesford Road, Wayne, Pennsylvania 19087, or by calling 1-800-252-1784.
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the 1784 U.S. Government Medium-Term Income Fund is
current income consistent with preservation of capital.
The investment objective of the 1784 Short-Term Income Fund is to maximize
current income. Preservation of capital is a secondary objective. This Fund is
designed for investors seeking a higher yield than from a money market fund and
more price stability than a longer-term bond fund.
The investment objective of the 1784 Income Fund is to maximize current income.
Preservation of capital is a secondary objective.
There is no assurance that the investment objective of any Fund will be met.
The investment objective of each Fund is a fundamental policy of that Fund, and
therefore cannot be changed without the consent of holders of a majority of
that Fund's outstanding shares. See "Investment Limitations."
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The 1784 U.S. Government Medium-Term Income Fund is a diversified fund which
under normal circumstances invests at least 65% of its total assets in U.S.
Government securities, i.e., obligations issued or guaranteed as to principal
and interest by the U.S. Government or any of its agencies and
instrumentalities, and repurchase agreements involving U.S. Government
securities. The Fund may also invest in receipts evidencing separately traded
interest and principal component parts of U.S. Government obligations. The Fund
may write (sell) covered call options and enter into fixed income futures
contracts and options (in each case for hedging purposes only).
The 1784 U.S. Government Medium-Term Income Fund may purchase mortgage-backed
securities issued or guaranteed as to payment of principal and interest by the
U.S. Government or any of its agencies or instrumentalities and mortgage-backed
securities issued by private issuers rated A or better by Moody's Investors
Service, Inc. ("Moody's") or by Standard & Poor's Ratings Group ("S&P") or of
comparable quality at the time of purchase as determined by the Adviser and
backed by mortgage pass-through certificates issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities. The principal
governmental issuers or guarantors of mortgage-backed securities are the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), and Federal Home Loan Mortgage Corporation ("FHLMC").
Obligations of GNMA are backed by the full faith and credit of the U.S.
Government while obligations of FNMA and FHLMC are supported by the respective
agency only. The Fund may purchase mortgage-backed securities that are backed
or collateralized by fixed, adjustable or floating rate mortgages. Not more
than 35% of the Fund's total assets are invested in mortgage-backed securities
which are not issued or guaranteed as
7
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to payment of principal and interest by the U.S. Government or any of its
agencies or instrumentalities.
The Trust expects the Fund to maintain an average weighted remaining maturity
of three to ten years. The Adviser may shorten the average maturity
substantially in anticipation of a change in the interest rate environment for
temporary defensive purposes by investing in money market instruments and in
money market funds. To the extent the Fund is invested in money market
instruments and/or money market funds for temporary defensive purposes, the
Fund will not be pursuing its investment objective. Under normal circumstances,
it is anticipated that the annual portfolio turnover rate for the Fund will not
exceed 100%; for the Fund's fiscal years ended May 31, 1994 and May 31, 1995,
this rate was 145% and 142%, respectively.
For more information regarding the permitted investments and investment
practices of the 1784 U.S. Government Medium-Term Income Fund, the purpose of
these investments and investment practices and certain risks associated with
certain of these investments and investment practices, and information
regarding the ratings listed above, see "Certain Investment Policies and
Guidelines," "Description of Permitted Investments and Techniques," the
Appendix--"Description of Ratings" and the Statement of Additional Information.
Under normal circumstances, each of the 1784 Income Fund and the 1784 Short-
Term Income Fund invests at least 80% of its net assets in debt securities and
securities with debt-like characteristics, such as bonds, debentures, notes,
mortgage-backed securities and asset-backed securities of domestic and foreign
issuers and municipal obligations. Each Fund may invest up to 30% of its net
assets in securities of foreign issuers. The Trust expects each Fund, under
normal circumstances, to invest at least 65% of its net assets in debt
securities described above rated A or better by S&P, Duff & Phelps Credit
Rating Company ("Duff"), Fitch Investors Service, Inc. ("Fitch") or Moody's or
of comparable quality at the time of purchase as determined by the Adviser.
Each Fund is a diversified fund.
The securities in which the 1784 Income Fund and the 1784 Short-Term Income
Fund may invest include: (1) bonds, debentures, or other debt instruments of
U.S. or foreign issuers rated BBB or better by S&P, Duff, or
Fitch or Baa or better by Moody's or of comparable quality at the time of
purchase as determined by the Adviser; (2) debt obligations issued or
guaranteed as to principal and interest by the U.S. Government or any of its
agencies and instrumentalities; (3) debt securities issued or guaranteed by
foreign governments, their political subdivisions, agencies or
instrumentalities and debt securities of supranational entities, in each case
which the Adviser deems to be of comparable credit quality at the time of
purchase to the corporate debt instruments in which the Fund may invest; (4)
mortgage-backed securities and asset-backed securities rated A or better by
S&P, Duff, Fitch or Moody's or of comparable quality at the time of purchase as
determined by the Adviser; (5) zero coupon securities issued by the U.S.
Treasury or by corporations, and receipts evidencing separately traded interest
and principal component parts of U.S. Government obligations; (6) municipal
securities issued by the states, territories and possessions of the United
States and the District of Columbia and their respective political
subdivisions, agencies and instrumentalities; (7) bank obligations described
under "Description of Permitted Investments and Techniques;" (8) short-term
commercial paper rated A-2 or better by S&P, P-2 or better by Moody's, F-2 or
better by Fitch, or Duff 2 or better by Duff, or of comparable quality at the
time of purchase as determined by the Adviser; and (9) repurchase agreements
involving the foregoing types of securities. Debt securities rated Baa by
Moody's or BBB by S&P may have speculative characteristics. See the Appendix
for a description of the above ratings.
The Funds may, for hedging purposes or in order to generate additional income,
write (sell) covered call options, and may, for hedging purposes, enter into
futures contracts and related options. In addition, the Funds may make
additional types of investments and engage in other investment practices, as
described in "Description of Permitted Investments and Techniques."
8
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The Trust expects the 1784 Income Fund to maintain a dollar-weighted average
maturity of from seven to thirty years under normal circumstances. While
securities with longer maturities tend to produce higher yields than securities
with shorter maturities, they are also subject to greater market fluctuations
as a result of changes in interest rates.
The Trust expects the 1784 Short-Term Income Fund to maintain a dollar-weighted
average effective maturity of not more than three years under normal
circumstances. Effective maturity takes into account estimates of average life
of mortgage-backed and asset-backed securities and anticipated exercises of
calls and prepayment rights. Securities with shorter maturities generally are
subject to less price movement than securities of comparable quality with
longer maturities.
The Adviser may shorten the average maturity of a Fund substantially in
anticipation of a change in the interest rate environment for temporary
defensive purposes by investing in money market instruments and in money market
funds. To the extent a Fund is invested in money market instruments and/or
money market funds for temporary defensive purposes, the Fund will not be
pursuing its investment objective. Under normal circumstances, it is
anticipated that the annual portfolio turnover rate for each of these Funds
will not exceed 100%; for the fiscal year ended May 31, 1995, this rate was 81%
for the 1784 Income Fund and 85% for the 1784 Short-Term Income Fund.
For more information regarding the permitted investments and investment
practices of the 1784 Income Fund and the 1784 Short-Term Income Fund, the
purposes of these investments and investment practices and certain risks
associated with certain of these investments and investment practices, and
information regarding the ratings listed above, see "Certain Investment
Policies and Guidelines," "Description of Permitted Investments and
Techniques," the Appendix -- "Description of Ratings" and the Statement of
Additional Information.
CERTAIN INVESTMENT POLICIES AND GUIDELINES
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The market value of each Fund's fixed income investments (including money
market instruments) changes in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. Moreover,
while securities with longer maturities tend to produce higher yields, the
prices of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates. Securities with shorter
maturities, such as those in which the 1784 Short-Term Income Fund primarily
invests, generally produce lower yields than longer term securities of
comparable quality and tend to be subject to less price movement. Changes by
recognized agencies in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal also affect the
value of these investments. Changes in the value of Fund securities affects the
Fund's net asset value; under most circumstances, changes in the value of Fund
securities will not affect cash income derived from these securities.
Each Fixed Income Fund's investments normally consist primarily of securities
that are listed on recognized exchanges or actively traded in the over-the-
counter market. Each Fixed Income Fund may also hold securities that are
neither so listed nor so traded. However, none of the Fixed Income Funds
invests more than 15% of its net assets in illiquid securities.
In general, mortgage-backed securities are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities the yield of which reflects then-prevailing interest
rates, which may be lower. Thus, mortgage-backed securities may not be an
effective means of locking in long-term interest rates for the Funds.
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For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each of the Fixed Income Funds may invest up to 100% of its
assets in money market instruments described under "Description of Permitted
Investments and Techniques," consisting of the following: (1) securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities; (2)
repurchase agreements; (3) bank obligations described under "Description of
Permitted Investments and Techniques;" (4) commercial paper, other short-term
debt securities or variable or floating rate instruments rated in one of the
two highest short-term rating categories by a "nationally recognized
statistical rating organization" as defined under Securities and Exchange
Commission rules ("NRSRO") or of comparable credit quality as determined by the
Adviser; and (5) asset-backed securities. The Funds may also invest, for
temporary defensive purposes, in money market funds. To the extent a Fund is
invested in money market instruments and/or money market funds for temporary
defensive purposes, the Fund will not be pursuing its investment objective.
Each of the Fixed Income Funds may invest in floating or variable rate
obligations and may purchase securities on a when-issued basis. Each of the
Funds may also, from time to time, engage in securities lending; however, loans
made by a Fund of the securities it holds may not exceed 33 1/3% of that Fund's
total assets. Each of the Funds may enter into interest rate futures contracts
and related options.
Investments in securities of foreign issuers may subject the 1784 Income Fund
and 1784 Short-Term Income Fund to different risks than those attendant to
investments in securities of U.S. issuers, such as changes in currency rates or
exchange control regulations, differences in accounting, auditing and financial
reporting standards, more volatile or less liquid markets, the possibility of
expropriation or confiscatory taxation, and political instability. There may
also be less publicly available information with regard to foreign issuers than
domestic issuers. In addition, foreign markets may be characterized by less
liquidity, greater price volatility, less regulation and higher transaction
costs than U.S. markets.
The 1784 Income Fund and 1784 Short-Term Income Fund may invest in companies
(or governments) of or within developed as well as developing countries
throughout the world. Shareholders should be aware that investing in the fixed
income markets of developing countries involves exposure to economic structures
that are generally less diverse and mature, and to political systems which can
be expected to have less stability, than those of developed countries. A
developing country is generally considered to be one which is in the initial
stage of its industrialization cycle with a low per capita income. Historical
experience indicates that the markets of developing countries have been more
volatile that the markets of developed countries with more mature economies;
such markets often have provided higher rates of return and greater risks to
investors. Such characteristics can be expected to continue in the future.
Investment in securities of issuers based in developing countries entail all of
the risks of investing in securities of foreign issuers but to a heightened
degree. Each of these Funds may invest not more than 15% of its net assets in
securities of issuers in developing countries and not more than 30% of its net
assets in securities of foreign issuers, including the 15% it may invest in
issuers in developing countries.
In the event a security owned by a Fixed Income Fund is downgraded below the
rating categories discussed above, the Adviser will review and take action it
deems appropriate with regard to the security.
INVESTMENT LIMITATIONS
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The investment objective of each Fund and the following investment limitations
are fundamental policies of that Fund. Fundamental policies cannot be changed
with respect to a Fund without the consent of the holders of a majority of that
Fund's outstanding shares. The term "majority of the outstanding shares" means
the vote of (i) 67% or more of the Fund's shares present at a meeting, if more
than 50% of the outstanding shares of the Fund are present or
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represented by proxy, or (ii) more than 50% of the Fund's outstanding shares,
whichever is less.
A Fund may not:
1. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation (i)
utility companies will be divided according to their services, for example,
gas, gas transmission, electric and telephone will each be considered a
separate industry; (ii) financial service companies will be classified
according to the end users of their services; for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry; and (iii) supranational entities will be considered to be a separate
industry.
2. Make loans except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objectives and policies; (b) enter into
repurchase agreements; and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
3. Borrow, except that a Fund may borrow money from banks and may enter into
reverse repurchase agreements, in either case in an amount not to exceed 33
1/3% of the Fund's total assets and then only as a temporary measure for
extraordinary or emergency purposes (e.g., to meet Shareholder redemption
requests). A Fund will not purchase any securities for its portfolio at any
time at which its borrowings equal or exceed 5% of its total assets (taken at
market value).
4. With respect to 75% of the total assets of the Fund, purchase securities of
any issuer (except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements involving such
securities) if as a result more than 5% of the total assets of the Fund would
be invested in the securities of such issuer or more than 10% of the
outstanding voting securities of such issuer would be owned by the Fund.
The foregoing percentages apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISER
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The First National Bank of Boston ("Bank of Boston" or the "Adviser") manages
the assets of each Fund pursuant to an Investment Advisory Agreement (the
"Advisory Agreement") with the Trust. Subject to such policies as the Board of
Trustees of the Trust may determine, the Adviser makes investment decisions for
each Fund. Jack A. Ablin, Senior Fund Manager, has been a manager of the 1784
U.S. Government Medium-Term Income Fund since June, 1993 (commencement of its
operations) and of the 1784 Income Fund since July 1, 1994 (commencement of its
operations). Mr. Ablin, who has more than nine years of investment management
experience, has been a Senior Fund Manager at Bank of Boston since 1990. From
1987 to 1990, Mr. Ablin was a Fixed Income Portfolio Manager with
Constitutional Capital Management Company. Emmett M. Wright, Fund Manager, has
been a manager of the 1784 U.S. Government Medium-Term Income Fund and of the
1784 Income Fund since September 1, 1995. Mr. Wright, who has more than five
years of investment management and research analysis experience, was an
Associate Fund Manager at Bank of Boston from 1993 to 1994 and has been a Fund
Manager at Bank of Boston since 1994. Mary K. Werler has been the manager of
the 1784 Short-Term Income Fund since July 1, 1994 (commencement of its
operations). Ms. Werler, who has more than six years of investment management
experience, has been a Fund Manager at Bank of Boston since 1993. From 1987 to
1993, Ms. Werler was an Associate Portfolio Manager with Keystone Custodian
Funds. For its services under the Advisory Agreement, the Adviser receives from
each Fund a fee accrued daily and paid monthly at an annual rate equal to 0.74%
(0.50% for the 1784 Short-Term
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Income Fund) of the Fund's average daily net assets. However, the Adviser has
agreed for an indefinite period of time to waive all or a portion of its fees
in order to limit the total operating expenses of each of the Funds on an
annualized basis to not more than 1.25% (1.00% for the 1784 Short-Term Income
Fund) of its average daily net assets; this limitation would not apply to any
brokerage commissions, interest expense or taxes or to extraordinary expense
items, including but not limited to litigation expenses. Fee waivers may be
terminated at any time. From time to time the Adviser may also waive additional
portions of its fees to reduce net operating expenses to less than the amounts
specified above.
For the fiscal year ended May 31, 1995, the fees payable to the Bank of Boston
under the Advisory Agreement with respect to each of the Funds were as follows:
for the 1784 U.S. Government Medium-Term Income Fund, $837,109, of which
$158,372 was voluntarily waived (after giving effect to such waiver, 0.60% of
such Fund's average daily net assets for that fiscal year); for the 1784 Income
Fund, $1,109,000, of which $588,122 was voluntarily waived (after giving effect
to such waiver, 0.32% of such Fund's average daily net assets for that fiscal
year); and for the 1784 Short-Term Income Fund, $144,000, of which $58,064 was
voluntarily waived (after giving effect to such waiver, 0.27% of such Fund's
average daily net assets for that fiscal year). In addition, the Bank of Boston
contributed $77,295 to the 1784 Government Medium-Term Income Fund, $78,271 to
the 1784 Income Fund and $14,876 to the 1784 Short-Term Income Fund to decrease
the Funds' other operating expenses and to assist the Funds in maintaining a
competitive expense ratio. Management's discussion of the Fixed Income Funds'
performance is included in the Funds' Annual Report to Shareholders which
investors may obtain without charge by contacting the Distributor. The Funds
may execute brokerage or other agency transactions through the Adviser or an
affiliate.
Bank of Boston, a national banking association, is the successor to a number of
banking institutions, the first of which was chartered in 1784. All of the
capital stock of Bank of Boston (except directors' qualifying shares) is owned
by Bank of Boston Corporation, a registered bank holding company. Bank of
Boston and its affiliates are engaged in providing a wide variety of financial
services to individuals, corporate and institutional customers, governments,
and other financial institutions throughout New England, the United States and
internationally. These services include individual and community banking,
consumer finance, mortgage origination and servicing, domestic corporate and
investment banking, leasing, international banking services, commercial real
estate lending, private banking, trust services, correspondent banking, and
securities and payments processing. Bank of Boston's principal business address
is 100 Federal Street, Boston, MA 02110. Prior to the organization of the Trust
in 1993, the Adviser had not served as the investment adviser for management
investment companies. The Adviser also manages the other funds comprising the
Trust.
Bank of Boston has been providing asset management services since 1890. Its
portfolio managers are responsible for investing in money market, equity, and
fixed income securities and they have earned national recognition and respect.
The investment management group within Bank of Boston which manages the Fixed
Income Funds is the same group which has managed Bank of Boston's collective
trust funds with similar investment objectives. As of December 31, 1994, Bank
of Boston and its affiliates managed more than $13 billion in assets worldwide.
Bank of Boston and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Funds, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Bank of Boston and its
affiliates deal, trade and invest for their own account in certain types of
securities purchased on behalf of the Funds. Bank of Boston and its affiliates
may sell such securities to and purchase them from other investment companies
sponsored by SEI Financial Services Company or its
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affiliates. The Adviser has informed the Trust that, in making its investment
decisions, it does not obtain or use material inside information in the
possession of any division or department of Bank of Boston or in the possession
of any affiliate of Bank of Boston.
The Glass-Steagall Act prohibits certain financial institutions, such as Bank
of Boston, from engaging in the business of underwriting securities of open-end
investment companies, such as the Funds. Bank of Boston takes the position,
based on the advice of counsel, that the investment advisory services it
provides under the Advisory Agreement do not constitute underwriting activities
and are consistent with the requirements of the Glass-Steagall Act and other
relevant federal and state legal and regulatory precedent. State laws on this
issue may differ from applicable federal law, and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Future changes in either federal or state statutes or
regulations relating to the permissible activities of banks, as well as future
judicial or administrative decisions and interpretations of present and future
federal and state statutes and regulations, could prevent Bank of Boston from
continuing to perform such services for the Trust. If Bank of Boston were to be
prevented from acting as the Adviser, the Trust would seek alternative means
for obtaining such services.
THE ADMINISTRATOR
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SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), and the Trust are parties to an
administration agreement dated as of June 1, 1993 (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
provides the Trust with administrative services other than investment advisory
services, including all regulatory reporting, necessary office space,
equipment, personnel, and facilities.
The Administrator is entitled to a fee which is calculated daily and paid
monthly at an annual rate of 0.15% of the Trust's first $300 million of average
daily net assets, 0.12% of the Trust's second $300 million of average daily net
assets and 0.10% of the Trust's average daily net assets over $600 million.
Each Fixed Income Fund's portion of such fee is based on the average daily net
assets of such Fund. The Administrator has agreed to waive a portion of its
fees on a month to month basis under certain circumstances for certain of the
portfolios of the Trust.
THE SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
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Boston Financial Data Services acts as dividend disbursing agent and
shareholder servicing agent (the "Shareholder Servicing Agent") for the Funds,
and receives a fee for these services. The principal business address for 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 Funds, and receives a fee for these services. The principal business
address for the Transfer Agent is 225 Franklin Street, Boston, MA 02110-2875.
THE DISTRIBUTOR
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SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") dated as of June 1, 1993, and the Trust has adopted a
distribution plan (the "Plan") dated as of June 1, 1993 pursuant to Rule 12b-1
under the Investment Company Act of 1940. As provided in the Distribution
Agreement and the Plan, the Trust will pay the Distributor a fee for its
services, calculated daily and paid monthly, at an annual rate of .25% of the
average daily net assets of each Fixed Income Fund. The Distributor may apply
all or a portion of this fee toward: (a) compensation for its services in
connection with distribution assistance or provision of Shareholder services;
or (b) payments to financial institutions and intermediaries such as banks
(including Bank of Boston), savings and loan associations, insurance companies,
investment counselors, broker-dealers and the Distributor's affiliates and
subsidiaries, as compensation for services, reimbursement of expenses incurred
in connection with distribution assistance, or provision of Shareholder
services. The Plan is
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characterized as a "compensation plan" (in contrast to "reimbursement"
arrangements in which a distributor's compensation is linked directly to the
distributor's expenses) since the distribution fee will be paid to the
Distributor without regard to the distribution or Shareholder service expenses
incurred by the Distributor or the amount of payments made to financial
institutions and intermediaries. The Distributor has agreed to waive the 12b-1
fee. This waiver may be terminated by the Distributor at any time.
The Trust may create one or more additional classes of shares of any or all of
the Fixed Income Funds to be offered without distribution fees to certain types
of investors.
The Funds may execute brokerage or other agency transactions through the
Distributor, for which the Distributor receives compensation.
From time to time the Distributor may provide incentive compensation to
employees of banks (including Bank of Boston), broker-dealers and investment
counselors, and to its own employees, in connection with the sale of shares of
the Funds or other portfolios of the Trust. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation, including merchandise, airline vouchers, trips and vacation
packages. Such promotional incentives will be offered uniformly to all program
participants and will be predicated upon the amount of shares of the Funds and
other portfolios of the Trust sold by the participant.
PURCHASE OF SHARES
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Shares of the Funds are sold on a continuous basis and may be purchased
directly from the Trust's Distributor either by mail or by telephone. Shares
may also be purchased through a broker-dealer which has established a dealer
agreement with the Distributor.
Purchases of shares of each Fund may be made Monday through Friday except on
days when the New York Stock Exchange or the Federal Reserve Bank of Boston is
closed ("Business Days"). Current holidays for the New York Stock Exchange
and/or the Federal Reserve Bank of Boston are New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Thanksgiving and Christmas. Except as provided below, the
minimum initial investment in the shares is $1,000, and all subsequent
purchases of shares must be at least $250. Minimum purchase amounts may be
waived by the Distributor in its discretion. No minimum purchase amount applies
to subsequent purchases made by reinvestment of dividends.
The purchase price for shares of a Fund is their net asset value next
determined after the Distributor receives a purchase order in good form. Net
asset value per share is determined as of the close of regular trading on the
New York Stock Exchange, 4:00 p.m. ET, on each Business Day. Purchases will be
made in full and fractional shares of a Fund calculated to three decimal
places.
A purchase order for shares of a Fund will be effective as of the Business Day
the order is received by the Distributor if the Distributor receives a purchase
order, in good form, for the shares and payment (by wire transfer or check) for
the shares before 4:00 p.m. ET on that day. Purchase orders submitted through
broker-dealers which have established dealer agreements with the Distributor
normally will be received by the Distributor on the Business Day after they are
received by the broker-dealer. In certain circumstances where the agreement
between the Distributor and the customer's broker so permits, a purchase order
for additional shares of a Fixed Income Fund will be effective as of the
Business Day the order is received by the Distributor if the Distributor
receives a purchase order in good form for the shares before 4:00 p.m. ET on
that day and payment (by wire transfer or check) for the shares is received
before 4:00 p.m. ET within 3 Business Days thereafter.
By Mail
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Investors may purchase shares of any Fund by completing and signing an Account
Application and
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mailing it, along with a check (or other negotiable bank instrument or money
order) payable to the Fund in which shares are being purchased, e.g., "1784
U.S. Government Medium-Term Income Fund," "1784 Income Fund" or "1784 Short-
Term Income Fund," to the Fund, P.O. Box 8524, Boston, MA 02266-8524.
Subsequent purchases of shares may be made at any time by mailing a check (or
other negotiable bank draft or money order) to the Fund.
Account Applications can be obtained by calling the Distributor at 1-800-252-
1784.
By Telephone
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If a Shareholder has previously submitted an Account Application, that
Shareholder may also purchase shares by telephone by calling the Distributor
toll-free at 1-800-252-1784. 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 a
Fixed Income Fund will be executed prior to receipt of payment, but payment
must be received before 4:00 p.m. ET within 3 Business Days thereafter.
Tax-Deferred Retirement Programs
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The Funds are eligible for purchase by tax-deferred retirement programs such as
IRAs, KEOGHs, and 401(k) plans, and the minimum initial investment requirement
for an account established under such a program is $250. Bank of Boston offers
a number of tax-deferred retirement plans through which shares of a Fund may be
purchased. All Fund accounts established under a tax-deferred retirement
program must elect to have all dividends reinvested in the Fund.
Systematic Investment Plan (SIP)
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A Shareholder may also arrange for periodic additional investments in a Fixed
Income Fund through automatic deductions by Direct Deposit (if available from a
Shareholder's employer) or by Automatic Clearing House ("ACH") transactions
from a checking account by completing the appropriate section of the Account
Application. The Systematic Investment Plan is subject to account minimum
initial purchase amounts and minimum maintained balance requirements. The
minimum pre-authorized investment amount is $50 per month. An Account
Application may be obtained by contacting the Distributor at 1-800-252-1784.
Other Information Regarding Purchases
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Shares of a Fund may also be purchased through financial institutions,
including Bank of Boston, which provide shareholder service or other assistance
to the Trust. Texas residents may only purchase shares through the Distributor.
Shares purchased by persons ("Customers") through financial institutions may be
held of record by the financial institution. Financial institutions may impose
cut-off times for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Distributor. Customers should
contact their financial institution for information as to the institution's
procedures for transmitting purchase, exchange or redemption orders to the
Distributor. The Distributor's receipt of an order may be delayed by one or
more Business Days.
Customers who desire to transfer the registration of shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change. Other Shareholders who desire to
transfer the registration of their shares should contact the 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.
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No certificates representing shares will be issued.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such offer. Each Fund will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. These
procedures will include verification of a caller's identity by asking for his
or her name, address, telephone number, Social Security number, and account
number. If these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine are not followed, the Fund may be liable
for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
For all purchases, if payment is not made or a check received for shares does
not clear, the purchase will be cancelled and the investor could be liable for
any losses to the Fund, including losses resulting from a decline in the net
asset value of the applicable shares between the date of purchase and the date
of cancellation, and for a check return fee up to $25.00, as applicable. Shares
purchased will begin accruing dividends on the day following the date of
purchase.
The net asset value per share of each Fund is determined by dividing the total
market value of the Fund's investments and other assets, less any liabilities,
by the total outstanding shares of the Fund. Each Fund may use a pricing
service to provide market quotations. A pricing service may use a matrix system
of valuation to value fixed income securities which considers factors such as
securities prices, yield features, ratings, and developments related to a
specific security.
REDEMPTION OF SHARES
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Shareholders may redeem their shares on any Business Day and shares may
ordinarily be redeemed by mail or telephone, with proceeds payable by check,
ACH or wire transfer. A redemption is treated, for federal and state income tax
purposes, as a sale of the Fund shares redeemed; a redemption could, therefore,
result in taxable gain or loss to the Shareholder. If proceeds are paid by wire
transfer, a wire transfer charge (presently $12.00) will be imposed.
By Mail
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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 02260-
8524.
By Telephone
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Shares may be redeemed by telephone if the Shareholder elects that option on
the Account Application (unless a written redemption request, with the
Shareholder's signature guaranteed, is required; see "Signature Guarantees"
below). Telephone redemption orders must be placed with the 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 Funds' address for overnight deliveries is 1784
Funds, c/o Boston Financial Data Services, 2 Heritage Drive, North Quincy, MA
02171.
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Signature Guarantees
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If a Shareholder requests a redemption for an amount in excess of $25,000, a
redemption of any amount to be payable to anyone other than the Shareholder of
record or a redemption of any amount to be sent to any address other than the
Shareholder's address of record with the applicable Fund (or in the case of ACH
or wire transfers, other than as provided in the Shareholder's Account
Application), all account holders on the Shareholder's account must sign a
written redemption request and their signatures must be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange or by another
eligible guarantor institution. The Trust and the Shareholder Servicing Agent
reserve the right to amend these requirements for the applicable Fund at any
time without notice. For questions about the proper form of redemption
requests, call 1-800-252-1784.
Other Information Regarding Redemptions
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All redemption orders for shares of the Funds are effected at the net asset
value per share next determined after receipt, by the 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. Each Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
These procedures will include verification of a caller's identity by asking for
his or her name, address, telephone number, Social Security number, and account
number. If these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine are not followed, the Fund may be liable
for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
Forwarding of redemption proceeds for shares purchased, or received in exchange
for shares purchased, by check (including certified or cashier's checks) may be
delayed for 15 or more days to ensure that payment has been collected for the
purchase of such shares. Each Fund intends to pay cash for all shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in Fund securities with a market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem, at net asset value, the shares of any Shareholder
if, because of redemptions of shares by or on behalf of the Shareholder (and
not solely because of market declines), the account of such Shareholder in the
Fund has a value of less than the minimum initial purchase amount (normally
$1,000). Accordingly, an investor purchasing shares of the Fund in only the
minimum investment amount may be subject to such involuntary redemption if he
or she thereafter redeems any of these shares. Before the Fund exercises its
right to redeem such shares and to send the proceeds to the Shareholder, the
Shareholder will be given notice that the value of the shares in his or her
account is less than the minimum amount and will be allowed 60 days to make an
additional investment in the Fund in an amount which will increase the value of
the account to at least the minimum amount. Accounts established under a tax-
deferred retirement program may be subject to involuntary redemption as
described above only if such account has a value of less than $250, the minimum
initial purchase amount for such accounts.
The right of any Shareholder to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or to the extent otherwise
permitted by the Investment Company Act of 1940, if an emergency exists. See
"Purchase and Redemption of
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Shares" in the Statement of Additional Information for examples of when the
right of redemption may be suspended.
SYSTEMATIC WITHDRAWAL PLAN
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A Shareholder may direct the Shareholder Servicing Agent to send him or her
regular monthly, quarterly, semi-annual or annual payments, as designated on
the Account Application and based upon the value of his or her account. Each
payment under a systematic withdrawal plan must be at least $100, except in
certain limited circumstances. A withdrawal payment under the plan is treated,
for federal and state income tax purposes, as a sale of a number of Fund shares
sufficient to fund the payment; such payment could, therefore, result in
taxable gain or loss to the Shareholder.
EXCHANGES
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Some or all of the shares of a Fixed Income Fund for which payment has been
received by the Distributor (i.e., an established account) may be exchanged at
their net asset value for shares of one or more of the other portfolios of the
Trust, including shares of another Fixed Income Fund. Exchanges will be made
only after instructions in writing or by telephone are received for an
established account by the Distributor.
In the case of shares held of record by Bank of Boston or one of its affiliates
but beneficially owned by a Customer, to exchange such shares the Customer
should contact Bank of Boston or the affiliate, who will contact the
Distributor and effect the exchange on behalf of the Customer. If an exchange
request in good order is received by the Distributor by 4:00 p.m. ET on any
Business Day, the exchange usually will occur on that day; however, requests
for exchange for shares of a money market fund must be received earlier than
4:00 p.m. ET (in cases when regular trading on the New York Stock Exchange
closes earlier than 4:00 p.m. ET, as early as 12:00 noon ET) for the exchange
to occur on that day. Any Shareholder or Customer who wishes to make an
exchange must have received a current prospectus of the portfolio in which he
or she wishes to invest before the exchange will be effected. Residents of any
state may only exchange shares for shares of another portfolio of the Trust if
that portfolio is registered in that state.
Each exchange must involve either shares having an aggregate value of at least
$250 or all the shares in the account, and the amount of the exchange must meet
the minimum investment requirements for the portfolio of the Trust into which
the exchange is being made.
Exchanges may be made by telephone only if that option has been elected by the
Shareholder on the Account Application. Shares may be exchanged by telephone by
calling the Distributor toll free at 1-800-252-1784.
No fees are currently charged to Shareholders directly in connection with
exchanges, although each of the Fixed Income Funds reserves the right, upon not
less than 60 days' written notice, to charge Shareholders a nominal fee in
accordance with rules promulgated by the SEC. Each of the Fixed Income Funds
also reserves the right to reject any exchange request in whole or in part. The
exchange privilege (or any aspect of it) may be changed or terminated at any
time.
An exchange is treated, for federal and state income tax purposes, as a sale of
the Fixed Income Fund shares exchanged; an exchange could, therefore, result in
taxable gain or loss to the Shareholder.
CHECKWRITING
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A Shareholder in the 1784 Short-Term Income Fund may redeem shares by writing
checks on his or her account for $250 or more. Once a Shareholder has signed
and returned a signature card agreement, that Shareholder will receive a supply
of checks.
A check may be made payable to any person, and the Shareholder's account will
continue to earn dividends until the check clears. The checkwriting privilege
is available on the terms specified in the signature card agreement and may be
terminated or changed by the Fund at any time.
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Because of the difficulty of determining in advance the exact value of a Fund
account, a Shareholder may not use a check to close his or her account. These
checks are currently free, i.e. there is no charge for this service; however,
the Shareholder's account will be charged a fee for stopping payment of a check
upon a Shareholder's request or if the check cannot be honored because of
insufficient funds or for other valid reasons.
A redemption by check is treated, for federal and state income tax purposes, as
a sale of the Fund shares redeemed and could, therefore, result in taxable gain
or loss to the Shareholder.
PERFORMANCE
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From time to time, the Trust may advertise a Fund's yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. The yield of a Fund refers to the annualized
income generated by an investment in the Fund over a specified 30-day period.
The yield is calculated by assuming that the income generated by the investment
during that period is generated over one year and is shown as a percentage of
the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, net of any sales charge imposed, for designated time
periods (including but not limited to the period from which the Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all
dividend and capital gain distributions.
A Fund's performance may from time to time be compared to that of other mutual
funds tracked by mutual fund rating services, to that of broad groups of
comparable mutual funds or to that of unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs.
TAXES
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The following is a discussion of certain United States federal income tax
considerations relevant to the purchase, ownership, and disposition of shares
in the Funds. The discussion, which is based on current tax laws, regulations,
rulings, and judicial decisions (all of which are subject to change at any time
by legislative, judicial, or administrative action), is not intended to be
complete; therefore, prospective investors should consult their own tax
advisers as to the tax consequences to them of an investment in a Fund.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
Tax Status of the Fixed Income Funds
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Each Fund is treated as a separate entity for federal income tax purposes, and
is not combined with the other Funds or the Trust's other portfolios. The Trust
intends to qualify each Fund each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and to make distributions to that Fund's shareholders in accordance
with the timing requirements set out in the Code. As a result, it is expected
that the Funds will not be required to pay any federal income or excise taxes,
although foreign source income received by the 1784 Income Fund or the 1784
Short-Term Income Fund may be subject to foreign withholding taxes.
Tax Treatment of Shareholders
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1784 U.S. Government Medium-Term Income Fund
Shareholders of the 1784 U.S. Government Medium-Term Income Fund generally will
have to pay federal income taxes and may be subject to state or local taxes on
the dividends and capital gain distributions they receive from the Fund,
whether paid in cash or in additional shares. Distributions from net investment
income and short-term capital gains will be taxable to Shareholders as ordinary
income, while Fund distributions of net capital gains (the excess of net long-
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term capital gains over net short-term capital losses) will be taxable to
Shareholders as long-term capital gains, regardless of how long the
Shareholders have held their shares.
Distributions that are derived from interest on obligations of the U.S.
Government and certain of its agencies and instrumentalities (but generally not
from capital gains realized upon the disposition of such obligations) may be
exempt from state and local taxes. The Trust intends to advise Shareholders of
the extent, if any, to which Fund distributions consist of such interest.
1784 Short-Term Income Fund and 1784 Income Fund
Shareholders of these Funds normally will have to pay federal income taxes and
any state or local taxes on the dividends and capital gain distributions they
receive from a Fund, whether paid in cash or in additional shares.
Distributions from net investment income and short-term capital gains will be
taxable to Shareholders as ordinary income, while distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) will be taxable to Shareholders as long-term capital gains, regardless
of how long Shareholders have held their shares.
General
The Trust expects that none of the dividends received from the Funds will be
eligible for the dividends received deduction for corporations. Any Fund
dividend that is declared in October, November, or December of a calendar year,
payable to shareholders of record in such a month, and that is paid the
following January will be treated as if received by the Shareholders on
December 31 of the year in which the dividend is declared.
The Trust will make annual reports to Shareholders of the federal income tax
status of all distributions from each Fund.
The exchange or redemption of Fund shares is a taxable event to the
Shareholder; however, under certain circumstances, realized losses may be
disallowed and short-term capital losses may be converted into long-term
capital losses.
The Funds will generally withhold tax payments at the rate of 30% on dividends
and other payments that are subject to such withholding and that are made to
persons who are neither citizens nor residents of the U.S., although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. Each
Fund is also required in certain circumstances to apply backup withholding of
31% of taxable dividends and certain redemption proceeds paid to any
Shareholder (including a Shareholder who is neither a citizen nor a resident of
the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. Backup
withholding will not, however, be applied to payments that have been subject to
30% (or lower treaty rate) withholding.
GENERAL INFORMATION
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The Trust
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The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated February 5, 1993. The Declaration of Trust permits the Trust to
issue an unlimited number of shares of beneficial interest of each of the
portfolios (referred to as "series") of the Trust, each of which is a separate
fund. In addition to the Fixed Income Funds, the Trust includes the following
funds: 1784 Institutional U.S. Treasury Money Market Fund, 1784 U.S. Treasury
Money Market Fund, 1784 Tax-Free Money Market Fund, 1784 Growth and Income
Fund, 1784 Asset Allocation Fund, 1784 International Equity Fund, 1784 Tax-
Exempt Medium-Term Income Fund, 1784 Massachusetts Tax-Exempt Income Fund, 1784
Connecticut Tax-Exempt Income Fund, and 1784 Rhode Island Tax-Exempt Income
Fund. All consideration received by the Trust for shares of any
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fund and all assets of such fund belong to that fund and are subject to
liabilities related thereto. The Trust reserves the right to create and issue
additional series of shares, and reserves the right to create and issue shares
of additional classes of any or all series.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses and reports to Shareholders,
costs of custodian services and registering the shares of the Funds and other
series under federal and state securities laws, pricing, insurance expenses,
brokerage costs, interest charges, taxes, and amortization of organization
expenses, and any extraordinary expenses including but not limited to
litigation expenses. For the fiscal year ended May 31, 1995, the total expenses
of each of the Funds were as follows: for the 1784 U.S. Government Medium-Term
Income Fund, $1,449,843, of which $544,860 was voluntarily waived or reimbursed
by the Bank of Boston (after giving effect to such waiver or reimbursement,
0.80% of such Fund's average daily net assets for that fiscal year); for the
1784 Income Fund, $1,808,186, of which $985,091 was voluntarily waived or
reimbursed by the Bank of Boston (after giving effect to such waiver or
reimbursement, 0.55% of such Fund's average daily net assets for that fiscal
year); and for the 1784 Short-Term Income Fund, $357,999, of which $221,254 was
voluntarily waived or reimbursed by the Bank of Boston (after giving effect to
such waiver or reimbursement, 0.48% of such Fund's average daily net assets for
that fiscal year).
Under applicable law, Shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the risk of a
Shareholder incurring financial loss on account of such Shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations and inadequate insurance existed. The Trust believes that the
likelihood of such circumstances is remote.
Trustees of the Trust
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The management and affairs of the Trust are supervised by its Board of
Trustees. The Trustees have approved contracts under which, as described above,
certain companies provide essential management, administrative and Shareholder
services to the Trust.
Voting Rights
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Each share held entitles the Shareholder of record to one vote. Each fund or
class will vote separately on 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
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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
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Shareholder inquiries should be directed to SEI Financial Management
Corporation, P.O. Box 1784, Wayne, Pennsylvania 19087-8784, at 1-800-252-1784.
Dividends and Distributions
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Substantially all of the net investment income (not including capital gains) of
the Fixed Income Funds is distributed in the form of dividends which are
declared daily and paid monthly. Shareholders of record will be entitled to
receive the dividend, except that shares will not begin accruing dividends
until the day following the date of their purchase. On redemption, a
shareholder will receive dividends through and
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including the day a valid redemption request is received by the Shareholder
Servicing Agent. Currently, capital gains of the Funds, if any, will be
distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the Shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Administrator at least 15 days prior to the distribution.
Dividends and distributions of the Funds are paid on a per-share basis. The
value of each share will be reduced by the amount of the payment. If the shares
are purchased shortly before the record date for a dividend or the distribution
of capital gains, a Shareholder will pay the full price for the shares and
receive some portion of the price back as a taxable dividend or distribution.
If dividend payments are returned and unclaimed within 30 days, they will be
reinvested and the Shareholder will be deemed to have elected to receive future
dividend and capital gain distributions in additional shares.
Counsel and Independent Accountants
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Bingham, Dana & Gould LLP, Boston, MA, serve as counsel to the Trust. Coopers &
Lybrand L.L.P., Boston, MA, serve as the independent accountants of the Trust.
Custodian
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Bank of Boston, 100 Federal Street, Boston, MA 02110, acts as Custodian of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940. Foreign securities may be held
through subcustodians approved by the Trust's Board of Trustees. Under a
separate agreement, Bank of Boston also provides certain accounting services
for the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS AND TECHNIQUES
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The following is a description of certain of the permitted investments and
investment techniques for the Funds. Not all of the Funds will normally invest
in all of the investments, nor engage in all of the investment techniques,
listed below. See "Investment Policies." Except as specifically stated below or
elsewhere in this Prospectus or in the Statement of Additional Information with
respect to certain of the Funds' permitted investments and investment
techniques, there are no limits on the amount of assets a Fund may invest in
particular types of securities.
U.S. Treasury Obligations -- U.S. Treasury obligations include bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS"). STRIPS are sold as zero coupon securities. These
securities are usually structured with two classes that receive different
portions of the interest and principal payments from the underlying obligation.
The yield to maturity on the interest-only class is extremely sensitive to the
rate of principal payments on the underlying obligation. The market value of
the principal-only class generally is unusually volatile in response to changes
in interest rates. See "Zero Coupon Securities" below for more information on
these securities.
Receipts -- A Fund may purchase interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
or brokerage firms and are created by depositing U.S. Treasury obligations into
a special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts" ("TIGRs"),
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and "Certificates of Accrual on Treasury Securities" ("CATS"). TRs, TIGRs, and
CATS are sold as zero coupon securities. See "Zero Coupon Securities" below for
more information on these securities.
U.S. Government Agencies -- Certain Federal agencies such as the Government
National Mortgage Association ("GNMA") have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States (e.g., GNMA) or supported by the issuing agencies' right to borrow from
the Treasury. The issues of other agencies are supported only by the credit of
the instrumentality (e.g., Federal National Mortgage Association, "FNMA").
Bank Obligations -- A Fund may invest in bank obligations, i.e., certificates
of deposit, time deposits (including Eurodollar time deposits) and bankers'
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and
foreign branches of foreign banks, domestic savings and loan associations and
other banking institutions. A Fund may invest in such obligations, however,
only if the issuer (or the parent company, in the case of subsidiaries or
branches) has assets of at least $1 billion, and only if the Adviser deems the
bank obligation to be of comparable credit quality to the commercial paper in
which the applicable Fund may invest.
Bankers' Acceptances -- A banker's acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
Certificates of Deposit -- A certificate of deposit is a negotiable interest-
bearing instrument with a specific maturity. Certificates of deposit are issued
by banks and savings and loan institutions in exchange for the deposit of funds
and normally can be traded in the secondary market prior to maturity.
Money Market Funds -- A money market fund is an investment company that limits
its investments to high quality money market instruments with a weighted
average maturity of 90 days or less. A Fund may not invest more than 5% of its
assets in any one money market fund or more than 10% of its assets in other
investment companies, including money market funds. When a Fund invests in a
money market fund, a Shareholder bears not only his or her proportionate share
of the Fund's expenses, but also indirectly his or her share of the expenses of
the money market fund, including management fees.
Time Deposits -- A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities; therefore, no Fund will invest more than
15% of its net assets in such time deposits and other illiquid securities.
Options -- A Fund may engage in writing call options from time to time as the
Adviser deems appropriate. Under a call option, the purchaser of the option has
the right to purchase, and the writer (the Fund) the obligation to sell, the
underlying security at the exercise price during the option period. Call
options written on individual securities are written solely as covered call
options (such as options written on securities owned by the Fund) and may be
written in order to generate additional income or for hedging purposes. Such
options must be listed on a national securities exchange. In order to close out
an option position, the Fund may enter into a "closing purchase transaction" --
the purchase of a call option on the same security with the same exercise
price and expiration date as any call option which it may previously have
written on any particular security. When the Fund security is sold, the Fund
effects a closing purchase transaction so as to close out any existing call
option on that security. If the Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
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option expires or the Fund delivers the underlying security upon exercise.
Each Fund may write covered call options on its securities provided the
aggregate value of such options does not exceed 10% of the Fund's net assets as
of the time such options are entered into by the Fund.
Each Fund may purchase put options on its securities provided the aggregate
value of such options does not exceed 10% of the Fund's net assets as of the
time such options are entered into by the Fund. Under a put option, the
purchaser of the option has the right to sell the underlying security at the
exercise price during the option period.
There are risks associated with options transactions, including the following:
(1) the success of a hedging strategy may depend on the ability of the Adviser
to predict movements in the prices of individual securities, market
fluctuations and movements in interest rates; (2) there may be an imperfect
correlation between the movement in prices of securities held by a Fund and
price movements of the related options; (3) there may not be a liquid secondary
market for options; and (4) while a Fund will receive a premium when it writes
covered call options, it may not participate fully in a rise in the market
value of the underlying security.
Futures and Options on Futures -- A Fund may also enter into bond and interest
rate futures contracts and options on futures contracts provided that the sum
of the Fund's initial margin deposits on open futures contracts plus the amount
paid for premiums for unexpired options on futures contracts does not exceed 5%
of the market value of the Fund's total assets and the outstanding obligations
to purchase securities under futures contracts do not exceed 20% of the Fund's
total assets. Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific security at a
specified future time and at a specified price. An option on a futures contract
gives the purchaser the right, in exchange for a premium, to assume a position
in a futures contract at a specified exercise price during the term of the
option. A Fund will minimize the risk that it will be unable to close out a
futures contract by entering into only those futures contracts which are traded
on national futures exchanges.
It is intended that the Funds would use futures contracts and related options
only for bona fide hedging purposes, i.e., to offset unfavorable changes in the
value of securities otherwise held or expected to be acquired for investment
purposes. There are risks associated with these hedging activities, including
the following: (1) the success of a hedging strategy may depend on the ability
of the Adviser to predict movements in the prices of individual securities,
fluctuations in markets, and movements in interest rates; (2) there may be an
imperfect or no correlation between the changes in market value of the
securities held by the Fund and the prices of futures and options on futures;
(3) there may not be a liquid secondary market for a futures contract or
futures option; (4) trading restrictions or limitations may be imposed by an
exchange; and (5) government regulations may restrict trading in futures
contracts and futures options.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by the Funds may carry variable or floating rates of interest and may involve a
conditional or unconditional demand feature permitting the holder to demand
payment of principal at any time, or at specified intervals. Such obligations
may include variable amount master demand notes. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a Federal Reserve composite index. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security; a Fund will not
invest more than 15% of its net assets in illiquid securities.
The interest rates on these securities may be reset daily, weekly, quarterly or
some other reset period, and may have a floor or ceiling on interest rate
charges. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates.
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Interest Rate Swaps -- An interest rate swap is a transaction in which the
parties involved exchange variable-rate instruments for fixed-rate instruments.
A Fund would undertake a swap if it believed that interest rates were moving in
a manner that made holding one type of instrument more advantageous than the
other. Thus, the success of a swap depends on the Adviser's ability to predict
correctly the movement of interest rates.
Commercial Paper -- Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from one to 270 days.
Securities of Foreign Issuers -- Investments in securities of foreign issuers
are subject to special risks such as future adverse political and economic
developments, possible seizure, nationalization or expropriation of foreign
investments, less stringent disclosure requirements, more volatile or less
liquid markets, the possible establishment of exchange controls or taxation at
the source, greater fluctuation in value due to changes in exchange rates, or
the adoption of other foreign governmental restrictions. These risks are
heightened for securities of issuers in developing countries. Such investments
may also entail higher custodial fees than domestic investments. Foreign
securities issuers are often subject to accounting treatment and engage in
business practices different from those of domestic securities issuers. Each of
the 1784 Income Fund and 1784 Short-Term Income Fund may invest up to 15% of
its net assets in securities of issuers in developing countries and up to 30%
of its net assets in securities of foreign issuers, including the 15% it may
invest in the securities of issuers in developing countries.
Foreign Currency Transactions -- Each of the 1784 Income Fund and 1784 Short-
Term Income Fund may engage in currency exchange transactions to protect
against uncertainty in the level of future exchange rates in connection with
hedging and other non-speculative strategies involving specific settlement
transactions, so long as such transactions do not exceed 20% of the Fund's
total assets. A Fund will conduct currency exchange transactions either on a
spot (i.e., cash) basis at the rate prevailing in the currency exchange market,
or through entering into forward contracts to purchase or sell currencies. A
forward currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which must be more than two days from the
date of the contract, at a price set at the time of the contract. Transaction
hedging is the purchase or sale of forward currency with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities. These contracts are entered into
in the interbank market conducted directly between currency traders (typically
commercial banks or other financial institutions) and their customers.
Loan Participations -- The 1784 Short-Term Income Fund and 1784 Income Fund may
invest in interests in loans to U.S. corporations (i.e., borrowers) which are
administered by the lending bank or agent for a syndicate of lending banks, and
sold by the lending bank or syndicate member ("intermediary bank"). In a loan
participation, the borrower of the underlying loan will be deemed to be the
issuer of the participation interest except to the extent the Fund derives its
rights from the intermediary bank. The Fund may only purchase interests in loan
participations issued by a bank in the United States with assets exceeding $1
billion and for which the underlying loan is issued by borrowers in whose
obligations the Fund may invest. Because the intermediary bank does not
guarantee a loan participation in any way, a loan participation is subject to
the credit risk generally associated with the underlying corporate borrower. In
addition, in the event the underlying corporate borrower fails to pay principal
and interest when due, the Fund may be subject to delays, expenses and risks
that are greater than those that would have been involved if the Fund had
purchased a direct obligation (such as commercial paper) of such borrower
because it may be necessary under the terms of the loan participation for the
Fund to assert its rights against the borrower through the intermediary bank.
Moreover, under the terms of a loan participation the purchasing Fund may be
regarded as a creditor of the intermediary bank (rather
25
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I784 FUNDS
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than the underlying corporate borrower), so that the Fund may also be subject
to the risk that the issuing bank may become insolvent. Further, in the event
of the bankruptcy or insolvency of the corporate borrower, a loan participation
may be subject to certain defenses that can be asserted by such borrower as a
result of improper conduct by the issuing bank. The secondary market, if any,
for these loan participations is limited and any such participation purchased
by a Fund may be regarded as illiquid; no Fund will invest more than 15% of its
net assets in illiquid securities.
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933 or an exemption from
registration are referred to as "restricted securities." Each of the Fixed
Income Funds may invest up to 15% of its net assets in illiquid securities,
including restricted securities; however, this limit will not apply to a
restricted security if it is determined by or under the direction of the
Trust's Board of Trustees, based on trading markets for the specific restricted
security, that such security is liquid. The liquidity of these investments
could be impaired if trading does not develop or declines. In the case of
illiquid securities, the absence of a trading market can make it difficult to
ascertain a market value for these investments. Disposing of illiquid
securities may involve time-consuming negotiation and legal expense, and it may
be difficult or impossible for a Fund to sell them promptly at an acceptable
price.
Repurchase Agreements -- A repurchase agreement is an agreement by which a
person obtains a security and simultaneously commits to return the security to
the seller at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days from the date of purchase. The
Custodian or its agent will hold the security as collateral for the repurchase
agreement. Collateral must be maintained at a value at least equal to 100% of
the purchase price. A Fund bears a risk of loss in the event the other party
defaults on its obligations and the Fund is delayed or prevented from its right
to dispose of the collateral securities or if the Fund realizes a loss on the
sale of the collateral securities. The Adviser will enter into repurchase
agreements on behalf of a Fund only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
guidelines established and periodically reviewed by the Trustees. Pursuant to
an exemptive order from the SEC, each of the Funds may enter into repurchase
agreements on a pooled basis with other portfolios of the Trust.
Mortgage-Backed Securities -- Each of the Funds may acquire securities
representing an interest in a pool of mortgage loans that are issued or
guaranteed by a U.S. Government agency. The primary issuers or guarantors of
these mortgage-backed securities are GNMA, FNMA and the Federal Home Loan
Mortgage Corporation. The 1784 Income Fund and 1784 Short-Term Income Fund may
also invest in mortgage-backed securities issued by non-governmental entities
which consist of collateralized mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICs") that are rated in one of the top three
categories by S&P or Moody's or are of comparable quality as determined by the
Adviser. The mortgages backing these securities include conventional thirty-
year fixed rate mortgages, graduated payment mortgages, and adjustable rate
mortgages. The Funds will purchase only CMOs and REMICs that are backed solely
by GNMA certificates or other mortgage pass-through certificates issued or
guaranteed by the U.S. Government or its agencies and instrumentalities.
However, the guarantees do not extend to the mortgage-backed securities' value,
which is likely to vary inversely with fluctuations in interest rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yield of a particular issue of pass-
through certificates. During periods of declining interest rates, prepayment of
mortgages underlying
26
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mortgage-backed securities can be expected to accelerate. When the mortgage
obligations are prepaid, the Fund reinvests the prepaid amounts in securities,
the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life. The
Adviser believes that the estimated average life is the most appropriate
measure of the maturity of a mortgage-backed security. Accordingly, in order to
determine the average maturity of a Fund, the Adviser will use an estimate of
the average life of a mortgage-backed security. An average life estimate is a
function of an assumption regarding anticipated prepayment patterns. The
assumption is based upon current interest rates, current conditions in the
relevant housing markets and other factors. The assumption is necessarily
subjective, and thus different market participants could produce somewhat
different average life estimates with regard to the same security. There can be
no assurance that the average life as estimated by the Adviser will be the
actual average life.
Mortgage "Dollar Roll" Transactions -- Each of the 1784 Income and the 1784
Short-Term Income Funds may enter into mortgage "dollar roll" transactions with
selected banks and broker-dealers pursuant to which the Fund sells mortgage-
backed securities for delivery in the future (generally within 30 days) and
simultaneously contracts to purchase substantially similar (same type, coupon
and maturity) securities on a specified future date. The Funds will only enter
into covered rolls. A "covered roll" is a specific type of dollar roll for
which there is an offsetting cash position or a cash equivalent security
position which matures on or before the forward settlement date of the dollar
roll transaction. Each Fund will not commit more than 20% of its total assets
to dollar roll transactions.
Asset-Backed Securities -- Asset-backed securities consist of securities
secured by company receivables, truck and auto loans, leases, and credit card
receivables. These issues are normally traded over-the-counter and typically
have a short-intermediate maturity structure depending on the paydown
characteristics of the underlying financial assets which are passed through to
the security holder. Because prepayment of those underlying financial assets
affects the maturity of asset-backed securities, the Adviser will use estimates
of the average life of asset-backed securities in order to determine the
effective maturity of the Funds. See "Mortgage-Backed Securities" for more
information on estimates of average life. There can be no assurance that the
average life of an asset-backed security as estimated by the Adviser will be
the actual average life.
Standby Commitments -- A Fund may acquire securities subject to a standby
commitment which permits a Fund to sell the security at a fixed price prior to
maturity. The underlying municipal securities subject to a standby commitment
may be sold at any time at the market rates. In certain cases, a premium may be
paid for a standby commitment. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving standby commitments is to maintain flexibility and
liquidity to permit the Fund to meet redemptions and remain as fully invested
as possible in municipal securities. Each Fund will limit standby commitment
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Trust's Board of Trustees.
There is no limit to the percentage of Fund securities that any Fund may
purchase subject to a standby commitment but the amount paid directly or
indirectly for a standby commitment held by any Fund will not exceed 1/2 of 1%
of the value of the total assets of the Fund.
Municipal Securities -- Municipal securities which the 1784 Income and the 1784
Short-Term Income Funds may purchase include (i) debt obligations issued by or
27
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on behalf of public authorities to obtain funds to be used for various public
facilities, for refunding outstanding obligations, for general operating
expenses, and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair, or improvement of privately operated
facilities. Municipal notes include (but are not limited to) general obligation
notes, tax anticipation notes, revenue anticipation notes, bond obligation
notes, certificates of indebtedness, demand notes, and construction loan notes.
Municipal bonds include (but are not limited to) general obligation bonds,
revenue or special obligation bonds, private activity and industrial
development bonds. General obligation bonds are backed by the taxing power of
the issuing municipality. Revenue bonds are backed by the revenues of a project
or facility, e.g., tolls from a toll bridge. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed
as security for such payment.
Municipal securities also include participations in municipal leases. These are
undivided interests in a portion of an obligation in the form of a lease or
installment purchase issued by a state or local government to acquire equipment
or facilities. Municipal leases frequently have special risks not normally
associated with general obligation bonds or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by
the appropriate legislative body on a yearly or other periodic basis. Although
the obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In light of these concerns, the Trust
has adopted and follows procedures for determining whether municipal lease
securities purchased by a Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures require
that a number of factors be used in evaluating the liquidity of a municipal
lease security, including the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number
of other potential purchasers, the willingness of dealers to undertake to make
a market in the security, the nature of the marketplace in which the security
trades, the credit quality of the security, and other factors which the Adviser
may deem relevant.
Forward Commitments or Purchases on a When-Issued Basis -- Each of the Funds
may enter into forward commitments or purchase securities on a when- issued
basis, which means that the price of the securities is fixed at the time of
commitment and that the delivery and payment will ordinarily take place beyond
customary settlement time. The interest rate realized on these securities is
fixed as of the purchase date and no interest accrues to the Fund before
settlement. These securities are subject to market fluctuation due to changes
in market interest rates and will have the effect of leveraging the Fund's
assets; the securities are also subject to fluctuation in value pending
settlement based upon public perception of the creditworthiness of the issuer
of these securities. Securities purchased on a when-issued or forward
commitment basis may expose a Fund to risk because such securities may
experience such fluctuations in value prior to their actual delivery.
Agreements to purchase securities on a when-issued or forward commitment basis
will only be made with the intention of taking delivery and not for speculative
purposes. A Fund may invest up to 25% of its assets in forward commitments or
commitments to purchase securities on a when-issued basis. While awaiting
28
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delivery of securities purchased on such bases, a Fund will establish a
segregated account consisting of cash, short-term money market instruments or
high quality debt securities equal to the amount of the commitments to purchase
securities on such bases.
Zero Coupon Securities -- A zero coupon security pays no interest or principal
to its holder during its life. A zero coupon security is sold at a discount,
frequently substantial, and redeemed at face value at its maturity date. The
amount of the discount is accrued over the life of the security and constitutes
the income earned on the security for both accounting and tax purposes. The
market prices of zero coupon securities are generally more volatile than the
market prices of securities of similar maturity that pay interest periodically,
and zero coupon securities are likely to respond to a greater degree to
interest rate changes than are non-zero coupon securities with similar maturity
and credit qualities.
Securities Lending -- In order to generate additional income, a Fund may lend
the securities in which it is invested pursuant to agreements requiring that
the loan be continuously secured by cash, securities of the U.S. Government or
its agencies or any combination of cash and such securities as collateral equal
at all times to 100% of the market value of the securities lent plus accrued
interest. A Fund may lend up to 33 1/3% of its total assets. The Fund will
continue to receive interest on the securities lent while simultaneously
earning interest on the investment of cash collateral in U.S. Government
securities. There may be risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from such securities loans
justifies the attendant risk.
Convertible Securities -- The 1784 Income and 1784 Short-Term Income Funds may
invest in convertible securities. Convertible securities have characteristics
similar to both fixed income and equity securities. Because of the conversion
feature, the market value of convertible securities tends to move together with
the market value of the underlying stock. As a result, a Fund's selection of
convertible securities is based, to a great extent, on the potential for
capital appreciation that may exist in the underlying stock. The value of
convertible securities is also affected by prevailing interest rates, the
credit quality of the issuer, and any call provisions. The convertible
securities in which the Fund may invest include both debt obligations and
preferred stock. Each Fund will not invest more than 20% of its total assets in
these securities.
Guaranteed Investment Contracts ("GIC") -- The 1784 Income and 1784 Short-Term
Income Funds may invest in GICs. A GIC is contract between an insurance company
and, generally, an institutional investor that guarantees the investor a
specified interest rate for a specified period and the return of the investor's
principal. Each Fund will not invest more than 20% of its total assets in GICs.
Warrants -- The 1784 Income and 1784 Short-Term Income Funds may invest in
warrants. Each Fund may invest up to 2% of its net assets in warrants, except
that this limitation does not apply to warrants acquired in units or attached
to securities. A warrant is an instrument issued by a corporation which gives
the holder the right to subscribe for a specified amount of the corporation's
capital stock at a set price for a specified period of time.
29
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APPENDIX
DESCRIPTION OF RATINGS
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The following descriptions are summaries of certain published ratings.
Description of Commercial Paper Ratings
- --------------------------------------------------------------------------------
The following descriptions of commercial paper ratings have been published by
Standard and Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Service, Inc. ("Fitch") and Duff & Phelps Credit
Rating Company ("Duff").
S&P's ratings are graded into several categories of which A is the highest.
This category is divided into sub-categories as follows:
A-1 This highest sub-category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality, respectively, on the
basis of relative repayment capacity.
Commercial paper issues rated F-1+, F-1 and F-2 by Fitch are judged by Fitch to
be of "exceptionally strong" quality, "very strong" quality, and "good"quality,
respectively, on the basis of relative repayment capacity.
Duff's ratings are graded into several categories of which 1 is the highest.
This category is divided into sub-categories as follows:
Duff 1+ This rating indicates the highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
Duff 1 This rating indicates very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
Duff 1- This rating indicates a high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Duff 2 This rating indicates a good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
Description of Corporate Bond Ratings
- --------------------------------------------------------------------------------
Bonds rated AAA by S&P have the highest rating S&P assigns to debt obligations.
Such a rating indicates an extremely strong capacity to repay principal and pay
interest. Bonds rated AA also qualify as high-quality debt obligations.
Capacity to repay principal and pay interest is very strong, and differs from
AAA issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher rated categories.
Bonds rated BBB by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
A-1
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Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than with Aaa securities.
Bonds which are rated A by Moody's possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated Baa by Moody's are considered to be medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over and great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
Bonds rated AA by Fitch are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
Bonds rated A by Fitch are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Bonds rated AAA by Duff are judged to be of the highest credit quality. The
risk factors are negligible.
Bonds rated AA by Duff are judged to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly because of economic
conditions.
Bonds rated A by Duff possess protection factors that are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
Bonds rated BBB by Duff possess below average protection factors but still
considered sufficient for prudent investments. There may be considerable
variability in risk during economic cycles.
A-2
<PAGE>
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PROSPECTUS
[LOGO OF 1784 FUNDS APPEARS HERE]
Investment Adviser:
THE FIRST NATIONAL BANK OF BOSTON
1784 FUNDS (the "Trust") is a mutual fund consisting of several professionally
managed portfolios, or funds, of securities. The Trust provides a convenient
way to invest in one or more of these funds. This Prospectus relates to shares
of the following tax-exempt funds (the "Funds" or the "Tax-Exempt Funds"):
1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
1784 CONNECTICUT TAX-EXEMPT INCOME FUND
Shares of the Funds are offered primarily to individuals and institutional
investors, including accounts for which The First National Bank of Boston
("Bank of Boston"), its affiliates and correspondents, and other financial
institutions act in a fiduciary, agency or custodial capacity. Investors in
shares of the Funds are referred to hereinafter as "Shareholders." Shares of
the Funds are currently offered without any sales charges.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANK OF BOSTON OR ANY OF ITS AFFILIATES. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING RISK
TO PRINCIPAL.
This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing in the Funds.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information, dated October 2, 1995, has
been filed with the Securities and Exchange Commission (the "SEC") and is
available without charge through the Distributor, SEI Financial Services
Company, 680 East Swedesford Road, Wayne, PA 19087 or by calling 1-800-252-
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.
October 2, 1995
as supplemented December 4, 1995
<PAGE>
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
- --------------------------------------------------------
<S> <C>
Expense Summary 2
Summary 3
Condensed Financial Information 6
The Trust 7
Investment Objective 7
Investment Policies 7
Certain Investment Policies and Guidelines 10
Investment Limitations 11
The Adviser 12
The Administrator 14
The Shareholder Servicing Agent and Transfer Agent 14
</TABLE>
<TABLE>
<CAPTION>
Page
- ---------------------------------------------------------
<S> <C>
The Distributor 14
Purchase of Shares 15
Redemption of Shares 17
Systematic Withdrawal Plan 19
Exchanges 19
Performance 19
Taxes 20
General Information 22
Description of Permitted Investments and Techniques 24
Appendix A/Description of Ratings A-1
Appendix B/Taxable Equivalent Yield Tables B-1
</TABLE>
<PAGE>
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EXPENSE SUMMARY
- --------------------------------------------------------------------------------
Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of each of the Tax-Exempt Funds and annual operating expenses of the
Funds, and (ii) an example illustrating the dollar cost of such expenses on a
hypothetical $1,000 investment in each of the Funds.
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None
Sales Charge Imposed on Reinvested Dividends (as a percentage of offering
price) None
Deferred Sales Charge Imposed on Redemptions (as a percentage of offering
price) None
Redemption Fees (1) None
Exchange Fee None
</TABLE>
Annual Operating Expenses
- --------------------------------------------------------------------------------
(As a percentage of average net assets)
<TABLE>
<CAPTION>
1784
Tax-Exempt 1784 1784 1784
Medium- Massachusetts Rhode Island Connecticut
Term Tax-Exempt Tax-Exempt Tax-Exempt
Income Fund Income Fund Income Fund Income Fund
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advisory Fees (after fee
waiver) (2) 0.60% 0.60% 0.60% 0.60%
12b-1 Fee (after fee
waiver) (2) None None None None
Other Expenses (2) 0.20% 0.20% 0.20% 0.20%
- ----------------------------------------------------------------------------
Total Operating Expenses
(2) 0.80% 0.80% 0.80% 0.80%
- ----------------------------------------------------------------------------
</TABLE>
(1) If proceeds of a redemption of Fund shares are paid by wire transfer, a
wire transfer charge (presently $12.00) will be imposed.
(2) Bank of Boston, which serves as the Adviser for the Trust, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
each of the Tax-Exempt Funds to not more than 1.25% of average daily net assets
on an annualized basis; this limitation would not apply to any brokerage
commissions, interest expense or taxes or to extraordinary expense items,
including but not limited to litigation expenses. SEI Financial Services
Company, which acts as Distributor of the Trust's shares, has agreed to waive
its 12b-1 fee, which is computed at an annual rate of 0.25% of each Fund's
average daily net assets. If the Distributor should terminate this waiver,
after a substantial period of time annual payment of this fee may total more
than the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge. SEI Financial Management Corporation,
which acts as the Trust's Administrator, has agreed to waive its fee from
certain funds of the Trust to assist these funds in maintaining a competitive
expense ratio. Bank of Boston contributes to the Funds in order to limit other
operating expenses and to assist the Funds in maintaining a competitive expense
ratio. Fee waivers by the Adviser, Administrator and Distributor, and
contributions by the Bank of Boston, are voluntary and may be terminated at any
time. From time to time the Adviser may also waive additional portions of its
fees to reduce net operating expenses to less than that shown in the table
above. Certain other parties may also agree to waive portions of their fees
from time to time on a month to month basis. Additional information may be
found under "The Adviser," "The Administrator" and "The Distributor." Absent
waivers, the Adviser's investment advisory fee is calculated at an annual rate
of 0.74% of the average daily net assets of each of the Tax-Exempt Funds.
Absent the waiver of fees by the Distributor, Adviser and Administrator, and
voluntary contributions by the Bank of Boston, other expenses and estimated
total operating expenses would be as follows: 0.27% and 1.26% of average daily
net assets of the 1784 Tax-Exempt Medium-Term Income Fund, 0.36% and 1.35% of
average daily net assets of the 1784 Massachusetts Tax-Exempt Income Fund,
0.61% and 1.60% of average daily net assets of the 1784 Rhode Island Tax-Exempt
Income Fund and 0.41% and 1.40% of average daily net assets of the 1784
Connecticut Tax-Exempt Income Fund, in each case on an annualized basis. Other
expenses are based on actual expenses for each Fund's fiscal year ended May 31,
2
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1995, and include expense items described under "General Information -- The
Trust." A person who purchases shares through a financial institution may be
charged separate fees by the financial institution.
Example
- --------------------------------------------------------------------------------
An investor would pay the following expenses on a hypothetical $1,000
investment assuming a 5% annual total return and redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1784 Tax-Exempt Medium-Term Income Fund $8 $26 $44 $99
1784 Massachusetts Tax-Exempt Income Fund $8 $26 $44 $99
1784 Rhode Island
Tax-Exempt Income Fund $8 $26 $44 $99
1784 Connecticut
Tax-Exempt Income Fund $8 $26 $44 $99
</TABLE>
Absent voluntary waivers by the Adviser, Distributor and Administrator and
contributions made by the Bank of Boston, the amounts for this example for one
year, three years, five years and ten years would be $13, $40, $69 and $152 for
the 1784 Tax-Exempt Medium-Term Income Fund, $14, $43, $74 and $162 for the
1784 Massachusetts Tax-Exempt Income Fund, $16, $50, $87 and $190 for the 1784
Rhode Island Tax-Exempt Income Fund and $14, $44, $77 and $168 for the 1784
Connecticut Tax-Exempt Income Fund. The example is based on actual expenses for
each Fund's fiscal year ended May 31, 1995. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN, AND ACTUAL
EXPENSES AND RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of
this table is to assist the investor in understanding the various costs and
expenses that may be directly or indirectly borne by investors in the Funds.
Additional information may be found under "General Information -- The Trust,"
"The Adviser," "The Administrator" and "The Distributor."
SUMMARY
- --------------------------------------------------------------------------------
The following information is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information.
1784 Funds (the "Trust") is an open-end management investment company which
provides a convenient way to invest in one or more professionally managed funds
of securities. The following provides basic information about the 1784 Tax-
Exempt Medium-Term Income Fund, 1784 Massachusetts Tax-Exempt Income Fund, 1784
Rhode Island Tax-Exempt Income Fund and 1784 Connecticut Tax-Exempt Income Fund
(each, a "Fund" or a "Tax-Exempt Fund," and collectively, the "Funds" or the
"Tax-Exempt Funds"). The 1784 Tax-Exempt Medium-Term Income Fund is a
diversified fund; each of the 1784 Massachusetts Tax-Exempt Income Fund, the
1784 Rhode Island Tax-Exempt Income Fund, and the 1784 Connecticut Tax-Exempt
Income Fund (collectively, the "State Funds") is a non-diversified fund.
What Is the Investment Objective? The investment objective of the 1784 Tax-
Exempt Medium-Term Income Fund is current income, exempt from federal income
taxes, consistent with preservation of capital. The investment objective of the
1784 Massachusetts Tax-Exempt Income Fund is current income, exempt from both
federal and Massachusetts personal income taxes, consistent with the
preservation of capital. The investment objective of the 1784 Rhode Island Tax-
Exempt Income Fund is current income exempt from federal income tax, from Rhode
Island personal income tax and from the Rhode Island business corporation tax.
The investment objective of the 1784 Connecticut Tax-Exempt Income Fund is
current income exempt from both federal and Connecticut personal income taxes.
Preservation of capital is a secondary objective for each of these Funds. Each
Fund's investment
3
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objective may be changed only with the consent of holders of a majority of that
Fund's outstanding shares. There can be no assurance that any Tax-Exempt Fund
will achieve its investment objective. See "Investment Objective" and
"Investment Limitations."
What Are the Permitted Investments? The 1784 Tax-Exempt Medium-Term Income Fund
under normal market conditions invests at least 80% of its net assets in
obligations issued by or on behalf of the states, territories or possessions of
the United States and the District of Columbia and their respective political
subdivisions, agencies and instrumentalities, the interest on which, in the
opinion of counsel for the issuer, is exempt from federal income tax and not
included as a preference item under the alternative minimum tax (collectively,
"Municipal Securities"). Each of the State Funds under normal market conditions
invests at least 80% of its net assets in Municipal Securities, and normally
invests at least 65% of its total assets in Municipal Securities the interest
on which, in the opinion of counsel for the issuer, is exempt from both federal
and that state's personal income tax and not included as a preference item
under the alternative minimum tax.
What Are Some of the Risks? The investment policies of each of the Tax-Exempt
Funds entail certain risks and considerations of which an investor should be
aware. For example, the net asset value per share of each of the Tax-Exempt
Funds is not fixed and should be expected to fluctuate. In addition, values of
fixed income securities tend to vary inversely with interest rates and may be
affected by other market and economic factors as well; mortgage-backed
securities are subject to prepayment of the underlying mortgages and may not be
an effective means of locking in long-term interest rates; and the longer
maturity securities in which the Funds may invest are subject to greater market
fluctuations as a result of changes in interest rates. Since the State Funds
are non-diversified funds, a relatively high percentage of their assets may be
invested in the securities of a limited number of issuers, which means that the
value of the shares of these Funds may be more susceptible to any single
economic, political or regulatory occurrence than the shares of a diversified
investment company.
For further information, see "Investment Policies," "Certain Investment
Policies and Guidelines" and "Description of Permitted Investments and
Techniques" herein and in the Statement of Additional Information.
Who Is the Adviser? The First National Bank of Boston ("Bank of Boston" or the
"Adviser") serves as the Adviser for the Trust and is entitled to a fee which
is calculated daily and paid monthly at an annual rate of 0.74% of the average
daily net assets of each of the Tax-Exempt Funds. The Adviser has agreed for an
indefinite period of time to waive all or a portion of its fee in order to
limit the total operating expenses of the Tax-Exempt Funds to not more than
1.25% of each Fund's average daily net assets. Bank of Boston contributes to
the Funds in order to limit operating expenses and to assist the Funds in
maintaining a competitive expense ratio. Fee waivers and contributions may be
terminated at any time. See "The Adviser."
Who Is the Administrator? SEI Financial Management Corporation serves as the
Administrator for the Trust under an Administration Agreement and is entitled
to a fee which is calculated daily and paid monthly at an annual rate of 0.15%
of the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Each Tax-Exempt Fund's
portion of such fee is based on that Fund's average daily net assets. The
Administrator has agreed to waive a portion of its fees on a month to month
basis under certain circumstances. See "The Administrator."
Who are the Shareholder Servicing Agent and Transfer Agent? Boston Financial
Data Services acts as dividend disbursing agent and shareholder servicing agent
for the Funds. State Street Bank and Trust Company act as transfer agent for
the Funds. See "The Shareholder Servicing Agent and Transfer Agent."
4
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Who Is the Distributor? SEI Financial Services Company acts as distributor of
the Trust's shares. The Trust has adopted a distribution plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan
provides for payments to the Distributor of a fee, calculated daily and paid
monthly at an annual rate of 0.25% of each Tax-Exempt Fund's average daily net
assets; the Distributor can use all or a portion of this fee to compensate
broker-dealers and other financial institutions that provide services to
Shareholders or to their customers who beneficially own shares of the Tax-
Exempt Funds. The Distributor has agreed to waive its 12b-1 fee. However,
distribution fees may be imposed in the event that the Distributor determines
to terminate its waiver of such fees. The Trust may create one or more
additional classes of shares, without distribution fees, of one or more of the
Funds. See "The Distributor."
How Do I Purchase Shares? Purchases of Fund shares may be made through the
Distributor by the close of business Monday through Friday except on days when
the New York Stock Exchange or the Federal Reserve Bank of Boston is closed
("Business Days"). Shares may also be purchased through broker-dealers which
have established dealer agreements with the Distributor. Purchase orders
submitted through broker-dealers normally will be received by the Distributor
on the Business Day after they are received by the broker-dealer.
A purchase order for shares representing an investment in a Tax-Exempt Fund
will be effective as of the Business Day the order is received by the
Distributor if the Distributor receives a purchase order in good form for the
shares and payment (by wire transfer or check) for the shares before 4:00 p.m.
Eastern Time ("ET") on that day. Shares are sold at their net asset value
determined as of the end of the day the order is effective. Shares purchased
will begin accruing dividends on the day following the date of purchase.
The minimum initial investment in a Tax-Exempt Fund is $1,000; all subsequent
purchases must be at least $250. Minimum investment requirements are lower for
accounts established for automatic investment programs. See "Purchase of
Shares."
Shares of each of the Tax-Exempt Funds are currently being offered without any
sales charges. See "The Distributor."
How Do I Redeem Shares? Redemptions of shares of a Tax-Exempt Fund may be made
through the Shareholder Servicing Agent on any Business Day. Redemption orders
must be placed in good form before 4:00 p.m. ET on any Business Day to be
effective on that day. The redemption price is the net asset value per share
determined as of the end of the day the order is effective. See "Redemption of
Shares."
How Are Distributions Paid? Substantially all of the net investment income
(exclusive of capital gains) of each of the Funds is distributed in the form of
dividends which are declared daily and paid monthly. Shareholders of record on
the record date for the dividend distribution will be entitled to the
dividends, except that shares will not begin accruing dividends until the day
following the date of their purchase. On redemption, a Shareholder will receive
dividends through and including the day a valid redemption request is received
by the 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 a Tax-Exempt Fund has been
received by the Distributor, those shares may be exchanged for shares of one or
more other portfolios of the Trust at net asset value, provided the amount of
the exchange meets the minimum investment requirements for the other portfolio
of the Trust. There are no charges for an exchange. If an exchange request in
good order is received by the Distributor by 4:00 p.m. ET on any Business Day,
the exchange usually will occur on that day; however, requests for exchanges
for shares of a money market fund must be received earlier than 4:00 p.m. ET
(in cases when regular trading on the New York
5
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I784 FUNDS
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Stock Exchange closes earlier than 4:00 p.m. ET, as early as 12:00 noon ET) for
the exchange to occur on that day. A Shareholder must obtain and should read
the prospectus of the other portfolio and consider the differences in
investment objectives and policies before making any exchange. An exchange is
treated, for federal and state income tax purposes, as a sale of the Tax-Exempt
Fund shares exchanged, and could result in taxable gain or loss to the
Shareholder. See "Exchanges."
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following table provides condensed financial information about the 1784
Tax-Exempt Medium-Term Income Fund and the 1784 Massachusetts Tax-Exempt Income
Fund for the period from June 14, 1993 (commencement of operations) through May
31, 1995, and about the 1784 Rhode Island Tax-Exempt Income Fund and the 1784
Connecticut Tax-Exempt Income Fund for the period from August 1, 1994
(commencement of operations) through May 31, 1995. The information should be
read in conjunction with the financial statements appearing in the Funds'
Annual Report to Shareholders, which is incorporated by reference in the
Statement of Additional Information. The financial statements and notes, as
well as the table below, covering the period through May 31, 1995 have been
audited by Coopers & Lybrand L.L.P., independent accountants, whose report is
included in the Funds' Annual Report. Copies of the Annual Report may be
obtained without charge from the Distributor.
FINANCIAL HIGHLIGHTS
For the Period Ended May 31, 1995
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net Ratio
Asset Realized and Dividends Net Assets Ratio of Net
Value Net Unrealized from Net Asset Value End of Expenses Income
Beginning Investment Gains or (Losses) Investment End Total of Period to Average to Average
of Period Income on Investments Income of Period Return (000) Net Assets Net Assets
--------- ---------- ----------------- ---------- ----------- ------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT
MEDIUM-TERM
INCOME (1)
- -----------------
- -----------------
6/14/93-5/31/94 $10.00 0.49 (0.10) (0.49) $ 9.90 3.93%* $ 36,365 0.32%** 5.06%**
6/1/94-5/31/95 $ 9.90 0.48 0.24 (0.48) $10.14 7.58% $176,345 0.80% 5.02%
MASSACHUSETTS
TAX-EXEMPT
INCOME (1)
- -----------------
- -----------------
6/14/93-5/31/94 $10.00 0.50 (0.19) (0.50) $ 9.81 3.04%* $ 49,662 0.33%** 5.10%**
6/1/94-5/31/95 $ 9.81 0.47 0.09 (0.47) $ 9.90 6.00% $ 82,058 0.80% 4.93%
RHODE ISLAND
TAX-EXEMPT
INCOME FUND (2)
- -----------------
- -----------------
8/1/94-5/31/95 $10.00 0.45 0.13 (0.45) $10.13 6.09%* $ 32,495 0.54%** 5.56%**
CONNECTICUT
TAX-EXEMPT
INCOME FUND (2)
- -----------------
- -----------------
8/1/94-5/31/95 $10.00 0.45 0.27 (0.45) $10.27 7.45%* $ 61,369 0.52%** 5.44%**
<CAPTION>
Ratio Ratio of
of Expenses Net Income
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ---------- ---------
<S> <C> <C> <C>
TAX-EXEMPT
MEDIUM-TERM
INCOME (1)
- -----------------
- -----------------
6/14/93-5/31/94 1.61%** 3.77%** 98.83%
6/1/94-5/31/95 1.26% 4.56% 74.74%
MASSACHUSETTS
TAX-EXEMPT
INCOME (1)
- -----------------
- -----------------
6/14/93-5/31/94 1.41%** 4.02%** 13.99%
6/1/94-5/31/95 1.35% 4.38% 34.59%
RHODE ISLAND
TAX-EXEMPT
INCOME FUND (2)
- -----------------
- -----------------
8/1/94-5/31/95 1.60%** 4.50%** 57.51%
CONNECTICUT
TAX-EXEMPT
INCOME FUND (2)
- -----------------
- -----------------
8/1/94-5/31/95 1.40%** 4.56%** 35.56%
</TABLE>
* Returns are for the period indicated and have not been annualized.
** Ratios for this period have been annualized.
(1) The Tax-Exempt Medium-Term Income and Massachusetts Tax-Exempt Income Funds
commenced operations on June 14, 1993.
(2) The Rhode Island Tax-Exempt Income and Connecticut Tax-Exempt Income Funds
commenced operations on August 1, 1994.
6
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THE TRUST
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1784 Funds (the "Trust") is an open-end management investment company that
currently offers units of beneficial interest ("shares") in several separate
professionally managed investment portfolios, or funds. Each share of each fund
represents an undivided, proportionate interest in that fund. This Prospectus
relates to shares of the Trust's 1784 Tax-Exempt Medium-Term Income Fund, a
diversified fund, and of the 1784 Massachusetts Tax-Exempt Income Fund, 1784
Rhode Island Tax-Exempt Income Fund, and 1784 Connecticut Tax-Exempt Income
Fund, which are non-diversified funds. The Trust's other funds include the 1784
U.S. Treasury Money Market Fund, 1784 Institutional U.S. Treasury Money Market
Fund, 1784 Tax-Free Money Market Fund, 1784 Growth and Income Fund, 1784 Asset
Allocation Fund, 1784 International Equity Fund, 1784 U.S. Government Medium-
Term Income Fund, 1784 Short-Term Income Fund, and 1784 Income Fund.
Information regarding the Trust's other funds is contained in separate
prospectuses that may be obtained from the Trust's distributor, SEI Financial
Services Company (the "Distributor"), 680 East Swedesford Road, Wayne,
Pennsylvania 19087, or by calling 1-800-252-1784.
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the 1784 Tax-Exempt Medium-Term Income Fund is
current income, exempt from federal income taxes, consistent with preservation
of capital.
The investment objective of the 1784 Massachusetts Tax-Exempt Income Fund is
current income, exempt from both federal and Massachusetts personal income
taxes, consistent with the preservation of capital.
The investment objective of the 1784 Rhode Island Tax-Exempt Income Fund is
current income exempt from federal income tax, from Rhode Island personal
income tax, and from the Rhode Island business corporation tax. Preservation of
capital is a secondary objective.
The investment objective of the 1784 Connecticut Tax-Exempt Income Fund is
current income exempt from both federal and Connecticut personal income tax.
Preservation of capital is a secondary objective.
There is no assurance that the investment objective of any Tax-Exempt Fund will
be met. The investment objective of each Fund is a fundamental policy of that
Fund, and therefore cannot be changed without the consent of holders of a
majority of that Fund's outstanding shares. See "Investment Limitations."
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The 1784 Tax-Exempt Medium-Term Income Fund is a diversified fund which, as a
matter of fundamental policy, invests at least 80% of its net assets under
normal market conditions in obligations issued by or on behalf of the states,
territories and possessions of the United States and the District of Columbia
and their respective political subdivisions, agencies and instrumentalities,
the interest on which, in the opinion of counsel for the issuer, is exempt from
federal income tax and not included as a preference item under the alternative
minimum tax (collectively, "Municipal Securities"). Municipal Securities in
which the Fund invests include (i) municipal notes which are rated MIG-2 or
VMIG-2 or better by Moody's Investors Service, Inc. ("Moody's") or SP-2 or
better by Standard & Poor's Ratings Group ("S&P") at the time of investment, or
which, if not rated by Moody's or by S&P, are of at least comparable quality,
as determined by the Adviser; (ii) municipal bonds which are rated BBB or
better by S&P or Baa or better by Moody's at the time of investment or which,
if not rated by Moody's or by S&P, are of at least comparable quality, as
determined by the Adviser; and (iii) tax-exempt commercial paper which is rated
at least A-2 by S&P or Prime-2 by Moody's at the time of investment or which is
of comparable quality as determined by the Adviser. Bonds rated BBB by S&P or
Baa by Moody's may have speculative characteristics.
The securities other than Municipal Securities in which the 1784 Tax-Exempt
Medium-Term Income Fund may
7
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invest include (1) U.S. Government securities, i.e., obligations issued or
guaranteed as to principal and interest by the U.S. Government or any of its
agencies and instrumentalities; (2) bonds, debentures or other debt instruments
rated BBB or better by S&P or Baa or better by Moody's or of comparable quality
at the time of purchase as determined by the Adviser; (3) short-term commercial
paper rated A-2 or better by S&P or P-2 or better by Moody's or of comparable
quality at the time of purchase as determined by the Adviser; (4) bank
obligations described under "Description of Permitted Investments and
Techniques;" (5) mortgage-backed securities and asset-backed securities rated A
or better by S&P or Moody's or of comparable quality at the time of purchase as
determined by the Adviser; (6) receipts evidencing separately traded interest
and principal component parts of U.S. Government obligations; and (7)
repurchase agreements. Securities rated BBB by S&P or Baa by Moody's may have
speculative characteristics. The Fund may write (sell) covered call options and
enter into fixed income futures contracts and options (in each case for hedging
purposes only).
The Fund may also invest up to 5% of its net assets in securities of closed-end
investment companies traded on a recognized securities exchange or actively
traded in the over-the-counter market. The Fund may also invest up to 20% of
its net assets in securities the interest on which is subject to federal income
tax or the federal alternative minimum tax. Up to 15% of the net assets of the
Fund may be invested in illiquid securities.
The Trust expects the 1784 Tax-Exempt Medium-Term Income Fund to maintain an
average weighted maturity of three to ten years. The Adviser may shorten the
average maturity substantially in anticipation of a change in the interest rate
environment for temporary defensive purposes by investing in money market
instruments and in money market funds. To the extent the Fund is invested in
money market instruments and/or money market funds for temporary defensive
purposes, the Fund will not be pursuing its investment objective. Under normal
circumstances, it is anticipated that the annual portfolio turnover rate for
the Fund will not exceed 100%; for the Fund's fiscal years ended May 31, 1994
and May 31, 1995, this rate was 99% and 75%, respectively.
For more information regarding the permitted investments and investment
practices of the 1784 Tax-Exempt Medium-Term Income Fund, the purposes of these
investments and investment practices and certain risks associated with certain
of these investments and investment practices, and information regarding the
ratings listed above, see "Certain Investment Policies and Guidelines,"
"Description of Permitted Investments and Techniques" and Appendix A --
"Description of Ratings."
Each of the 1784 Massachusetts Tax-Exempt Income Fund, 1784 Rhode Island Tax-
Exempt Income Fund, and 1784 Connecticut Tax-Exempt Income Fund (each, a "State
Fund"), as a matter of fundamental policy, invests at least 80% of its net
assets under normal market conditions in Municipal Securities, and normally
invests at least 65% of its total assets in Municipal Securities the interest
on which, in the opinion of counsel for the issuer, is exempt from both federal
income tax and that state's personal income tax and not included as a
preference item under the alternative minimum tax (collectively, "State
Municipal Securities"). State Municipal Securities in which a State Fund
invests include (i) municipal notes which are rated MIG-2 or VMIG-2 or better
by Moody's, SP-2 or better by S&P or F-2 or better by Fitch Investors Service,
Inc. ("Fitch") at the time of investment or which, if not rated by Moody's, S&P
or Fitch are of at least comparable quality, as determined by the Adviser; (ii)
municipal bonds which are rated BBB or better by S&P or Fitch or Baa or better
by Moody's at the time of investment or which, if not rated by Moody's, S&P, or
Fitch are of at least comparable quality, as determined by the Adviser; and
(iii) tax-exempt commercial paper which is rated at least A-2 by S&P, F-2 by
Fitch or Prime-2 by Moody's at the time of investment or which, if not rated by
S&P, Fitch, or Moody's is of at least comparable quality, as determined by the
Adviser. Bonds rated BBB by S&P or Baa by Moody's may have speculative
characteristics.
8
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I784 FUNDS
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The securities other than State Municipal Securities in which each State Fund
may invest include: (1) Municipal Securities the interest on which is not
exempt from that state's income tax; (2) U.S. Government securities, i.e.,
obligations issued or guaranteed as to principal and interest by the U.S.
Government or any of its agencies and instrumentalities; (3) bonds, debentures
or other debt instruments rated BBB or better by S&P or Fitch or Baa or better
by Moody's or of comparable quality at the time of purchase as determined by
the Adviser; (4) short-term commercial paper rated A-2 or better by S&P, P-2 or
better by Moody's or F-2 or better by Fitch or of comparable quality at the
time of purchase as determined by the Adviser; (5) bank obligations described
under "Description of Permitted Investments and Techniques;" (6) mortgage-
backed securities and asset-backed securities rated A or better by S&P, Moody's
or Fitch or of comparable quality at the time of purchase as determined by the
Adviser; (7) receipts evidencing separately traded interest and principal
component parts of U.S. Government obligations; and (8) repurchase agreements
involving any of the foregoing securities. Securities rated BBB by S&P or Baa
by Moody's may have speculative characteristics. Each State Fund may write
(sell) covered call options and may enter into fixed income futures contracts
and options (in each case for hedging purposes only).
Each State Fund may also invest up to 20% of its net assets in securities the
interest on which is subject to federal income tax or the federal alternative
minimum tax. Up to 15% of the net assets of each State Fund may be invested in
illiquid securities.
The Trust expects the State Funds to maintain average weighted maturities of
from five to ten years. The Adviser may shorten the average maturity of a State
Fund substantially in anticipation of a change in the interest rate environment
for temporary defensive purposes by investing in money market instruments and
money market funds. To the extent a State Fund is invested in money market
instruments and/or money market funds for temporary defensive purposes, the
Fund will not be pursuing its investment objective. Under normal circumstances,
it is anticipated that the annual portfolio turnover rate for each State Fund
will not exceed 100%. For the fiscal years ended May 31, 1994 and May 31, 1995,
this rate was 14% and 35%, respectively, for the 1784 Massachusetts Tax-Exempt
Income Fund. For the fiscal year ended May 31, 1995 the portfolio turnover rate
for the 1784 Rhode Island Tax-Exempt Income Fund was 58% and for the 1784
Connecticut Tax-Exempt Income Fund was 36%.
Each State Fund is a non-diversified investment company, which means that more
than 5% of its total assets may be invested in one or more issuers, although
the Adviser does not expect to invest more than 25% of the total assets of a
State Fund in any one issuer. Since a relatively high percentage of assets of
these Funds may be invested in the obligations of a limited number of issuers,
the value of the shares of the Funds may be more susceptible to any single
economic, political or regulatory occurrence than the shares of a diversified
investment company. The Trust intends that each State Fund satisfy the
diversification requirements necessary to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended. Under these
requirements, at the close of each quarter of the Fund's taxable year, (A) at
least 50% of its total assets must be represented by cash and cash items,
Government securities and securities of other regulated investment companies
and other securities limited in respect of any one issuer to not more than 5%
of the total assets of the Fund and not more than 10% of the outstanding voting
securities of such issuer, and (B) not more than 25% of the Fund's total assets
may be invested in the securities (other than Government securities or the
securities of other regulated investment companies) of any one issuer.
For more information regarding the permitted investments and investment
practices of the State Funds, the purposes of these investments and investment
practices and certain risks associated with certain of these investments and
investment practices, and information regarding the ratings listed above, see
"Certain Investment Policies and Guidelines," "Description of Permitted
Investments and Techniques" and Appendix A -- "Description of Ratings."
9
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CERTAIN INVESTMENT POLICIES AND GUIDELINES
- --------------------------------------------------------------------------------
The market value of each Fund's fixed income investments (including money
market instruments) changes in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. Moreover,
while securities with longer maturities tend to produce higher yields, the
values of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates. Changes by recognized
agencies in the rating of any fixed income security and in the ability of an
issuer to make payments of interest and principal also affect the value of
these investments. Changes in the value of Fund securities will affect the
Fund's net asset value; under most circumstances, changes in the value of Fund
securities will not affect cash income derived from these securities.
Each Tax-Exempt Fund's investments normally consist primarily of securities
that are listed on recognized exchanges or actively traded in the over-the-
counter market. Each Tax-Exempt Fund may also hold securities that are neither
so listed nor so traded. However, none of the Tax-Exempt Funds invests more
than 15% of its net assets in illiquid securities.
In general, mortgage-backed securities are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities the yield of which reflects then-prevailing interest
rates, which may be lower. Thus, mortgage-backed securities may not be an
effective means of locking in long-term interest rates for the Funds.
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each of the Tax-Exempt Funds may invest up to 100% of its
assets in money market instruments described under "Description of Permitted
Investments and Techniques," consisting of the following: (1) securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities; (2)
repurchase agreements; (3) bank obligations described under "Description of
Permitted Investments and Techniques;" (4) commercial paper, other short-term
debt securities or variable or floating rate instruments rated in one of the
two highest short-term rating categories by a "nationally recognized
statistical rating organization" as defined under Securities and Exchange
Commission rules ("NRSRO") or of comparable credit quality as determined by the
Adviser; and (5) asset-backed securities. The Funds may also invest, for
temporary defensive purposes, in money market funds. To the extent a Fund is
invested in money market instruments and/or money market funds for temporary
defensive purposes, the Fund will not be pursuing its investment objective.
Each of the Tax-Exempt Funds may invest in floating or variable rate
obligations and may purchase securities on a when-issued basis. Each of the
Funds may also, from time to time, engage in securities lending; however, loans
made by a Fund of the securities it holds may not exceed 33 1/3% of that Fund's
total assets. Each of the Funds may enter into interest rate futures contracts
and related options.
In the event a security owned by a Tax-Exempt Fund is downgraded below the
rating categories discussed above, the Adviser will review and take action it
deems appropriate with regard to the security.
Special Factors Relating to Massachusetts, Rhode Island and Connecticut
Municipal Securities
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Each State Fund intends to invest a significant portion of its assets in
Municipal Securities, the interest on which, in the opinion of bond counsel, is
exempt from both federal income tax and that state's income tax and is not
included as a preference item under the federal alternative minimum tax. The
payment of interest on and the preservation of principal of these securities is
dependent upon the continuing ability of issuers within that state and/or
obligors of state, municipal and public
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authority debt obligations to meet their obligations thereunder. Investors
should consider the greater risk inherent in a State Fund's concentration in
such obligations versus the safety that comes with a less geographically
concentrated investment portfolio and should compare the yield available on a
portfolio of Massachusetts, Rhode Island or Connecticut issues with the yield
of a more diversified portfolio including out-of-state issues before making an
investment decision. Many of a State Fund's Municipal Securities are likely to
be obligations of state governmental issuers which rely in whole or in part,
directly or indirectly, on real property taxes as a source of revenue.
In the late 1980s and early 1990s, Massachusetts, Rhode Island, and Connecticut
each suffered economic slowdowns. In the Commonwealth of Massachusetts, during
such time, economic performance slowed significantly, particularly in the
construction, real estate, financial and manufacturing sectors (including
technology), with especially adverse results in 1990 and the first half of
1991. The economy appears to be recovering with small growth reported in some
sectors during 1993 and 1994. However, the manufacturing sector (including high
technology) continues to decline. Additionally, in the recent past, the
Commonwealth experienced fiscal difficulties. In each of the five fiscal years
commencing fiscal 1987, the Commonwealth's spending exceeded its revenues. In
the fiscal years 1992, 1993 and 1994, however, the Commonwealth's revenues
exceeded spending. In 1989, as a result of the budgetary difficulties of the
Commonwealth at that time, S&P and Moody's lowered their ratings of long-term
bonds issued by the Commonwealth. However, in September, 1992 both S&P and
Moody's raised their ratings of such bonds to A.
In Rhode Island, manufacturing in general and defense-related industries in
particular have declined significantly and employment has decreased in recent
years. As a result, the state government and other issuers of Rhode Island
Municipal Securities have experienced serious budgetary constraints. In order
to balance its budget, as it is required to do by the state constitution, the
Rhode Island state government has reduced expenditures and raised taxes, among
other measures. The recession seems to have stabilized. The state projects
continued recovery at a slow pace over the next five years.
In Connecticut as well, manufacturing in general and defense-related industries
in particular have declined significantly, and unemployment has risen. Despite
the serious economic problems facing the State, Connecticut has essentially
maintained its credit standing. General Fund surpluses in the State's 1986 and
1987 fiscal years were followed by operating deficits in its 1988, 1989, 1990,
and 1991 fiscal years. As a result of the recurring budgetary problems, S&P in
1991 downgraded the State's general obligation bonds from AA to AA-, although
Moody's continues to confirm its rating of Aa, for these bonds. Fitch gives
these obligations a rating of AA. Effective in 1991, the state legislature
enacted a personal income tax and reduced some state sales taxes. As a result
of these and other budgetary actions, the General Fund had operating surpluses
for the fiscal years ending in 1992, 1993 and 1994. The 1995 state budget
anticipates a small deficit. The 1996 state budget anticipates an operating
surplus.
A more detailed description of certain special factors affecting investment in
State Municipal Securities of which investors should be aware is set forth in
the Statement of Additional Information. See "Special Factors Relating to
Massachusetts, Rhode Island and Connecticut Municipal Securities" in the
Statement of Additional Information.
The foregoing discussion of special factors relating to Municipal Securities of
issuers in Massachusetts, Rhode Island and Connecticut is a summary of certain
information contained in certain official statements relating to securities
offerings by such issuers. The foregoing summaries do not purport to be a
complete description and are current as of the date of the corresponding
official statement.
INVESTMENT LIMITATIONS
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The investment objective of each Fund and the following investment limitations
are fundamental
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policies of that Fund. Fundamental policies cannot be changed with respect to a
Fund without the consent of the holders of a majority of that Fund's
outstanding shares. The term "majority of the outstanding shares" means the
vote of (i) 67% or more of the Fund's shares present at a meeting, if more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the Fund's outstanding shares, whichever is less.
A Fund may not:
1. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation (i)
utility companies will be divided according to their services, for example,
gas, gas transmission, electric and telephone will each be considered a
separate industry; and (ii) financial service companies will be classified
according to the end users of their services; for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry.
2. Make loans except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objectives and policies; (b) enter into
repurchase agreements; and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
3. Borrow, except that a Fund may borrow money from banks and may enter into
reverse repurchase agreements, in either case in an amount not to exceed 33
1/3% of the Fund's total assets and then only as a temporary measure for
extraordinary or emergency purposes (e.g., to meet Shareholder redemption
requests). A Fund will not purchase any securities for its portfolio at any
time at which its borrowings equal or exceed 5% of its total assets (taken at
market value).
In addition, the 1784 Tax-Exempt Medium-Term Income Fund may not purchase
securities of any issuer (except securities issued or guaranteed by the United
States, its agencies or instrumentalities and repurchase agreements involving
such securities) if as a result more than 5% of the total assets of the Fund
would be invested in the securities of such issuer or more than 10% of the
outstanding voting securities of such issuer would be owned by the Fund. This
restriction applies to 75% of the total assets of this Fund.
The foregoing percentages apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISER
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The First National Bank of Boston ("Bank of Boston" or the "Adviser") manages
the assets of each Fund pursuant to an Investment Advisory Agreement (the
"Advisory Agreement") with the Trust. Subject to such policies as the Board of
Trustees of the Trust may determine, the Adviser makes investment decisions for
each Fund. David H. Thompson, Director of Fund Management, has been the manager
of the 1784 Tax-Exempt Medium-Term Income Fund since June, 1993 and a co-
manager of the 1784 Rhode Island Tax-Exempt Income Fund and the 1784
Connecticut Tax-Exempt Income Fund since September of 1995. Mr. Thompson, who
has more than 22 years of experience in investment management, research
analysis and securities trading, has been the Director of Fund Management at
Bank of Boston since 1985. Susan A. Sanderson, Senior Fund Manager, has been
the manager of the 1784 Massachusetts Tax-Exempt Income Fund since June, 1993.
Ms. Sanderson, who has more than 15 years of experience in investment
management and securities trading, was an Associate Fund Manager at Bank of
Boston from 1987 to 1991 and has been a Fund Manager since 1991. James L.
Bosland, Senior Fund Manager, has been a co-manager of the 1784 Rhode Island
Tax-Exempt Income Fund and the 1784 Connecticut Tax-Exempt Income Fund since
July, 1994 (commencement of these Funds' operations). Mr. Bosland, who has more
than five years of experience in investment management and research analysis,
has been a Fund Manager and Senior Fund
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Manager at Bank of Boston since 1989. From 1988 to 1989, Mr. Bosland was a vice
president with First Funding Corporation.
For its services under the Advisory Agreement, the Adviser receives from each
Fund a fee accrued daily and paid monthly at an annual rate equal to 0.74% of
the Fund's average daily net assets. However, the Adviser has agreed for an
indefinite period of time to waive all or a portion of its fees in order to
limit the total operating expenses of each of the Funds on an annualized basis
to not more than 1.25% of its average daily net assets; this limitation would
not apply to any brokerage commissions, interest expense or taxes or to
extraordinary expense items, including but not limited to litigation expenses.
Fee waivers may be terminated at any time. From time to time the Adviser may
also waive additional portions of its fees to reduce net operating expenses to
less than the amount specified above.
For the fiscal year ended May 31, 1995, the fees payable to the Bank of Boston
under the Advisory Agreement with respect to each of the Funds were as follows:
for the 1784 Tax-Exempt Medium-Term Income Fund, $741,971, of which $140,373
was voluntarily waived (after giving effect to such waiver, 0.60% of such
Fund's average daily net assets for that fiscal year); for the 1784
Massachusetts Tax-Exempt Income Fund, $447,676, of which $84,695 was
voluntarily waived (after giving effect to such waiver, 0.60% of such Fund's
average daily net assets for that fiscal year); for the 1784 Rhode Island Tax-
Exempt Income Fund, $163,926, of which $87,263 was voluntarily waived (after
giving effect to such waiver, 0.29% of such Fund's average daily net assets for
that fiscal year); and for the 1784 Connecticut Tax-Exempt Income Fund,
$300,587, of which $163,399 was voluntarily waived (after giving effect to such
waiver, 0.28% of such Fund's average daily net assets for that fiscal year). In
addition, the Bank of Boston contributed $67,730 to the 1784 Tax-Exempt Medium-
Term Income Fund, $79,426 to the 1784 Massachusetts Tax-Exempt Income Fund,
$22,451 to the 1784 Rhode Island Tax-Exempt Income Fund and $1,285 to the 1784
Connecticut Tax-Exempt Income Fund to decrease the Funds' other operating
expenses and to assist the Funds in maintaining a competitive expense ratio.
Management's discussion of the Funds' performance is included in the Funds'
Annual Report to Shareholders which investors may obtain without charge by
contacting the Distributor. The Funds may execute brokerage or other agency
transactions through the Adviser or an affiliate.
Bank of Boston, a national banking association, is the successor to a number of
banking institutions, the first of which was chartered in 1784. All of the
capital stock of Bank of Boston (except directors' qualifying shares) is owned
by Bank of Boston Corporation, a registered bank holding company. Bank of
Boston and its affiliates are engaged in providing a wide variety of financial
services to individuals, corporate and institutional customers, governments,
and other financial institutions throughout New England, the United States and
internationally. These services include individual and community banking,
consumer finance, mortgage origination and servicing, domestic corporate and
investment banking, leasing, international banking services, commercial real
estate lending, private banking, trust services, correspondent banking, and
securities and payments processing. Bank of Boston's principal business address
is 100 Federal Street, Boston, MA 02110. Prior to the origination of the Trust
in 1993, the Adviser had not served as the investment adviser for management
investment companies. The Adviser also manages the other funds comprising the
Trust.
Bank of Boston has been providing asset management services since 1890. Its
portfolio managers are responsible for investing in money market, equity, and
fixed income securities and they have earned national recognition and respect.
The investment management group within Bank of Boston which manages the Fixed
Income Funds is the same group which has managed Bank of Boston's collective
trust funds with similar investment objectives. As of December 31, 1994, Bank
of Boston and its affiliates managed more than $13 billion in assets worldwide.
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Bank of Boston and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Funds, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Bank of Boston and its
affiliates deal, trade and invest for their own account in certain types of
securities purchased on behalf of the Funds. Bank of Boston and its affiliates
may sell such securities to and purchase them from other investment companies
sponsored by SEI Financial Services Company or its affiliates. The Adviser has
informed the Trust that, in making its investment decisions, it does not obtain
or use material inside information in the possession of any division or
department of Bank of Boston or in the possession of any affiliate of Bank of
Boston.
The Glass-Steagall Act prohibits certain financial institutions, such as Bank
of Boston, from engaging in the business of underwriting securities of open-end
investment companies, such as the Funds. Bank of Boston takes the position,
based on the advice of counsel, that the investment advisory services it
provides under the Advisory Agreement do not constitute underwriting activities
and are consistent with the requirements of the Glass-Steagall Act and other
relevant federal and state legal and regulatory precedent. State laws on this
issue may differ from applicable federal law, and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Future changes in either federal or state statutes or
regulations relating to the permissible activities of banks, as well as future
judicial or administrative decisions and interpretations of present and future
federal and state statutes and regulations, could prevent Bank of Boston from
continuing to perform such services for the Trust. If Bank of Boston were to be
prevented from acting as the Adviser, the Trust would seek alternative means
for obtaining such services.
THE ADMINISTRATOR
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SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), and the Trust are parties to an
administration agreement dated as of June 1, 1993 (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
provides the Trust with administrative services other than investment advisory
services, including all regulatory reporting, necessary office space,
equipment, personnel, and facilities.
The Administrator is entitled to a fee which is calculated daily and paid
monthly at an annual rate of 0.15% of the Trust's first $300 million of average
daily net assets, 0.12% of the Trust's second $300 million of average daily net
assets and 0.10% of the Trust's average daily net assets over $600 million.
Each Tax-Exempt Fund's portion of such fee is based on the average daily net
assets of such Fund. The Administrator has agreed to waive a portion of its
fees on a month to month basis under certain circumstances for certain of the
portfolios of the Trust.
THE SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
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Boston Financial Data Services acts as dividend disbursing agent and
shareholder servicing agent (the "Shareholder Servicing Agent") for the Funds,
and receives a fee for these services. The principal business address for 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 Funds, and receives a fee for these services. The principal business
address for the Transfer Agent is 225 Franklin Street, Boston, MA 02110-2875.
THE DISTRIBUTOR
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SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") dated as of June 1, 1993, and the Trust has adopted a
distribution plan (the "Plan") dated as of June 1, 1993 pursuant to Rule 12b-1
under the Investment Company Act of 1940. As provided in the Distribution
Agreement and the Plan, the Trust will pay the Distributor a fee for its
services, calculated
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daily and paid monthly, at an annual rate of .25% of the average daily net
assets of each Tax-Exempt Fund. The Distributor may apply all or a portion of
this fee toward: (a) compensation for its services in connection with
distribution assistance or provision of Shareholder services; or (b) payments
to financial institutions and intermediaries such as banks (including Bank of
Boston), savings and loan associations, insurance companies, investment
counselors, broker-dealers and the Distributor's affiliates and subsidiaries,
as compensation for services, reimbursement of expenses incurred in connection
with distribution assistance, or provision of Shareholder services. The Plan is
characterized as a "compensation plan" (in contrast to "reimbursement"
arrangements in which a distributor's compensation is linked directly to the
distributor's expenses) since the distribution fee will be paid to the
Distributor without regard to the distribution or Shareholder service expenses
incurred by the Distributor or the amount of payments made to financial
institutions and intermediaries. The Distributor has agreed to waive the 12b-1
fee. This waiver may be terminated by the Distributor at any time.
The Trust may create one or more additional classes of shares of any or all of
the Tax-Exempt Funds to be offered without distribution fees to certain types
of investors.
The Funds may execute brokerage or other agency transactions through the
Distributor, for which the Distributor receives compensation.
From time to time the Distributor may provide incentive compensation to
employees of banks (including Bank of Boston), broker-dealers and investment
counselors, and to its own employees, in connection with the sale of shares of
the Funds or other portfolios of the Trust. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation, including merchandise, airline vouchers, trips and vacation
packages. Such promotional incentives will be offered uniformly to all program
participants and will be predicated upon the amount of shares of the Funds and
other portfolios of the Trust sold by the participant.
PURCHASE OF SHARES
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Shares of the Funds are sold on a continuous basis and may be purchased
directly from the Trust's Distributor either by mail or by telephone. Shares
may also be purchased through a broker-dealer which has established a dealer
agreement with the Distributor.
Purchases of shares of each Fund may be made Monday through Friday except on
days when the New York Stock Exchange or the Federal Reserve Bank of Boston is
closed ("Business Days"). Current holidays for the New York Stock Exchange
and/or the Federal Reserve Bank of Boston are New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Thanksgiving and Christmas. Except as provided below, the
minimum initial investment in the shares is $1,000, and all subsequent
purchases of shares must be at least $250. Minimum purchase amounts may be
waived by the Distributor in its discretion. No minimum purchase amount applies
to subsequent purchases made by reinvestment of dividends.
The purchase price for shares of a Fund is their net asset value next
determined after the Distributor receives a purchase order in good form. Net
asset value per share is determined as of the close of trading on the New York
Stock Exchange, 4:00 p.m. ET, on each Business Day. Purchases will be made in
full and fractional shares of a Fund calculated to three decimal places.
A purchase order for shares of a Fund will be effective as of the Business Day
the order is received by the Distributor if the Distributor receives a purchase
order, in good form, for the shares and payment (by wire transfer or check) for
the shares before 4:00 p.m. ET on that day. Purchase orders submitted through
broker-dealers which have established dealer agreements with the Distributor
normally will be received by the Distributor on the Business Day after they are
received
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by the broker-dealer. In certain circumstances where the agreement between the
Distributor and the customer's broker so permits, a purchase order for
additional shares of a Tax-Exempt Fund will be effective as of the Business Day
the order is received by the Distributor if the Distributor receives a purchase
order in good form for the shares before 4:00 p.m. ET on that day and payment
(by wire transfer or check) for the shares is received before 4:00 p.m. ET
within 3 Business Days thereafter.
By Mail
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Investors may purchase shares of any Fund by completing and signing an Account
Application and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to the Fund in which shares are being
purchased, e.g., "1784 Tax-Exempt Medium-Term Income Fund," "1784 Massachusetts
Tax-Exempt Income Fund," "1784 Rhode Island Tax-Exempt Income Fund" or "1784
Connecticut Tax-Exempt Income Fund," to the Fund, P.O. Box 8524, Boston, MA
02266-8524. Subsequent purchases of shares may be made at any time by mailing a
check (or other negotiable bank draft or money order) to the Fund.
Account Applications can be obtained by calling the Distributor at 1-800-252-
1784.
By Telephone
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If a Shareholder has previously submitted an Account Application, that
Shareholder may also purchase shares by telephone by calling the Distributor
toll-free at 1-800-252-1784. 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 a
Tax-Exempt Fund will be executed prior to receipt of payment, but payment must
be received before 4:00 p.m. ET within 3 Business Days thereafter.
Systematic Investment Plan (SIP)
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A Shareholder may also arrange for periodic additional investments in a Tax-
Exempt Fund through automatic deductions by Direct Deposit (if available from a
Shareholder's employer) or by Automatic Clearing House ("ACH") transactions
from a checking account by completing the appropriate section of the Account
Application. The Systematic Investment Plan is subject to account minimum
initial purchase amounts and minimum maintained balance requirements. The
minimum pre-authorized investment amount is $50 per month. An Account
Application may be obtained by contacting the Distributor at 1-800-252-1784.
Other Information Regarding Purchases
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Shares of a Fund may also be purchased through financial institutions,
including Bank of Boston, which provide shareholder service or other assistance
to the Trust. Texas residents may only purchase shares through the Distributor.
Shares purchased by persons ("Customers") through financial institutions may be
held of record by the financial institution. Financial institutions may impose
cut-off times for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Distributor. Customers should
contact their financial institution for information as to the institution's
procedures for transmitting purchase, exchange or redemption orders to the
Distributor. The Distributor's receipt of an order may be delayed by one or
more Business Days.
Customers who desire to transfer the registration of shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change. Other Shareholders who desire to
transfer the registration of their shares should contact the 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
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account fees. Information concerning these services and any charges will be
provided to the Customer by the financial institution.
No certificates representing shares will be issued.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such offer. Each Fund will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. These
procedures will include verification of a caller's identity by asking for his
or her name, address, telephone number, Social Security number, and account
number. If these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine are not followed, the Fund may be liable
for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
For all purchases, if payment is not made or a check received for shares does
not clear, the purchase will be cancelled and the investor could be liable for
any losses to the Fund, including losses resulting from a decline in the net
asset value of the applicable shares between the date of purchase and the date
of cancellation, and for a check return fee up to $25.00, as applicable. Shares
purchased will begin accruing dividends on the day following the date of
purchase.
The net asset value per share of each Fund is determined by dividing the total
market value of the Fund's investments and other assets, less any liabilities,
by the total outstanding shares of the Fund. The Fund may use a pricing service
to provide market quotations. A pricing service may use a matrix system of
valuation to value fixed income securities which considers factors such as
securities prices, yield features, ratings, and developments related to a
specific security.
REDEMPTION OF SHARES
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Shareholders may redeem their shares on any Business Day and shares may
ordinarily be redeemed by mail or telephone, with proceeds payable by check,
ACH or wire transfer. A redemption is treated, for federal and state income tax
purposes, as a sale of the Fund shares redeemed; a redemption could, therefore,
result in taxable gain or loss to the Shareholder. If proceeds are made by wire
transfer, a wire transfer charge (presently $12.00) will be imposed.
By Mail
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A written request for redemption must be received by the 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 02260-
8524.
By Telephone
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Shares may be redeemed by telephone if the Shareholder elects that option on
the Account Application (unless a written redemption request, with the
Shareholder's signature guaranteed, is required; see "Signature Guarantees"
below). Telephone redemption orders must be placed with the 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
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emergencies, Shareholders may find it difficult to implement a telephone
redemption. If such a case should occur, another method of redemption, such as
written request sent via an overnight delivery service, should be considered.
The Funds' address for overnight deliveries is 1784 Funds, c/o Boston Financial
Data Services, 2 Heritage Drive, North Quincy, MA 02171.
Signature Guarantees
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If a Shareholder requests a redemption for an amount in excess of $25,000, a
redemption of any amount to be payable to anyone other than the Shareholder of
record or a redemption of any amount to be sent to any address other than the
Shareholder's address of record with the applicable Fund (or in the case of ACH
or wire transfers, other than as provided in the Shareholder's Account
Application), all account holders on the Shareholder's account must sign a
written redemption request and their signatures must be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange or by another
eligible guarantor institution. The Trust and the Shareholder Servicing Agent
reserve the right to amend these requirements for the applicable Fund at any
time without notice. For questions about the proper form of redemption
requests, call 1-800-252-1784.
Other Information Regarding Redemptions
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All redemption orders for shares of the Funds are effected at the net asset
value per share next determined after receipt, by the 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. Each Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
These procedures will include verification of a caller's identity by asking for
his or her name, address, telephone number, Social Security number, and account
number. If these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine are not followed, the Fund may be liable
for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
Forwarding of redemption proceeds for shares purchased, or received in exchange
for shares purchased, by check (including certified or cashier's checks) may be
delayed for 15 or more days to ensure that payment has been collected for the
purchase of such shares. Each Fund intends to pay cash for all shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in Fund securities with a market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem, at net asset value, the shares of any Shareholder
if, because of redemptions of shares by or on behalf of the Shareholder (and
not solely because of market declines), the account of such Shareholder in the
Fund has a value of less than the minimum initial purchase amount (normally
$1,000). Accordingly, an investor purchasing shares of the Fund in only the
minimum investment amount may be subject to such involuntary redemption if he
or she thereafter redeems any of these shares. Before the Fund exercises its
right to redeem such shares and to send the proceeds to the Shareholder, the
Shareholder will be given notice that the value of the shares in his or her
account is less than the minimum amount and will be allowed 60 days to make an
additional investment in the Fund in an amount which will increase the value of
the account to at least the minimum amount.
The right of any Shareholder to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or to the extent otherwise
permitted by the Investment Company Act of 1940, if
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an emergency exists. See "Purchase and Redemption of Shares" in the Statement
of Additional Information for examples of when the right of redemption may be
suspended.
SYSTEMATIC WITHDRAWAL PLAN
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A Shareholder may direct the Shareholder Servicing Agent to send him or her
regular monthly, quarterly, semi-annual or annual payments, as designated on
the Account Application and based upon the value of his or her account. Each
payment under a systematic withdrawal plan must be at least $100, except in
certain limited circumstances. A withdrawal payment under the plan is treated,
for federal and state income tax purposes, as a sale of a number of Fund shares
sufficient to fund the payment; such payment could, therefore, result in
taxable gain or loss to the Shareholder.
EXCHANGES
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Some or all of the shares of a Tax-Exempt Fund for which payment has been
received by the Distributor (i.e., an established account) may be exchanged at
their net asset value for shares of one or more of the other portfolios of the
Trust, including shares of another Tax-Exempt Fund. Exchanges will be made only
after instructions in writing or by telephone are received for an established
account by the Distributor.
In the case of shares held of record by Bank of Boston or one of its affiliates
but beneficially owned by a Customer, to exchange such shares the Customer
should contact Bank of Boston or the affiliate, who will contact the
Distributor and effect the exchange on behalf of the Customer. If an exchange
request in good order is received by the Distributor by 4:00 p.m. ET on any
Business Day, the exchange usually will occur on that day; however, requests
for exchanges for shares of a money market fund must be received earlier than
4:00 p.m. ET (in cases when regular trading on the New York Stock Exchange
closes earlier than 4:00 p.m. ET, as early as 12:00 noon ET) for the exchange
to occur on that day. Any Shareholder or Customer who wishes to make an
exchange must have received a current prospectus of the portfolio in which he
or she wishes to invest before the exchange will be effected. Residents of any
state may only exchange shares for shares of another portfolio of the Trust if
that portfolio is registered in that state.
Each exchange must involve either shares having an aggregate value of at least
$250 or all the shares in the account, and the amount of the exchange must meet
the minimum investment requirements for the portfolio of the Trust into which
the exchange is being made.
Exchanges may be made by telephone only if that option has been elected by the
Shareholder on the Account Application. Shares may be exchanged by telephone by
calling the Distributor toll free at 1-800-252-1784.
No fees are currently charged to Shareholders directly in connection with
exchanges, although each of the Tax-Exempt Funds reserves the right, upon not
less than 60 days' written notice, to charge Shareholders a nominal fee in
accordance with rules promulgated by the SEC. Each of the Tax-Exempt Funds also
reserves the right to reject any exchange request in whole or in part. The
exchange privilege (or any aspect of it) may be changed or terminated at any
time.
An exchange is treated, for federal and state income tax purposes, as a sale of
the Tax-Exempt Fund shares exchanged; an exchange could, therefore, result in
taxable gain or loss to the Shareholder.
PERFORMANCE
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From time to time, the Trust may advertise a Fund's yield, tax-equivalent yield
and total return. These figures will be based on historical earnings and are
not intended to indicate future performance. The yield of a Fund refers to the
annualized income generated by an investment in the Fund over a specified 30-
day period. The yield is calculated by assuming that the income generated by
the investment during that period is generated over one year and is shown as a
percentage of the investment. Each Fund's tax-equivalent yield
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refers to the yield that a taxable fund would have to generate in order to
produce an equivalent after-tax yield.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, net of any sales charge imposed, for designated time
periods (including but not limited to the period from which the Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all
dividend and capital gain distributions.
A Fund's performance may from time to time be compared to that of other mutual
funds tracked by mutual fund rating services, to that of broad groups of
comparable mutual funds or to that of unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs.
TAXES
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The following is a discussion of certain United States federal income tax
considerations relevant to the purchase, ownership, and disposition of shares
in the Funds. The discussion, which is based on current tax laws, regulations,
rulings, and judicial decisions (all of which are subject to change at any time
by legislative, judicial, or administrative action), is not intended to be
complete; therefore, prospective investors should consult their own tax
advisers as to the tax consequences to them of an investment in a Fund.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
Tax Status of the Tax-Exempt Funds
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Each Fund is treated as a separate entity for federal income tax purposes, and
is not combined with the other Funds or the Trust's other portfolios. The Trust
intends to qualify each Fund each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and to make distributions to that Fund's shareholders in accordance
with the timing requirements set out in the Code. As a result, it is expected
that the Funds will not be required to pay any federal income or excise taxes.
Federal Tax Treatment of Shareholders
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The Trust expects that dividends paid to Shareholders by the Tax-Exempt Funds
from interest on Municipal Securities (referred to as "exempt-interest
dividends") will be exempt from federal income tax because these Funds each
intend to satisfy certain requirements of the Code. One such requirement is
that at the close of each quarter of its taxable year, at least 50% of the
value of a Fund's total assets consists of obligations whose interest is exempt
from federal income tax.
Distributions of income from capital gains, from investments in taxable
securities (including repurchase agreements), and from certain other
transactions will be taxable to Shareholders, whether paid in cash or in
additional shares. Distributions from taxable net investment income and short-
term capital gains will be taxable to Shareholders as ordinary income, while
distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) will be taxable to Shareholders as long-
term capital gains, regardless of how long the Shareholders have held their
shares.
Interest on indebtedness incurred by Shareholders to purchase or carry shares
of a Tax-Exempt Fund
will not be deductible for federal income tax purposes. Exempt-interest
dividends are taken into account in calculating the amount of social security
and railroad retirement benefits that may be subject to federal income tax.
Certain distributions of exempt-interest dividends may also be a tax preference
item for purposes of the federal alternative minimum tax and all exempt-
interest dividends may increase a corporate shareholder's alternative minimum
tax. Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by private activity bonds should
consult their tax advisers before purchasing shares of the Funds.
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The Trust expects that none of the dividends received from the Funds will be
eligible for the dividends received deduction for corporations. Any Fund
dividend that is declared in October, November, or December of a calendar year,
payable to Shareholders of record in such a month, and that is paid the
following January will be treated as if received by the Shareholders on
December 31 of the year in which the dividend is declared.
The Trust will make annual reports to Shareholders of the federal income tax
status of all distributions from each Fund; the Trust will also make annual
reports to Shareholders of the State Funds of the applicable state tax status
of each State Fund's distributions.
The exchange or redemption of Fund shares is a taxable event to the
Shareholders; however, under certain circumstances, realized losses may be
disallowed and short-term capital losses may be converted into long-term
capital losses.
The Funds will generally withhold tax payments at the rate of 30% on dividends
and other payments that are subject to such withholding and that are made to
persons who are neither citizens nor residents of the U.S., although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. Each
Fund is also required in certain circumstances to withhold 31% of taxable
dividends and certain redemption proceeds paid to any Shareholder (including a
Shareholder who is neither a citizen nor a resident of the U.S.) who does not
furnish to the Fund certain information and certifications or who is otherwise
subject to backup withholding. Backup withholding will not, however, be applied
to payments that have been subject to 30% (or lower treaty rate) withholding.
State Taxes
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Depending on the nature of the distribution of income and the residence of the
Shareholder, certain distributions by the Funds may be subject to state and
local income taxes. Shareholders of the 1784 Massachusetts Tax-Exempt Income
Fund who are subject to Massachusetts personal income taxation will not,
however, be required to include in their Massachusetts gross income that
portion of their exempt-interest dividends that the Trust identifies as
directly attributable to interest received by the Fund on obligations issued by
the Commonwealth of Massachusetts, its counties and municipalities,
authorities, political subdivisions, or instrumentalities. Such shareholders
also will not be required to include in their Massachusetts gross income that
portion of ordinary dividends that the Trust properly and timely identifies in
a written notice as being attributable to interest earned on obligations of the
United States or its agencies or possessions that are exempt from state
taxation. Exempt-interest dividends paid to a corporate shareholder will be
subject to the Massachusetts corporate excise tax, and shares of the 1784
Massachusetts Tax-Exempt Income Fund may be included in the net worth base of
that tax. Any capital gains distributed by the 1784 Massachusetts Tax-Exempt
Income Fund (except for cases in which capital gains are specifically exempted
from income taxation under the legislation authorizing issuance of the
obligations the sale of which produces the capital gains), and gains realized
by the Shareholder from a redemption or sale of shares of the Fund, will be
subject to Massachusetts personal income or the corporate excise tax, as
applicable.
Shareholders of the 1784 Rhode Island Tax-Exempt Income Fund who are subject to
Rhode Island personal income taxation or to the Rhode Island business
corporation tax will not be required to include in their Rhode Island taxable
income that portion of their exempt-interest dividends that the Trust
identifies as directly attributable to interest received by the Fund on
obligations issued by the State of Rhode Island and Providence Plantations, its
counties and municipalities, authorities, political subdivisions, or
instrumentalities. Shareholders of the Fund who are subject to Rhode Island
personal income taxation or to the Rhode Island business corporation tax will
be required to include in their Rhode Island income or net income, as
applicable, any capital gains or losses from a redemption or sale of shares of
the Fund, and any capital gains distributed by the Fund other than any such
distributions derived from
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the sale of underlying obligations issued by Rhode Island issuers that are
specifically exempted from Rhode Island taxation of capital gains by the Rhode
Island law authorizing issuance of the obligations.
Shareholders of the 1784 Connecticut Tax-Exempt Income Fund who are subject to
Connecticut personal income taxation will not be required to include in their
Connecticut gross income that portion of their exempt-interest dividends that
the Trust identifies as directly attributable to interest received by the Fund
on obligations issued by the State of Connecticut, its counties and
municipalities, authorities, political subdivisions, or instrumentalities. Any
capital gains distributed by the Fund may be subject to Connecticut personal
income taxes if received by Shareholders subject to such taxes, although
currently proposed regulations would exempt distributions of net capital gains
derived from the sale or exchange of obligations of Connecticut and its
political subdivisions. Exempt-interest dividend distributions by the Fund
derived from interest income of the Fund that is treated as a preference item
for Federal income tax purposes may be subject to the net Connecticut minimum
tax in the case of any Shareholder subject to both the Connecticut personal
income tax and the federal alternative minimum tax. Distributions of capital
gains and exempt-interest dividends derived from interest exempt from
Connecticut personal income tax and federal income tax will be subject to the
Connecticut Corporation Business Tax if received by a corporation subject to
such tax. Gains from the redemption or other sale of Fund shares may be subject
to Connecticut personal income taxes or the Connecticut corporation business
tax if the Shareholder is otherwise subject to those taxes.
GENERAL INFORMATION
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The Trust
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The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated February 5, 1993. The Declaration of Trust permits the Trust to
issue an unlimited number of shares of beneficial interest of each of the
portfolios (referred to as "series") of the Trust, each of which is a separate
fund. In addition to the Tax-Exempt Funds, the Trust includes the following
funds: 1784 Institutional U.S. Treasury Money Market Fund, 1784 U.S. Treasury
Money Market Fund, 1784 Tax-Free Money Market Fund, 1784 Growth and Income
Fund, 1784 Asset Allocation Fund, 1784 International Equity Fund, 1784 U.S.
Government Medium-Term Income Fund, 1784 Short-Term Income Fund, and 1784
Income Fund. All consideration received by the Trust for shares of any fund and
all assets of such fund belong to that fund and are subject to liabilities
related thereto. The Trust reserves the right to create and issue additional
series of shares, and reserves the right to create and issue shares of
additional classes of any or all series.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses and reports to Shareholders,
costs of custodian services and registering the shares of the Funds and other
series under federal and state securities laws, pricing, insurance expenses,
brokerage costs, interest charges, taxes, and amortization of organization
expenses, and any extraordinary expenses including but not limited to
litigation expenses. For the fiscal year ended May 31, 1995, the total expenses
of each of the Funds were as follows: for the 1784 Tax-Exempt Medium-Term
Income Fund, $1,265,285, of which $464,922 was voluntarily waived or reimbursed
by the Bank of Boston (after giving effect to such waiver or reimbursement,
0.80% of such Fund's average daily net assets for that fiscal year); for the
1784 Massachusetts Tax-Exempt Income Fund, $814,052, of which $330,080 was
voluntarily waived or reimbursed by the Bank of Boston (after giving effect to
such waiver or reimbursement, 0.80% of such Fund's average daily net assets for
that fiscal year); for the 1784 Rhode Island Tax-Exempt Income Fund, $354,367,
of which $235,443 was voluntarily waived or reimbursed by the Bank of Boston
(after giving effect to such waiver or reimbursement, 0.54% of such Fund's
average daily net assets for that fiscal year); and for the 1784 Connecticut
Tax-Exempt Income Fund,
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$570,242, of which $357,499 was voluntarily waived or reimbursed by the Bank of
Boston (after giving effect to such waiver or reimbursement, 0.52% of such
Fund's average daily net assets for that fiscal year).
Under applicable law, Shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the risk of a
Shareholder incurring financial loss on account of such Shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations and inadequate insurance existed. The Trust believes that the
likelihood of such circumstances is remote.
Trustees of the Trust
- --------------------------------------------------------------------------------
The management and affairs of the Trust are supervised by its Board of
Trustees. The Trustees have approved contracts under which, as described above,
certain companies provide essential management, administrative and Shareholder
services to the Trust.
Voting Rights
- --------------------------------------------------------------------------------
Each share held entitles the Shareholder of record to one vote. Each fund or
class will vote separately on matters relating solely to that fund or class. As
a Massachusetts business trust, the Trust is not required to hold annual
meetings of Shareholders but approval will be sought for certain changes in the
operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested, the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
Reporting
- --------------------------------------------------------------------------------
The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
Shareholder Inquiries
- --------------------------------------------------------------------------------
Shareholder inquiries should be directed to SEI Financial Management
Corporation, P.O. Box 1784, Wayne, Pennsylvania 19087-8784, at 1-800-252-1784.
Dividends and Distributions
- --------------------------------------------------------------------------------
Substantially all of the net investment income (not including capital gains) of
the Tax-Exempt Funds is distributed in the form of dividends which are declared
daily and paid monthly. Shareholders of record will be entitled to receive the
dividend, except that shares purchased will not begin accruing dividends until
the day following the date of their purchase. On redemption, a Shareholder will
receive dividends through and including the day a valid redemption request is
received by the Shareholder Servicing Agent. Currently, capital gains of the
Funds, if any, will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the Shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Administrator at least 15 days prior to the distribution.
If dividend payments are returned and unclaimed within 30 days, they will be
reinvested and the Shareholder will be deemed to have elected to receive future
dividend and capital gain distributions in additional shares.
Counsel and Independent Accountants
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Bingham, Dana & Gould LLP, Boston, MA, serve as counsel to the Trust. Coopers &
Lybrand L.L.P., Boston, MA, serve as the independent accountants of the Trust.
Custodian
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Bank of Boston, 100 Federal Street, Boston, MA 02110, acts as Custodian of the
Trust. The Custodian
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holds cash, securities and other assets of the Trust as required by the
Investment Company Act of 1940. Under a separate agreement, Bank of Boston also
provides certain accounting services for the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS AND TECHNIQUES
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The following is a description of certain of the permitted investments and
investment techniques for the Funds. Not all of the Funds will normally invest
in all of the permitted investments, nor engage in all of the investment
techniques, listed below. See "Investment Policies." Except as specifically
stated below or elsewhere in this Prospectus or in the Statement of Additional
Information with respect to certain of the Funds' permitted investments and
investment techniques, there are no limits on the amount of assets a Fund may
invest in particular types of securities.
U.S. Treasury Obligations -- U.S. Treasury obligations include bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS"). STRIPS are sold as zero coupon securities. These
securities are usually structured with two classes that receive different
portions of the interest and principal payments from the underlying obligation.
The yield to maturity on the interest-only class is extremely sensitive to the
rate of principal payments on the underlying obligation. The market value of
the principal-only class generally is unusually volatile in response to changes
in interest rates. See "Zero Coupon Securities" below for more information on
these securities.
Receipts -- A Fund may purchase interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
or brokerage firms and are created by depositing U.S. Treasury obligations into
a special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts" ("TIGRs"),
and "Certificates of Accrual on Treasury Securities" ("CATS"). TRs, TIGRs, and
CATS are sold as zero coupon securities. See "Zero Coupon Securities" below for
more information on these securities.
U.S. Government Agencies -- Certain Federal agencies such as the Government
National Mortgage Association ("GNMA") have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States (e.g., GNMA) or supported by the issuing agencies' right to borrow from
the Treasury. The issues of other agencies are supported only by the credit of
the instrumentality (e.g., Federal National Mortgage Association, "FNMA").
Bank Obligations -- A Fund may invest in bank obligations, i.e., certificates
of deposit, time deposits (including Eurodollar time deposits) and bankers'
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and
foreign branches of foreign banks, domestic savings and loan associations and
other banking institutions. A Fund may invest in such obligations, however,
only if the issuer (or the parent company, in the case of subsidiaries or
branches) has assets of at least $1 billion, and only if the Adviser deems the
bank obligation to be of comparable credit quality to the commercial paper in
which the applicable Fund may invest.
Bankers' Acceptances -- A banker's acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
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Certificates of Deposit -- A certificate of deposit is a negotiable interest-
bearing instrument with a specific maturity. Certificates of deposit are issued
by banks and savings and loan institutions in exchange for the deposit of funds
and normally can be traded in the secondary market prior to maturity.
Money Market Funds -- A money market fund is an investment company that limits
its investments to high quality money market instruments with a weighted
average maturity of 90 days or less. A Fund may not invest more than 5% of its
assets in any one money market fund or more than 10% of its assets in other
investment companies, including money market funds. When a Fund invests in a
money market fund, a Shareholder bears not only his or her proportionate share
of the Fund's expenses, but also indirectly his or her share of the expenses of
the money market fund, including management fees.
Time Deposits -- A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities; therefore, no Fund will invest more than
15% of its net assets in such time deposits and other illiquid securities.
Futures and Options on Futures -- A Fund may also enter into bond and interest
rate futures contracts and options on futures contracts provided that the sum
of the Fund's initial margin deposits on open futures contracts plus the amount
paid for premiums for unexpired options on futures contracts does not exceed 5%
of the market value of the Fund's total assets and the outstanding obligations
to purchase securities under futures contracts do not exceed 20% of the Fund's
total assets. Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific security at a
specified future time and at a specified price. An option on a futures contract
gives the purchaser the right, in exchange for a premium, to assume a position
in a futures contract at a specified exercise price during the term of the
option. A Fund will minimize the risk that it will be unable to close out a
futures contract by entering into only those futures contracts which are traded
on national futures exchanges.
It is intended that the Funds would use futures contracts and related options
only for bona fide hedging purposes, i.e., to offset unfavorable changes in the
value of securities otherwise held or expected to be acquired for investment
purposes. There are risks associated with these hedging activities, including
the following: (1) the success of a hedging strategy may depend on the ability
of the Adviser to predict movements in the prices of individual securities,
fluctuations in markets, and movements in interest rates; (2) there may be an
imperfect or no correlation between the changes in market value of the
securities held by the Fund and the prices of futures and options on futures;
(3) there may not be a liquid secondary market for a futures contract or
futures option; (4) trading restrictions or limitations may be imposed by an
exchange; and (5) government regulations may restrict trading in futures
contracts and futures options.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by the Funds may carry variable or floating rates of interest and may involve a
conditional or unconditional demand feature permitting the holder to demand
payment of principal at any time or at specified intervals. Such obligations
may include variable amount master demand notes. A demand instrument with a
demand notice period exceeding seven days may be considered illiquid if there
is no secondary market for such security; a Fund will not invest more than 15%
of its net assets in illiquid securities.
The interest rates on these securities may be reset daily, weekly, quarterly or
some other reset period, and may have a floor or ceiling on interest rate
charges. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates.
Commercial Paper -- Commercial paper is the term used to designate unsecured
short-term promissory notes
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issued by corporations and other entities. Maturities on these issues vary from
one to 270 days.
Loan Participations -- The Funds may invest in interests in loans to U.S.
corporations (i.e., borrowers) which are administered by the lending bank or
agent for a syndicate of lending banks, and sold by the lending bank or
syndicate member ("intermediary bank"). In a loan participation, the borrower
of the underlying loan will be deemed to be the issuer of the participation
interest except to the extent the Fund derives its rights from the intermediary
bank. The Fund may only purchase interests in loan participations issued by a
bank in the United States with assets exceeding $1 billion and for which the
underlying loan is issued by borrowers in whose obligations the Fund may
invest. Because the intermediary bank does not guarantee a loan participation
in any way, a loan participation is subject to the credit risks generally
associated with the underlying corporate borrower. In addition, in the event
the underlying corporate borrower fails to pay principal and interest when due,
the Fund may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Fund had purchased a direct
obligation (such as commercial paper) of such borrower because it may be
necessary under the terms of the loan participation for the Fund to assert its
rights against the borrower through the intermediary bank. Moreover, under the
terms of a loan participation the purchasing Fund may be regarded as a creditor
of the intermediary bank (rather than of the underlying corporate borrower), so
that the Fund may also be subject to the risk that the issuing bank may become
insolvent. Further, in the event of the bankruptcy or insolvency of the
corporate borrower, a loan participation may be subject to certain defenses
that can be asserted by such borrower as a result of improper conduct by the
issuing bank. The secondary market, if any, for these loan participations is
limited and any such participation purchased by a Fund may be regarded as
illiquid; no Fund will invest more than 15% of its net assets in illiquid
securities.
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933 or an exemption from
registration are referred to as "restricted securities." Each of the Tax-Exempt
Funds may invest up to 15% of its net assets in illiquid securities, including
restricted securities; however, this limit will not apply to a restricted
security if it is determined by or under the direction of the Trust's Board of
Trustees, based on trading markets for the specific restricted security, that
such security is liquid. The liquidity of these investments could be impaired
if trading does not develop or declines. In the case of illiquid securities,
the absence of a trading market can make it difficult to ascertain a market
value for these investments. Disposing of illiquid securities may involve time-
consuming negotiation and legal expense, and it may be difficult or impossible
for a Fund to sell them promptly at an acceptable price.
Repurchase Agreements -- A repurchase agreement is an agreement by which a
person obtains a security and simultaneously commits to return the security to
the seller at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days from the date of purchase. The
Custodian or its agent will hold the security as collateral for the repurchase
agreement. Collateral must be maintained at a value at least equal to 100% of
the purchase price. A Fund bears a risk of loss in the event the other party
defaults on its obligations and the Fund is delayed or prevented from its right
to dispose of the collateral securities or if the Fund realizes a loss on the
sale of the collateral securities. The Adviser will enter into repurchase
agreements on behalf of a Fund only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
guidelines established and periodically reviewed by the Trustees. Pursuant to
an exemptive order from the SEC, each of the Funds may enter into repurchase
agreements on a pooled basis with other portfolios of the Trust.
Mortgage-Backed Securities -- Each of the Funds may acquire securities
representing an interest in a pool of mortgage loans that are issued or
guaranteed by a U.S. Government agency. The primary issuers or guarantors
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of these mortgage-backed securities are GNMA, FNMA and the Federal Home Loan
Mortgage Corporation. The Funds may also invest in mortgage-backed securities
issued by non-governmental entities which consist of collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs")
that are rated in one of the top three rating categories by S&P or Moody's or
are of comparable quality as determined by the Adviser. The mortgages backing
these securities include conventional thirty-year fixed rate mortgages,
graduated payment mortgages, and adjustable rate mortgages. The Funds will
purchase only CMOs and REMICs that are backed solely by GNMA certificates or
other mortgage pass-through certificates issued or guaranteed by the U.S.
Government or its agencies and instrumentalities. However, the guarantees do
not extend to the mortgage-backed securities' value, which is likely to vary
inversely with fluctuations in interest rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yield of a particular issue of pass-
through certificates. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When the mortgage obligations are prepaid, the Fund reinvests the prepaid
amounts in securities, the yield of which reflects interest rates prevailing at
the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life. The
Adviser believes that the estimated average life is the most appropriate
measure of the maturity of a mortgage-backed security. Accordingly, in order to
determine the average maturity of a Fund, the Adviser will use an estimate of
the average life of a mortgage-backed security. An average life estimate is a
function of an assumption regarding anticipated prepayment patterns. The
assumption is based upon current interest rates, current conditions in the
relevant housing markets and other factors. The assumption is necessarily
subjective, and thus different market participants could produce somewhat
different average life estimates with regard to the same security. There can be
no assurance that the average life as estimated by the Adviser will be the
actual average life.
Asset-Backed Securities -- Asset-backed securities consist of securities
secured by company receivables, truck and auto loans, leases, and credit card
receivables. These issues are normally traded over-the-counter and typically
have a short-intermediate maturity structure depending on the paydown
characteristics of the underlying financial assets which are passed through to
the security holder. Because prepayment of those underlying financial assets
affects the maturity of asset-backed securities, the Adviser will use estimates
of the average life of asset-backed securities in order to determine the
effective maturity of the Funds. See "Mortgage-Backed Securities" for more
information on estimates of average life. There can be no assurance that the
average life of an asset-backed security as estimated by the Adviser will be
the actual average life.
Standby Commitments -- A Fund may acquire securities subject to a standby
commitment which permits a Fund to sell the security at a fixed price prior to
maturity. The underlying municipal securities subject to a standby commitment
may be sold at any time at the market rates. In certain cases, a premium may be
paid for a standby commitment. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving standby commitments is to maintain flexibility and
liquidity to permit the Fund to meet redemptions and remain as fully invested
as
27
<PAGE>
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I784 FUNDS
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possible in municipal securities. Each Fund will limit standby commitment
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Trust's Board of Trustees.
There is no limit to the percentage of Fund securities that any Fund may
purchase subject to a standby commitment but the amount paid directly or
indirectly for a standby commitment held by any Fund will not exceed 1/2 of 1%
of the value of the total assets of the Fund.
Municipal Securities -- Municipal securities which the Funds may purchase
include (i) debt obligations issued by or on behalf of public authorities to
obtain funds to be used for various public facilities, for refunding
outstanding obligations, for general operating expenses, and for lending such
funds to other public institutions and facilities, and (ii) certain private
activity and industrial development bonds issued by or on behalf of public
authorities to obtain funds to provide for the construction, equipment, repair,
or improvement of privately operated facilities. Municipal notes include (but
are not limited to) general obligation notes, tax anticipation notes, revenue
anticipation notes, bond obligation notes, certificates of indebtedness, demand
notes, and construction loan notes. Municipal bonds include (but are not
limited to) general obligation bonds, revenue or special obligation bonds,
private activity and industrial development bonds. General obligation bonds are
backed by the taxing power of the issuing municipality. Revenue bonds are
backed by the revenues of a project or facility, e.g., tolls from a toll
bridge. The payment of principal and interest on private activity and
industrial development bonds generally is dependent solely on the ability of
the facility's user to meet its financial obligations and the pledge, if any,
of real and personal property so financed as security for such payment.
Municipal Securities also include participations in municipal leases. These are
undivided interests in a portion of an obligation in the form of a lease or
installment purchase issued by a state or local government to acquire equipment
or facilities. Municipal leases frequently have special risks not normally
associated with general obligation bonds or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by
the appropriate legislative body on a yearly or other periodic basis. Although
the obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In light of these concerns, the Trust
has adopted and follows procedures for determining whether municipal lease
securities purchased by a Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures require
that a number of factors be used in evaluating the liquidity of a municipal
lease security, including the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number
of other potential purchasers, the willingness of dealers to undertake to make
a market in the security, the nature of the marketplace in which the security
trades, the credit quality of the security, and other factors which the Adviser
may deem relevant.
Forward Commitments or Purchases on a When-Issued Basis -- Each of the Funds
may enter into forward commitments or purchase securities on a when-issued
basis, which means that the price of the securities is fixed at the time of
commitment and that the delivery and payment will ordinarily take place beyond
customary settlement time. The interest rate realized on these securities is
fixed as of the purchase date and no interest accrues to the Fund before
settlement.
28
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I784 FUNDS
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- --------------------------------------------------------------------------------
These securities are subject to market fluctuation due to changes in market
interest rates and will have the effect of leveraging the Fund's assets; the
securities are also subject to fluctuation in value pending settlement based
upon public perception of the creditworthiness of the issuer of these
securities. Securities purchased on a when-issued or forward commitment basis
may expose a Fund to risk because such securities may experience such
fluctuations in value prior to their actual delivery. Agreements to purchase
securities on a when-issued or forward commitment basis will only be made with
the intention of taking delivery and not for speculative purposes. A Fund may
invest up to 25% of its assets in forward commitments or commitments to
purchase securities on a when-issued basis. While awaiting delivery of
securities purchased on such bases, a Fund will establish a segregated account
consisting of cash, short-term money market instruments or high quality debt
securities equal to the amount of the commitments to purchase securities on
such bases.
Zero Coupon Securities -- A zero coupon security pays no interest or principal
to its holder during its life. A zero coupon security is sold at a discount,
frequently substantial, and redeemed at face value at its maturity date. The
amount of the discount is accrued over the life of the security and constitutes
the income earned on the security for both accounting and tax purposes. The
market prices of zero coupon securities are generally more volatile than the
market prices of securities of similar maturity that pay interest periodically,
and zero coupon securities are likely to respond to a greater degree to
interest rate changes than are non-zero coupon securities with similar maturity
and credit qualities.
Securities Lending -- In order to generate additional income, a Fund may lend
the securities in which it is invested pursuant to agreements requiring that
the loan be continuously secured by cash, securities of the U.S. Government or
its agencies or any combination of cash and such securities as collateral equal
at all times to 100% of the market value of the securities lent plus accrued
interest. A Fund may lend up to 33 1/3% of its total assets. The Fund will
continue to receive interest on the securities lent while simultaneously
earning interest on the investment of cash collateral in U.S. Government
securities. There may be risk of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will only be made to borrowers deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from such securities loans
justifies the attendant risk.
29
<PAGE>
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I784 FUNDS
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APPENDIX A
DESCRIPTION OF RATINGS
- --------------------------------------------------------------------------------
The following descriptions are summaries of certain published ratings.
Description of Commercial Paper Ratings
- --------------------------------------------------------------------------------
The following descriptions of commercial paper ratings have been published by
Standard and Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") and Fitch Investors Service, Inc. ("Fitch").
S&P's ratings are graded into several categories of which A is the highest.
This category is divided into sub-categories as follows:
A-1 This highest sub-category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality, respectively, on the
basis of relative repayment capacity.
Commercial paper issues rated F-1+, F-1, and F-2 by Fitch are judged by Fitch
to be of "exceptionally strong" quality, "very strong" quality and "good"
quality, respectively, on the basis of relative repayment capacity.
Description of Corporate Bond Ratings
- --------------------------------------------------------------------------------
Bonds rated AAA by S&P have the highest rating S&P assigns to debt obligations.
Such a rating indicates an extremely strong capacity to repay principal and pay
interest. Bonds rated AA also qualify as high-quality debt obligations.
Capacity to repay principal and pay interest is very strong, and differs from
AAA issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher rated categories.
Bonds rated BBB by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than with Aaa securities.
Bonds which are rated A by Moody's possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated Baa by Moody's are considered to be medium-grade
obligations (i.e., they are neither
A-1
<PAGE>
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I784 FUNDS
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highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Bonds rated AAA by Fitch are considered to be investment grade and of very high
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
Bonds rated AA by Fitch are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
Bonds rated A by Fitch are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Description of Municipal Note Ratings
- --------------------------------------------------------------------------------
S&P's municipal note ratings reflect the liquidity concerns and market access
risks unique to notes. An SP-1 rating indicates a strong capacity to pay
principal and interest. Issues determined to possess very strong
characteristics are given a plus (+) designation. An SP-2 rating indicates a
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
Moody's MIG-1/VMIG-1 designation denotes best quality. Municipal notes that
obtain this rating possess strong protection due to established cash flows,
superior liquidity support or demonstrated broad-based access to the market for
refinancing. Moody's MIG-2/VMIG-2 designation denotes high quality. Margins of
protection are ample although not so large as in the MIG-1/VMIG-1 group.
Municipal notes rated F-1+, F-1 and F-2 by Fitch are judged by Fitch to be of
"exceptionally strong" quality, "very strong" quality and "good" quality,
respectively, on the basis of the degree of assurance of timely payment.
A-2
<PAGE>
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I784 FUNDS
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APPENDIX B
TAXABLE EQUIVALENT YIELD TABLES
- --------------------------------------------------------------------------------
These tables are for illustrative purposes only and are not intended to predict
the actual return an individual would earn on an investment in the Funds. No
assurance can be made that any Fund will attain any particular yield. The tax
rates used in these tables are based upon published 1995 marginal tax rates
currently available and scheduled to be in effect. The tables do not take into
account changes in tax rates that are proposed from time to time. Investors
should consult their tax advisers to determine their actual tax rates.
1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
Find your Federal tax bracket based on your taxable income.
<TABLE>
<CAPTION>
You would need the taxable yield listed
opposite the Federal
1995 tax bracket in the chart below to have a
Taxable Income* Federal tax-exempt yield of:
- ----------------------------------- Marginal -------------------------------------------
Single Joint Rate 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- ---------------- ---------------- -------- ----- ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-- $ 0--
23,350 39,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
23,351-- $ 39,001--
56,550 94,250 28.00% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
56,551-- 94,251--
117,950 143,600 31.00% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
117,951-- 143,601--
256,500 256,500 36.00% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
256,501 and 256,501 and
more more 39.60% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code.
Note: Information in this table is provided as of June 30, 1995.
1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
Find your combined Massachusetts and Federal tax bracket based on your taxable
income.
<TABLE>
<CAPTION>
You would need the taxable yield listed
opposite the
combined Massachusetts and Federal tax
bracket in the
1995 Combined chart below to have a Massachusetts tax-
Taxable Income* Massachusetts exempt yield of:
- ----------------------------------- and Federal ---------------------------------------------
Single Joint State Rate Federal Rate Tax Bracket** 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- ---------------- ---------------- ---------- ------------ ------------- ----- ----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-- $ 0--
23,350 39,000 12.00% 15.00% 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
23,351-- 39,001--
56,550 94,250 12.00% 28.00% 36.64% 6.31% 7.10% 7.89% 8.68% 9.47% 10.26% 11.05%
56,551-- 94,251--
117,950 143,600 12.00% 31.00% 39.28% 6.59% 7.41% 8.23% 9.06% 9.88% 10.70% 11.53%
117,951-- 143,601--
256,500 256,500 12.00% 36.00% 43.68% 7.10% 7.99% 8.88% 9.77% 10.65% 11.54% 12.43%
over 256,500 over 256,500 12.00% 39.60% 46.85% 7.53% 8.47% 9.41% 10.35% 11.29% 12.23% 13.17%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Massachusetts Personal Income Tax laws;
however, Massachusetts taxable income may vary due to differences in
exemptions, itemized deductions, and other items.
** For Federal tax purposes, these combined rates reflect the applicable
marginal rates for 1995, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal return.
Note: Information in this table is provided as of June 30, 1995.
B-1
<PAGE>
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I784 FUNDS
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1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
Find your combined Rhode Island and Federal tax bracket based on your taxable
income.
<TABLE>
<CAPTION>
You would need the taxable yield listed
opposite the combined Rhode Island and
1995 Combined Federal tax bracket in the chart below
Taxable Income* Rhode Island to have a Rhode Island tax-exempt yield of:
- ------------------------------------ State Federal and Federal ---------------------------------------------
Single Joint Rate Rate Tax Bracket** 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- ----------------- ----------------- ------ ------- ------------- - ---- ----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-- 23,350 $ 0-- 39,000 4.13% 15.00% 18.51% 4.91% 5.52% 6.14% 6.75% 7.36% 7.98% 8.59%
23,351-- 56,550 39,001-- 94,250 7.70% 28.00% 33.54% 6.02% 6.77% 7.52% 8.28% 9.03% 9.78% 10.53%
56,551--117,950 94,251--143,600 8.53% 31.00% 36.88% 6.34% 7.13% 7.92% 8.71% 9.51% 10.30% 11.09%
117,951--256,500 143,601--256,500 9.90% 36.00% 42.34% 6.94% 7.80% 8.67% 9.54% 10.41% 11.27% 12.14%
over 256,500 over 256,500 10.89% 39.60% 46.18% 7.43% 8.36% 9.29% 10.22% 11.15% 12.08% 13.01%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Rhode Island Personal Income Tax law; however,
Rhode Island taxable income may differ due to differences in exemptions,
itemized deductions, and other items.
** For Federal tax purposes, these combined rates reflect the applicable
marginal rates for 1995, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal return.
Note: Information in this table is provided as of June 30, 1995.
1784 CONNECTICUT TAX-EXEMPT INCOME FUND
Find your combined Connecticut and Federal tax bracket based on your taxable
income.
<TABLE>
<CAPTION>
You would need the taxable yield listed
opposite the combined Connecticut and
Federal tax bracket in the chart below
1995 Combined to have a Connecticut tax-Taxable Income*
Connecticut exempt yield of:
- ------------------------------------ State Federal and Federal ------------------------------------------
Single Joint Rate** Rate Tax Bracket*** 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- ----------------- ----------------- ------ ------- -------------- ----- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-- 23,350 $ 0-- 39,000 4.50% 15.00% 18.83% 5.54% 6.16% 6.78% 7.39% 8.01% 8.62%
23,351-- 56,550 39,001-- 94,250 4.50% 28.00% 31.24% 6.54% 7.27% 8.00% 8.73% 9.45% 10.18%
56,551--117,950 94,251--143,600 4.50% 31.00% 34.11% 6.83% 7.59% 8.35% 9.11% 9.86% 10.62%
117,951--256,500 143,601--256,500 4.50% 36.00% 38.88% 7.36% 8.18% 9.00% 9.82% 10.63% 11.45%
over 256,500 over 256,500 4.50% 39.60% 42.32% 7.80% 8.67% 9.54% 10.40% 11.27% 12.14%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Connecticut Personal Income Tax law; however,
Connecticut taxable income may differ due to differences in exemptions,
itemized deductions, and other items.
** The Connecticut credits have not been included in the calculation of the
state rates. A credit between 1% and 75% is automatically allowed for
single taxpayers with a CT adjusted gross income ranging from $12,000 to
$52,500. A credit between 1% and 75% is automatically allowed for married
filing joint taxpayers with CT adjusted gross income ranging from $24,000
to $100,500.
*** For Federal tax purposes, these combined rates reflect the applicable
marginal rates for 1995, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal
return.
Note: Information in this table is provided as of June 30, 1995.
B-2
<PAGE>
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PROSPECTUS
[LOGO OF 1784 FUNDS APPEARS HERE]
1784 FUNDS (the "Trust") is a mutual fund consisting of several professionally
managed portfolios, or funds, of securities. The Trust provides a convenient
way to invest in one or more of these funds. This Prospectus relates to shares
of the following equity funds (the "Funds" or the "Equity Funds"):
1784 GROWTH AND INCOME FUND
1784 ASSET ALLOCATION FUND
1784 INTERNATIONAL EQUITY FUND
Shares of the Funds are offered primarily to individuals and institutional
investors, including accounts for which The First National Bank of Boston
("Bank of Boston"), its affiliates and correspondents, and other financial
institutions act in a fiduciary, agency or custodial capacity. Investors in
shares of the Funds are referred to hereinafter as "Shareholders." Shares of
the Funds are currently offered without any sales charges.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANK OF BOSTON OR ANY OF ITS AFFILIATES. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING RISK
TO PRINCIPAL.
This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing in the Funds.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information, dated October 2, 1995, has
been filed with the Securities and Exchange Commission (the "SEC") and is
available without charge through the Distributor, SEI Financial Services
Company, 680 East Swedesford Road, Wayne, PA 19087 or by calling 1-800-252-
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.
October 2, 1995
as supplemented December 4, 1995
<PAGE>
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I784 FUNDS
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
- --------------------------------------------------------
<S> <C>
Expense Summary 2
Summary 3
Condensed Financial Information 6
The Trust 7
Investment Objective 7
Investment Policies 7
Certain Investment Policies and Guidelines 10
Certain Additional Risk Considerations 11
Investment Limitations 13
The Advisers 14
The Administrator 16
The Shareholder Servicing Agent and Transfer Agent 17
</TABLE>
<TABLE>
<CAPTION>
Page
- ---------------------------------------------------------
<S> <C>
The Distributor 17
Purchase of Shares 17
Redemption of Shares 20
Systematic Withdrawal Plan 21
Exchanges 21
Performance 22
Taxes 22
General Information 24
Description of Permitted Investments and Techniques 25
Appendix/Description of Ratings A-1
</TABLE>
<PAGE>
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I784 FUNDS
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EXPENSE SUMMARY
- --------------------------------------------------------------------------------
Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of each of the Equity Funds and annual operating expenses of the
Funds, and (ii) an example illustrating the dollar cost of such expenses on a
hypothetical $1,000 investment in each of the Funds.
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of the
offering price) None
Sales Charge Imposed on Reinvested Dividends (as a percentage of the
offering price) None
Deferred Sales Charge Imposed on Redemptions (as a percentage of the of-
fering price) None
Redemption Fees(1) None
Exchange Fee None
</TABLE>
Annual Operating Expenses
- --------------------------------------------------------------------------------
(As a percentage of average net assets)
<TABLE>
<CAPTION>
1784 Asset 1784
1784 Growth and Allocation International
Income Fund Fund Equity Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees (after fee waiver)(2) 0.60% 0.60% 1.00%
12b-1 Fee (after fee waiver)(2) None None None
Other Expenses(2) 0.34% 0.65% 0.40%
- -----------------------------------------------------------------------------
Total Operating Expenses(2) 0.94% 1.25% 1.40%
</TABLE>
- --------------------------------------------------------------------------------
(1) If proceeds of a redemption of Fund shares are paid by wire transfer, a
wire transfer charge (presently $12.00) will be imposed.
(2) Bank of Boston, which serves as an Adviser for the Trust, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
each of the 1784 Growth and Income Fund and the 1784 Asset Allocation Fund to
not more than 1.25% of average daily net assets on an annualized basis and
total operating expenses of the 1784 International Equity Fund to not more than
1.75% of average daily net assets on an annualized basis; these limitations
would not apply to any brokerage commissions, interest expense or taxes or to
extraordinary expense items, including but not limited to litigation expenses.
Kleinwort Benson Investment Management Americas Inc., which also serves as an
Adviser for the 1784 International Equity Fund, may from time to time waive all
or a portion of its investment advisory fee. SEI Financial Services Company,
which acts as Distributor of the Trust's shares, has agreed to waive its 12b-1
fee, which is computed at an annual rate of 0.25% of each Fund's average daily
net assets. If the Distributor should terminate this waiver, after a
substantial period of time annual payment of this fee may total more than the
maximum sales charge that would have been permissible if imposed entirely as an
initial sales charge. SEI Financial Management Corporation, which acts as the
Trust's Administrator, has agreed to waive its fee from certain funds of the
Trust to assist these funds in maintaining a competitive expense ratio. Bank of
Boston contributes to the Funds in order to limit other operating expenses and
to assist the Funds in maintaining a competitive expense ratio. Fee waivers by
the Advisers, Administrator and Distributor, and contributions by the Bank of
Boston, are voluntary and may be terminated at any time. From time to time Bank
of Boston may also waive additional portions of its fees to reduce net
operating expenses to less than that shown in the table above. Certain other
parties may also agree to waive portions of their fees from time to time on a
month to month basis. The advisory fees and the total operating expenses for
the 1784 International Equity Fund set forth in the table have been restated to
reflect current fees. Additional information may be found under "The Advisers,"
"The Administrator" and "The Distributor." Absent waivers, the Bank of Boston's
investment advisory fee is calculated at an annual rate of 0.74% of average
daily net assets of each of the 1784 Growth and Income Fund and the 1784 Asset
Allocation Fund and 0.50% of average daily net assets of the 1784 International
Equity Fund. Absent waivers, if any, the investment advisory fee received by
Kleinwort Benson Investment Management Americas Inc. from the 1784
2
<PAGE>
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I784 FUNDS
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International Equity Fund is calculated at an annual rate of 0.50% of the
average daily net assets of the 1784 International Equity Fund. Absent the
waiver of fees by the Distributor, Advisers and Administrator, and voluntary
contributions by the Bank of Boston, other expenses and estimated total
operating expenses would be as follows: 0.49% and 1.48% of average daily net
assets of the 1784 Growth and Income Fund, 1.52% and 2.51% of average daily net
assets of the 1784 Asset Allocation Fund, and 0.46% and 1.70% of average daily
net assets of the 1784 International Equity Fund, in each case on an annualized
basis. Other expenses are based on actual expenses for each Fund's fiscal year
ended May 31, 1995, and include expense items described under "General
Information -- The Trust." A person who purchases shares through a financial
institution may be charged separate fees by the financial institution.
Example
- --------------------------------------------------------------------------------
An investor would pay the following expenses on a hypothetical $1,000
investment assuming a 5% annual total return and redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
1784 Growth and Income Fund $10 $30 $52 $115
1784 Asset Allocation Fund $13 $40 $69 $151
1784 International Equity Fund $14 $44 $77 $168
</TABLE>
Absent voluntary waivers by the Advisers, Distributor and Administrator and
contributions made by the Bank of Boston, the amounts for this example for one
year, three years, five years and ten years would be $13, $39, $68, $149 for
the 1784 Growth and Income Fund, $25, $78, $134 and $285 for the 1784 Asset
Allocation Fund and $17, $54, $91 and $202 for the 1784 International Equity
Fund. The example for each of the 1784 Growth and Income Fund and the 1784
Asset Allocation Fund is based on actual expenses for such Fund's fiscal year
ended May 31, 1995. The example for the 1784 International Equity Fund is based
on current expenses. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR RETURN, AND ACTUAL EXPENSES AND RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly
or indirectly borne by investors in the Funds. Additional information may be
found under "General Information -- The Trust," "The Advisers," "The
Administrator" and "The Distributor."
SUMMARY
- --------------------------------------------------------------------------------
The following information is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information.
1784 Funds (the "Trust") is an open-end management investment company which
provides a convenient way to invest in one or more professionally managed funds
of securities. The following provides basic information about the 1784 Growth
and Income Fund, 1784 Asset Allocation Fund and 1784 International Equity Fund
(each, a "Fund" or an "Equity Fund," and collectively, the "Funds" or the
"Equity Funds"). Each of the Equity Funds is a diversified fund.
What Is the Investment Objective? The investment objective of the 1784 Growth
and Income Fund is long-term growth of capital with a secondary objective of
income. The investment objective of the 1784 Asset Allocation Fund is to
achieve a favorable total rate of return through current income and capital
appreciation consistent with preservation of capital, derived from investing in
fixed income and equity securities. The investment objective of the 1784
International Equity Fund is long-term growth of capital. Dividend income, if
any, is a consideration incidental to the 1784 International Equity Fund's
investment objective of increasing the long-term value of its Shareholders'
investment. Each Fund's investment objective may be changed only with the
consent of holders of a majority of that Fund's outstanding shares. There can
be no assurance that any Equity Fund will achieve its investment objective. See
"Investment Objective" and "Investment Limitations."
3
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I784 FUNDS
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What Are the Permitted Investments? The 1784 Growth and Income Fund under
normal circumstances invests at least 65% of its total assets in common stocks.
The 1784 Asset Allocation Fund under normal circumstances invests between 30%
and 70% of its total assets in equity securities, between 30% and 60% of its
total assets in intermediate and long-term fixed income securities, and between
0% and 40% of its total assets in money market instruments. The 1784
International Equity Fund under normal circumstances invests at least 65% of
its total assets in equity securities, and at least 65% of its total assets are
invested in securities of issuers organized in at least three countries other
than the United States, including developing countries. During periods of
unusual economic market conditions or for temporary defensive purposes or
liquidity, each of the Funds may invest in money market funds, and, without
limit, in cash and money market instruments.
What Are Some of the Risks? The investment policies of each of the Equity Funds
entail certain risks and considerations of which an investor should be aware.
For example, the net asset value per share of each of the Equity Funds is not
fixed and should be expected to fluctuate. Specifically, common stocks and
other equity securities will fluctuate in value; the market value of fixed
income investments will change in response to interest rate changes and other
factors; and foreign securities in which each Equity Fund is authorized to
invest may subject the Equity Funds to different risks than those attendant to
investments in securities of U.S. issuers, such as more limited information
about foreign issuers, higher brokerage costs, different accounting standards
and thinner trading markets. Foreign securities markets may also be less
liquid, more volatile and less subject to government supervision than in the
United States.
For further information, see "Investment Policies," "Certain Investment
Policies and Guidelines," "Certain Additional Risk Considerations" and
"Description of Permitted Investments and Techniques" herein and in the
Statement of Additional Information.
Who Are the Advisers? The First National Bank of Boston ("Bank of Boston")
serves as the Adviser for each of the Funds and is entitled to a fee which is
calculated daily and paid monthly at an annual rate of 0.74% of the average
daily net assets of each of the 1784 Growth and Income Fund and the 1784 Asset
Allocation Fund and 0.50% of the average daily net assets of the 1784
International Equity Fund. Kleinwort Benson Investment Management Americas Inc.
("Kleinwort Benson" and, together with Bank of Boston, the "Advisers") also
serves as an investment adviser for the 1784 International Equity Fund and is
entitled to a fee which is calculated daily and paid monthly at an annual rate
of 0.50% of the average daily net assets of the Fund. Bank of Boston has agreed
for an indefinite period of time to waive all or a portion of its fee in order
to limit the total operating expenses of the Equity Funds on an annualized
basis to not more than 1.25% of each of the 1784 Growth and Income Fund's and
the 1784 Asset Allocation Fund's average daily net assets and to not more than
1.75% of the 1784 International Equity Fund's average daily net assets. Bank of
Boston contributes to the Funds in order to limit operating expenses and to
assist the Funds in maintaining a competitive expense ratio. Fee waivers and
contributions may be terminated at any time. See "The Advisers."
Who Is the Administrator? SEI Financial Management Corporation serves as the
Administrator for the Trust under an Administration Agreement and is entitled
to a fee which is calculated daily and paid monthly at an annual rate of 0.15%
of the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Each Equity Fund's portion
of such fee is based on that Fund's average daily net assets. The Administrator
has agreed to waive a portion of its fees on a month to month basis under
certain circumstances. See "The Administrator."
Who Are the Shareholder Servicing Agent and Transfer Agent? Boston Financial
Data Services acts as dividend disbursing agent and shareholder servicing agent
for the Funds. State Street Bank and Trust Company acts as
4
<PAGE>
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I784 FUNDS
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transfer agent for the Funds. 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 each Equity Fund's average daily net
assets; the Distributor can use all or a portion of this fee to compensate
broker-dealers and other financial institutions that provide services to
Shareholders or to their customers who beneficially own shares of the Equity
Funds. The Distributor has agreed to waive its 12b-1 fee. However, distribution
fees may be imposed in the event that the Distributor determines to terminate
its waiver of such fees. The Trust may create one or more additional classes of
shares, without distribution fees, of any or all of the Funds. See "The
Distributor."
How Do I Purchase Shares? Purchases of Fund shares may be made through the
Distributor by the close of business Monday through Friday except on days when
the New York Stock Exchange or the Federal Reserve Bank of Boston is closed
("Business Days"). Shares may also be purchased through broker-dealers which
have established dealer agreements with the Distributor. Purchase orders
submitted through broker-dealers normally will be received by the Distributor
on the Business Day after they are received by the broker-dealer.
A purchase order representing an investment in an Equity Fund will be effective
as of the Business Day the order is received by the Distributor if the
Distributor receives a purchase order in good form for the shares and payment
(by wire transfer or check) for the shares before 4:00 p.m. Eastern Time ("ET")
on that day. Shares are sold at their net asset value determined as of the end
of the day the order is effective.
The minimum initial investment in an Equity Fund is $1,000; all subsequent
purchases must be at least $250. Minimum investment requirements are lower for
accounts established for automatic investment programs and under tax-deferred
retirement programs (including IRAs). See "Purchase of Shares."
Shares of each of the Equity Funds are currently being offered without any
sales charges. See "The Distributor."
How Do I Redeem Shares? Redemptions of shares of an Equity Fund may be made
through the Shareholder Servicing Agent on any Business Day. Redemption orders
must be placed in good form before 4:00 p.m. ET on any Business Day to be
effective on that day. The redemption price is the net asset value per share
determined as of the end of the day the order is effective. See "Redemption of
Shares."
How Are Distributions Paid? Substantially all of the net investment income
(exclusive of capital gains) of each of the 1784 Growth and Income Fund and the
1784 Asset Allocation Fund is distributed in the form of quarterly dividends.
Substantially all of the net investment income (exclusive of capital gains) of
the 1784 International Equity Fund is distributed in the form of dividends
which are paid at least annually. Shareholders of record on the record date for
the dividend distribution will be entitled to the dividends. Any capital gain
is distributed at least annually. Distributions are paid in additional shares
unless the Shareholder elects to take the payment in cash. See "Dividends and
Distributions."
How Do I Make Exchanges? Once payment for shares of an Equity Fund has been
received by the Distributor, those shares may be exchanged for shares of one or
more other portfolios of the Trust at net asset value, provided the amount of
the exchange meets the minimum investment requirements for the other portfolio
of the Trust. There are no charges for an exchange. If an exchange request in
good order is received by the Distributor by 4:00 p.m. ET on any Business Day,
the exchange usually will occur on that day; however, requests for exchange for
shares of a
5
<PAGE>
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1784 FUNDS
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- --------------------------------------------------------------------------------
money market fund must be received earlier than 4:00 p.m. ET (in cases when
regular trading on the New York Stock Exchange closes earlier than 4:00 p.m.
ET, as early as 12:00 noon ET) for the exchange to occur on that day. A
Shareholder must obtain and should read the prospectus of the other portfolio
and consider the differences in investment objectives and policies before
making any exchange. An exchange is treated, for federal and state income tax
purposes, as a sale of the Equity Fund shares exchanged, and could result in
gain or loss to the Shareholder. See "Exchanges."
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following table provides condensed financial information about the Equity
Funds for the period from the commencement of operations (June 7, 1993 for the
1784 Growth and Income Fund, June 14, 1993 for the 1784 Asset Allocation Fund
and January 3, 1995 for the 1784 International Equity Fund) through May 31,
1995. The information should be read in conjunction with the financial
statements appearing in the Funds' Annual Report to Shareholders, which are
incorporated by reference in the Statement of Additional Information. The
financial statements and notes, as well as the table below, covering the period
through May 31, 1995, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report is included in the Funds' Annual Report.
Copies of the Annual Report may be obtained without charge from the
Distributor.
FINANCIAL HIGHLIGHTS
For the Period Ended May 31, 1995
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net
Asset Realized and Dividends Net Assets Ratio
Value Net Unrealized from Net Distributions Asset Value End of Expenses
Beginning Investment Gain or (Losses) Investment from Capital End Total of Period to Average
of Period Income on Investments Income Gains of Period Return (000) Net Assets
--------- ---------- ---------------- ---------- ------------- ----------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH AND
INCOME(1)
- ----------------
- ----------------
6/7/93-5/31/94 $10.00 0.12 0.56 (0.11) (0.00) $10.57 6.80 %* $121,717 0.35%**
6/1/94-5/31/95 $10.57 0.11 1.67 (0.10) (0.09) $12.16 17.09 % $229,200 0.94%
ASSET
ALLOCATION(2)
- ----------------
- ----------------
6/14/93-5/31/94 $10.00 0.19 (0.20) (0.15) (0.00) $ 9.84 (0.15)%* $ 6,928 1.25%**
6/1/94-5/31/95 $ 9.84 0.28 1.15 (0.27) (0.01) $10.99 14.84 % $ 8,622 1.25%
INTERNATIONAL
EQUITY(3)
- ----------------
- ----------------
1/3/95-5/31/95 $10.00 0.06 0.35 (0.00) (0.00) $10.41 4.73 %* $148,439 0.89%**
<CAPTION>
Ratio Ratio of
Ratio of Expenses Net Income
of Net to Average to Average
Income Net Assets Net Assets Portfolio
to Average (Excluding (Excluding Turnover
Net Assets Waivers) Waivers) Rate
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
GROWTH AND
INCOME(1)
- ----------------
- ----------------
6/7/93-5/31/94 1.23%** 1.36%** 0.22%** 31.55%
6/1/94-5/31/95 1.05% 1.23% 0.76% 38.94%
ASSET
ALLOCATION(2)
- ----------------
- ----------------
6/14/93-5/31/94 2.62%** 3.61%** 0.26%** 28.19%
6/1/94-5/31/95 2.88% 2.51% 1.62% 67.23%
INTERNATIONAL
EQUITY(3)
- ----------------
- ----------------
1/3/95-5/31/95 2.06%** 1.70%** 1.25%** 11.03%
</TABLE>
* Returns are for the period indicated and have not been annualized.
** Ratios for this period have been annualized.
(1) The Growth and Income Fund commenced operations on June 7, 1993.
(2) The Asset Allocation Fund commenced operations on June 14, 1993.
(3) The International Equity Fund commenced operations on January 3, 1995.
-------------
6
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I784 FUNDS
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THE TRUST
- --------------------------------------------------------------------------------
1784 Funds (the "Trust") is an open-end management investment company that
currently offers units of beneficial interest ("shares") in several separate
professionally managed investment portfolios, or funds. Each share of each fund
represents an undivided, proportionate interest in that fund. This Prospectus
relates to shares of the Trust's 1784 Growth and Income Fund, 1784 Asset
Allocation Fund and 1784 International Equity Fund, each of which is a
diversified fund. The Trust's other funds include the 1784 U.S. Government
Medium-Term Income Fund, 1784 Short-Term Income Fund, 1784 Income Fund, 1784
Tax-Exempt Medium-Term Income Fund, 1784 Connecticut Tax-Exempt Income Fund,
1784 Rhode Island Tax-Exempt Income Fund, 1784 Massachusetts Tax-Exempt Income
Fund, 1784 U.S. Treasury Money Market Fund, 1784 Institutional U.S. Treasury
Money Market Fund and 1784 Tax-Free Money Market Fund. Information regarding
the Trust's other funds is contained in separate prospectuses that may be
obtained from the Trust's distributor, SEI Financial Services Company (the
"Distributor"), 680 East Swedesford Road, Wayne, Pennsylvania 19087, or by
calling 1-800-252-1784.
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the 1784 Growth and Income Fund is long-term growth
of capital with a secondary objective of income.
The investment objective of the 1784 Asset Allocation Fund is to achieve a
favorable total rate of return through current income and capital appreciation
consistent with preservation of capital, derived from investing in fixed income
and equity securities.
The investment objective of the 1784 International Equity Fund is long-term
growth of capital. Dividend income, if any, is a consideration incidental to
the Fund's investment objective of increasing the long-term value of its
Shareholders' investment.
There is no assurance that the investment objective of any Fund will be met.
The investment objective of each Fund is a fundamental policy of that Fund, and
therefore cannot be changed without the consent of holders of a majority of
that Fund's outstanding shares. See "Investment Limitations."
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The 1784 Growth and Income Fund is a diversified fund that under normal
circumstances invests at least 65% of its total assets in common stocks of U.S.
and foreign issuers. The Fund emphasizes common stocks that in its Adviser's
opinion (1) have above average long-term growth prospects; (2) have a market
capitalization of at least $250 million; (3) have the potential for an increase
in shareholder dividend payments; (4) are issued by companies that are
financially sound; and (5) are issued by companies that have a record of growth
in both earnings and dividends. Some of the common stocks purchased by the Fund
may not meet one or more of these criteria. For purposes of this policy, common
stocks are deemed to include securities purchased in the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs")
(sometimes referred to as Continental Depositary Receipts ("CDRs")). Under
normal circumstances, not more than 35% of this Fund's total assets are
invested in warrants, convertible and non-convertible debt securities and
preferred stocks, and money market instruments.
The 1784 Growth and Income Fund may, for hedging purposes or in order to
generate additional income, write (sell) covered call options, and may, for
hedging purposes, enter into futures contracts and related options. In
addition, the Fund may make additional types of investments and engage in other
investment practices, as described in "Description of Permitted Investments and
Techniques."
For more information regarding the permitted investments and investment
practices of the 1784 Growth and Income Fund, the purposes of these investments
and investment practices and certain risks
7
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I784 FUNDS
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associated with certain of these investments and investment practices, see
"Certain Investment Policies and Guidelines," "Certain Additional Risk
Considerations," "Description of Permitted Investments and Techniques" and the
Statement of Additional Information.
The 1784 Asset Allocation Fund is a diversified fund which allocates its assets
among equity securities and fixed income securities (consisting of both
intermediate and long-term fixed income securities and money market
instruments). Under normal circumstances, between 30% and 70% of the Fund's
total assets are invested in equity securities, between 30% and 60% of its
total assets are invested in intermediate and long-term fixed income
securities, and between 0% and 40% of its total assets are invested in money
market instruments. For purposes of this policy, equity securities are defined
as: (1) common stocks; (2) warrants to purchase common stocks; (3) debt
securities convertible into common stocks; (4) convertible and non-convertible
preferred stocks; and (5) American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs") (sometimes referred to as Continental Depositary
Receipts ("CDRs")). In selecting equity securities, the Fund's Adviser
emphasizes securities which in its opinion (1) have above average long-term
growth prospects; (2) have a market capitalization of at least $250 million;
(3) have the potential for an increase in shareholder dividend payments; (4)
are issued by companies that are financially sound; and (5) are issued by
companies that have a record of growth in both earnings and dividends. Some of
the equity securities purchased by the Fund may not meet one or more of these
criteria.
The intermediate and long-term fixed income securities in which the 1784 Asset
Allocation Fund may invest include: (1) bonds, debentures or other debt
instruments rated BBB or better by Standard & Poor's Ratings Group ("S&P") or
Baa or better by Moody's Investors Service, Inc. ("Moody's") or of comparable
quality at the time of purchase as determined by the Fund's Adviser; (2) debt
obligations issued or guaranteed as to principal and interest by the U.S.
Government or any of its agencies and instrumentalities; (3) debt securities of
the government of Canada or any of its provincial and local governments, in
each case which the Fund's Adviser deems to be of comparable credit quality at
time of purchase to the corporate debt instruments in which the Fund may
invest; (4) U.S. dollar denominated debt securities issued or guaranteed by
foreign governments, their political subdivisions, agencies or
instrumentalities and debt securities of supranational entities, in each case
which the Fund's Adviser deems to be of comparable credit quality at time of
purchase to the corporate debt instruments in which the Fund may invest; (5)
mortgage-backed securities and asset-backed securities rated A or better by S&P
or Moody's or of comparable quality at the time of purchase as determined by
the Fund's Adviser; (6) receipts evidencing separately traded interest and
principal component parts of U.S. Government obligations; and (7) repurchase
agreements involving the foregoing types of securities. Securities rated BBB by
S&P or Baa by Moody's may have speculative characteristics.
The money market instruments in which the 1784 Asset Allocation Fund may invest
are described under "Certain Investment Policies and Guidelines" and
"Description of Permitted Investments and Techniques."
The 1784 Asset Allocation Fund may purchase mortgage-backed securities issued
or guaranteed as to payment of principal and interest by the U.S. Government or
any of its agencies or instrumentalities and mortgage-backed securities issued
by private issuers rated in one of the three highest rating categories and
backed by mortgage pass-through certificates issued or guaranteed by the U.S.
Government or any of its agencies and instrumentalities. The principal
governmental issuers or guarantors of mortgage-backed securities are the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), and Federal Home Loan Mortgage Corporation ("FHLMC").
Obligations of GNMA are
8
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I784 FUNDS
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backed by the full faith and credit of the U.S. Government while obligations of
FNMA and FHLMC are supported by the respective agency only. The Fund may
purchase mortgage-backed securities that are backed or collateralized by fixed,
adjustable or floating rate mortgages.
The 1784 Asset Allocation Fund may invest in floating or variable rate debt
obligations. The Fund is not subject to maturity restrictions. Fixed income
obligations owned by the Fund which become less than the prescribed investment
quality after purchase will be sold at a time when, in the judgment of the
Fund's Adviser, it is not in the Fund's interest to continue to hold such
securities.
The 1784 Asset Allocation Fund may, for hedging purposes or in order to
generate additional income, write (sell) covered call options, and may, for
hedging purposes, enter into futures contracts and related options. In
addition, the Fund may make additional types of investments and engage in other
investment practices, as described in "Description of Permitted Investments and
Techniques."
For more information regarding the permitted investments and investment
practices of the 1784 Asset Allocation Fund, the purposes of these investments
and investment practices and certain risks associated with certain of these
investments and investment practices, see "Certain Investment Policies and
Guidelines," "Certain Additional Risk Considerations," "Description of
Permitted Investments and Techniques" and the Statement of Additional
Information.
The 1784 International Equity Fund is a diversified fund that under normal
circumstances and as a non-fundamental policy, invests at least 65% of its
total assets in equity securities, and at least 65% of its total assets in
securities of issuers organized in at least three countries other than the
United States, including developing countries. For purposes of this policy,
equity securities are defined as including common stock, preferred stock,
securities convertible into common stock (such as convertible notes,
convertible debentures and convertible preferred stock), trust or limited
partnership interests, and rights and warrants to acquire equity securities,
and also include securities purchased directly or in the form of sponsored
American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") or
other similar securities representing common stock of foreign issuers.
Other permitted investments of the 1784 International Equity Fund, including
fixed income securities, are described below in "Certain Investment Policies
and Guidelines" and "Description of Permitted Investments and Techniques."
The 1784 International Equity Fund will emphasize equity securities that in the
Fund's Advisers' opinion (1) have above average long-term growth prospects; (2)
have a market capitalization of at least $100 million; (3) have the potential
for an increase in shareholder dividend payments; (4) are issued by companies
that are financially sound; and (5) are issued by companies that have a record
of growth in both earnings and dividends. Some of the securities purchased by
the Fund may not meet one or more of these criteria.
The 1784 International Equity Fund may, for hedging purposes or in order to
generate additional income, write (sell) covered call options, and may, for
hedging purposes, enter into futures contracts and related options. In
addition, the Fund may make additional types of investments and engage in other
investment practices, as described in "Description of Permitted Investments and
Techniques."
The 1784 International Equity Fund may, in the future, seek to achieve its
investment objective by investing all of its assets in a diversified, open-end
management investment company having the same investment objective and policies
and substantially the same investment restrictions as those applicable to the
Fund. In such event, the Fund's Advisory Agreements would
9
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be terminated. Such investment would be made only if the Trustees of the Trust
believe that the aggregate per share expenses of the Fund and such other
investment company will be less than or approximately equal to the expenses
which the Fund would incur if it were to continue to retain the services of
investment advisers and the assets of the Fund were to continue to be invested
directly in portfolio securities.
For more information regarding the permitted investments and investment
practices of the 1784 International Equity Fund, the purposes of these
investments and investment practices and certain risks associated with certain
of these investments and investment practices, see "Certain Investment Policies
and Guidelines," "Description of Permitted Investments and Techniques,"
"Certain Additional Risk Considerations" and the Statement of Additional
Information.
CERTAIN INVESTMENT POLICIES AND GUIDELINES
- --------------------------------------------------------------------------------
Each Equity Fund may make any of the investments or engage in any of the
investment practices described under "Description of Permitted Investments and
Techniques." Each Equity Fund's investments normally consist primarily of
securities that are listed on recognized exchanges or actively traded in the
over-the-counter market. Each Equity Fund may also hold securities that are
neither so listed nor so traded. However, none of the Equity Funds invests more
than 15% of its net assets in illiquid securities.
The money market instruments in which the Equity Funds may invest include: (1)
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities; (2) repurchase agreements; (3)
bank obligations described under "Description of Permitted Investments and
Techniques;" (4) commercial paper, other short-term debt securities or variable
or floating rate instruments rated in one of the two highest short-term rating
categories by a "nationally recognized statistical rating organization" as
defined under Securities and Exchange Commission rules ("NRSRO") or of
comparable credit quality as determined by the Fund's Adviser or Advisers; (5)
securities issued or guaranteed as to principal and interest by foreign
governments; and (6) asset-backed securities. Other money market instruments in
which the Equity Funds may invest are described under "Description of Permitted
Investments and Techniques." For temporary defensive purposes during periods
when it is determined by the Adviser or Advisers to such Fund that market
conditions warrant, each of the Equity Funds may invest up to 100% of its
assets in money market instruments. The Funds may also invest, for temporary
defensive purposes, in money market funds. To the extent a Fund is invested in
money market instruments and/or money market funds for temporary defensive
purposes, the Fund will not be pursuing its investment objective.
In general, mortgage-backed securities are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities the yield of which reflects then-prevailing interest
rates, which may be lower. Thus, mortgage-backed securities may not be an
effective means of locking in long-term interest rates for a Fund.
Under normal circumstances the annual portfolio turnover rate for each of the
Equity Funds is not expected to exceed 100%. For the fiscal years ended May 31,
1994 and May 31, 1995, this rate was 31.6% and 38.9%, respectively, for the
1784 Growth and Income Fund and 28.2% and 67.2%, respectively, for the 1784
Asset Allocation Fund. For the fiscal period ended May 31, 1995, this rate was
11.0% for the 1784 International Equity Fund.
Investments in equity securities will fluctuate in value based on many factors,
including actual and anticipated earnings, changes in management, political and
economic developments and the potential for takeovers and acquisitions;
therefore the shares of each of the Equity Funds will fluctuate in value. In
addition, the
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market value of fixed income investments (including money market instruments)
will change in response to interest rate changes and other factors such as
perceived changes in the credit quality of or the supply and demand for such
investments. During periods of falling interest rates, the values of
outstanding fixed income securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities generally decline.
Moreover, while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject to greater
market fluctuations as a result of changes in interest rates. Changes by
recognized agencies in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal also affect the
value of these investments. Changes in the value of Fund securities will affect
the Fund's net asset value; under most circumstances, changes in the value of
Fund securities will not affect cash income derived from these securities, but
there can be no guaranty that such cash income will not be adversely affected.
Each of the Equity Funds may, from time to time, engage in securities lending;
however, loans made by a Fund of the securities it holds may not exceed 33 1/3%
of that Fund's total assets. Each of the Funds may purchase securities on a
when-issued basis. Each of the Funds may, for hedging purposes, enter into
interest rate futures contracts and related options and stock index futures
contracts and related options, and may, for hedging and other non-speculative
purposes, engage in foreign currency exchange transactions on a spot basis, by
entering into forward currency exchange contracts, or by investing in currency
futures contracts and options thereon.
CERTAIN ADDITIONAL RISK CONSIDERATIONS
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Each of the 1784 Growth and Income Fund and the 1784 Asset Allocation Fund may
invest not more than 25% of its assets in securities of foreign issuers. The
1784 International Equity Fund seeks to invest at least 65% of its total assets
in securities of issuers organized in at least three countries other than the
United States.
The Funds do not represent a complete or a balanced investment program for
investors. The 1784 International Equity Fund is designed to give investors a
way to commit a portion of their assets to portfolios of foreign securities.
Each prospective purchaser should take into account his or her investment
objectives as well as his or her other investments when considering the
purchase of shares of a Fund.
Investors in the Funds should recognize that investing in foreign securities
(including investments in ADRs, ADSs, EDRs and CDRs) involves considerations
not typically associated with investing in U.S. securities. Since a Fund may
hold securities denominated in foreign currencies and, at times, hold various
foreign currencies prior to their investment in foreign securities or their
conversion into U.S. dollars, the value and yield of the assets of the Fund, as
measured in U.S. dollars, will be affected favorably or unfavorably by changes
in exchange rates. In addition, because each Fund is required to compute and
distribute its income in U.S. dollars, a Fund may be required to liquidate
portfolio securities should the exchange rate for any currency decline after
income has been earned and translated into U.S. dollars. Similarly, if an
exchange rate declines between the time a Fund incurs expenses in U.S. dollars
and the time such expenses are paid, the amount of currency required to be
converted by the Fund to pay such expenses in U.S. dollars will be greater than
the amount which would have been required to pay such expenses when incurred. A
Fund also may be adversely affected by any restrictions on the conversion or
transfer of foreign currencies.
In addition, while the volume of transactions effected on foreign stock
exchanges continues to grow, volume in certain securities markets is
appreciably below that of U.S. securities markets. Accordingly, a Fund's
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of U.S. companies. Moreover, the
settlement periods for foreign securities, which are often longer than those
for securities of U.S. issuers, may affect portfolio liquidity. In buying and
selling securities on
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foreign exchanges, fixed commissions are normally paid that are generally
higher than the negotiated commissions charged in the United States.
In general, there is also less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than there is in
the United States. Also, it usually is more difficult to obtain complete
information about companies abroad than companies in the United States. Most
foreign companies are not subject to the same uniform accounting and financial
reporting requirements as are applicable in the United States.
Income from foreign securities bought by a Fund may, and in some cases will, be
reduced by a withholding tax at the source. In some cases, at the election of
the Fund, shareholders of the Fund (other than tax-exempt institutions) will be
entitled, subject to certain limitations, to claim credits or deductions on
their U.S. federal income tax returns for their proportionate share of foreign
income and certain other taxes paid by the Fund. See "Taxes" and "General
Information--Dividends and Distributions."
Political developments or social instability can also have an adverse impact on
the market value of investments in affected countries. It is possible that
certain countries may expropriate corporate assets, subject companies within
their borders to punitive or unduly high taxation or block the exchange or
transfer of currencies.
Furthermore, the economies of individual foreign nations may differ from the
U.S. economy, whether favorably or unfavorably, in areas such as growth of
gross national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. It may also be more difficult to
obtain and enforce a judgment against a foreign issuer. Any foreign investments
made by a Fund must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments. Although the 1784 International Equity Fund has no minimum
requirement for diversification of its portfolio securities by country, the
Fund attempts to reduce the risks associated with being invested in the economy
of any one country by investing its assets in a portfolio of securities
consisting of securities of issuers organized in at least three countries other
than the United States.
The 1784 International Equity Fund may invest its assets in companies (or
governments) of or within developed as well as developing countries throughout
the world. Each of the 1784 Growth and Income Fund and the 1784 Asset
Allocation Fund may invest not more than 5% of its assets in securities of
issuers in developing countries. Shareholders should be aware that investing in
the equity and fixed income markets of developing countries involves exposure
to economic structures that are generally less diverse and mature, and to
political systems which can be expected to have less stability, than those of
developed countries. A developing country is generally considered to be one
which is in the initial stage of its industrialization cycle with a low per
capita income. Historical experience indicates that the markets of developing
countries have been more volatile than the markets of developed countries with
more mature economies; such markets often have provided higher rates of return
and greater risks to investors. Such characteristics can be expected to
continue in the future.
Investment in securities of issuers based in developing countries entails all
of the risks of investing in securities of foreign issuers outlined in this
section but to a heightened degree. These heightened risks include (i) greater
risks of expropriation, confiscatory taxation and nationalization, and less
social, political and economic stability; (ii) the small current size of
markets for securities of issuers based in developing countries and the
currently low or non-existent volume of trading, resulting in a lack of
liquidity and in price volatility; (iii) certain national policies which may
restrict a Fund's investment opportunities, including restrictions on investing
in issuers or industries deemed sensitive to relevant national interests; and
(iv) the absence of developed legal structures governing private or foreign
investment and private property.
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Each Fund may invest in smaller, lesser-known companies which the Adviser or
Advisers to such Fund believe offer greater growth potential than larger, more
mature, better-known companies. Investing in the securities of such companies,
however, also involves greater risk and the possibility of greater portfolio
price volatility. Among the reasons for the greater price volatility of these
small companies and unseasoned stocks are the less certain growth prospects of
smaller companies, the lower degree of liquidity in the markets for such
stocks, and the greater sensitivity of small companies to changing economic
conditions. For example, these companies are associated with higher investment
risk than normally associated with larger firms due to the greater business
risks of small size and limited product lines, markets, distribution channels
and financial and managerial resources.
The operating expense ratio of the 1784 International Equity Fund is expected
to be higher than that of an investment company investing exclusively in
domestic securities since the expenses of the Fund, such as custodial costs,
valuation costs and communications costs, as well as the rate of the advisory
fees, are higher than those costs typically incurred by investment companies
investing exclusively in domestic securities.
INVESTMENT LIMITATIONS
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The investment objective of each Fund and the following investment limitations
are fundamental policies of that Fund. Fundamental policies cannot be changed
with respect to a Fund without the consent of the holders of a majority of that
Fund's outstanding shares. The term "majority of the outstanding shares" means
the vote of (i) 67% or more of the Fund's shares present at a meeting, if more
than 50% of the outstanding shares of the Fund are present or represented by
proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is
less.
A Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of the Fund would be invested in the securities of such issuer or more
than 10% of the outstanding voting securities of such issuer would be owned by
the Fund, provided that this limitation does not apply to an investment of all
of the investable assets of the 1784 International Equity Fund in a
diversified, open-end management investment company having the same investment
objective and policies and substantially the same investment restrictions as
those applicable to the Fund. This restriction applies to 75% of each Fund's
total assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities, and provided further that this limitation
does not apply to an investment of all of the investable assets of the 1784
International Equity Fund in a diversified, open-end management investment
company having the same investment objective and policies and substantially the
same investment restrictions as those applicable to the Fund. For purposes of
this limitation (i) utility companies will be divided according to their
services; for example, gas, gas transmission, electric and telephone will each
be considered a separate industry; (ii) financial service companies will be
classified according to the end users of their services; for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (iii) supranational entities will be
considered to be a separate industry.
3. Make loans, except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; (b) enter into
repurchase agreements; and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
4. Borrow, except that a Fund may borrow money from banks and may enter into
reverse repurchase
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agreements in an amount not to exceed 33 1/3% of the Fund's total assets and
then only as a temporary measure for extraordinary or emergency purposes (e.g.,
to meet Shareholder redemption requests). A Fund will not purchase any
securities for its portfolio at any time at which its borrowings equal or
exceed 5% of its total assets (taken at market value).
The foregoing percentages apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISERS
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The First National Bank of Boston ("Bank of Boston" or an "Adviser") manages
the assets of each of the 1784 Growth and Income Fund and the 1784 Asset
Allocation Fund pursuant to an Investment Advisory Agreement (the "Advisory
Agreement") with the Trust. Subject to such policies as the Board of Trustees
of the Trust may determine, Bank of Boston makes investment decisions for each
such Fund. Eugene D. Takach, Fund Manager, and Theodore E. Ober, Fund Manager,
have been the co-managers of the 1784 Growth and Income Fund since June, 1993.
Mr. Takach, who has more than 30 years of experience in investment management,
research analysis and securities trading, has been a Portfolio Manager at Bank
of Boston since 1971. Mr. Ober, who has more than seven years of investment
management experience, was a Portfolio Assistant at Bank of Boston from 1987 to
1989 and an Assistant Fund Manager from 1989 to 1992, and has been a Fund
Manager since 1992. Ronald J. Clausen, Senior Fund Manager, and Jack A. Ablin,
Senior Fund Manager, have been the co-managers of the 1784 Asset Allocation
Fund since June, 1993. Mr. Clausen, who has more than 30 years of experience in
investment management and research analysis, has been a Senior Fund Manager at
Bank of Boston since 1984. Mr. Ablin, who has more than nine years of
investment management experience, has been a Senior Fund Manager at Bank of
Boston since 1990. From 1987 to 1990, Mr. Ablin was a Fixed Income Portfolio
Manager with Constitutional Capital Management Company.
Bank of Boston and Kleinwort Benson Investment Management Americas Inc.
("Kleinwort Benson" or an "Adviser" and, together with Bank of Boston, the
"Advisers") serve as investment advisers to the 1784 International Equity Fund
pursuant to separate Investment Advisory Agreements (each an "Advisory
Agreement") with the Trust. Subject to such policies as the Board of Trustees
of the Trust may determine, Bank of Boston and Kleinwort Benson are responsible
for management of the assets of the 1784 International Equity Fund. Kleinwort
Benson furnishes a continuous investment program for the 1784 International
Equity Fund in conjunction with Bank of Boston's analysis of market
developments in South America. Fund investments are made with the agreement of
both Advisers. Kenton J. Ide, Director of Investments for The Private Bank at
Bank of Boston, has been a manager of the 1784 International Equity Fund since
the commencement of its operations. Mr. Ide, who has more than twenty years of
experience in investment management and research analysis, has been with the
Bank of Boston since early 1993. From 1983 to 1993, Mr. Ide was a Senior Vice
President with the Private Client Group of Boston Safe Deposit and Trust
Company. Juliet Cohn, senior portfolio manager at Kleinwort Benson, has also
been a manager of the 1784 International Equity Fund since the commencement of
its operations. Ms. Cohn, who has more than twelve years experience in
investment management, has been with Kleinwort Benson since 1987. Each Adviser
furnishes at its own expense all services, facilities and personnel necessary
in connection with managing the 1784 International Equity Fund's investments
and effecting securities transactions for the Fund.
For its services under the applicable Advisory Agreement, Bank of Boston
receives from each of the 1784 Growth and Income Fund and the 1784 Asset
Allocation Fund a fee accrued daily and paid monthly at an annual rate equal to
0.74% of such Fund's average daily net assets. However, Bank of Boston has
agreed for an indefinite period of time to waive all or a portion of its fees
in order to limit the total operating expenses of each of these Funds on an
annualized basis
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to not more than 1.25% of its average daily assets; this limitation would not
apply to any brokerage commissions, interest expense or taxes or to
extraordinary expense items, including but not limited to litigation expenses.
For its services under its Advisory Agreement with respect to the 1784
International Equity Fund, Bank of Boston receives from the 1784 International
Equity Fund a fee accrued daily and paid monthly at an annual rate equal to
0.50% of the Fund's average daily net assets. For its services under its
Advisory Agreement, Kleinwort Benson receives from the 1784 International
Equity Fund a fee accrued daily and paid monthly at an annual rate equal to
0.50% of the Fund's average daily net assets. The Trustees have determined that
the aggregate advisory fees payable to the Advisers are reasonable in light of
the 1784 International Equity Fund's investment policy of investing primarily
in foreign issuers. Although these advisory fees are similar to such fees
currently being paid by other investment companies which also invest primarily
in foreign issuers, they are higher than such fees currently being paid by most
investment companies in general. Bank of Boston has agreed for an indefinite
period of time to waive all or a portion of its fees in order to limit the
total operating expenses of the 1784 International Equity Fund to not more than
1.75% of the average daily net assets of the Fund on an annualized basis; this
limitation would not apply to any brokerage commissions, interest expense or
taxes or to extraordinary expense items, including but not limited to
litigation expenses. Kleinwort Benson may also agree from time to time to waive
all or a portion of its fees. Fee waivers may be terminated at any time. From
time to time Bank of Boston may also waive additional portions of its fees to
reduce net operating expenses to less than the amount specified above.
For the fiscal year ended May 31, 1995, the fees payable to Bank of Boston
under the Advisory Agreement with respect to each of the 1784 Growth and Income
Fund and the 1784 Asset Allocation Fund were as follows: for the 1784 Growth
and Income Fund, $1,393,008 (0.74% of such Fund's average daily net assets for
that period) and for the 1784 Asset Allocation Fund, $55,070, of which $31,514
was voluntarily waived (after giving effect to such waiver, 0.32% of such
Fund's average daily net assets for that period). In addition, the Bank of
Boston contributed $51,775 to the 1784 Growth and Income Fund and $28,647 to
the 1784 Asset Allocation Fund to decrease the Funds' other operating expenses
and to assist the Funds in maintaining a competitive expense ratio. For the
period from January 3, 1995 (commencement of operations) through May 31, 1995,
the fee payable under the Advisory Agreement with Bank of Boston with respect
to the 1784 International Equity Fund was $199,000, all of which was
voluntarily waived; and the fee payable under a prior advisory agreement with
Kleinwort Benson (the terms of which are identical to those of the Advisory
Agreement with respect to the 1784 International Equity Fund currently in
effect) was $199,000 (0.21% of such Fund's average daily net assets for that
period). Management's discussion of the Equity Funds' performance is included
in the Funds' Annual Report to Shareholders which investors may obtain without
charge by contacting the Distributor. The Funds may execute brokerage or other
agency transactions through an Adviser to a Fund or an affiliate.
Bank of Boston, a national banking association, is the successor to a number of
banking institutions, the first of which was chartered in 1784. All of the
capital stock of Bank of Boston (except directors' qualifying shares) is
owned by Bank of Boston Corporation, a registered bank holding company. Bank of
Boston and its affiliates are engaged in providing a wide variety of financial
services to individuals, corporate and institutional customers, governments,
and other financial institutions throughout New England, the United States and
internationally. These services include individual and community banking,
consumer finance, mortgage origination and servicing, domestic corporate and
investment banking, leasing, international banking services, commercial real
estate lending, private banking, trust services, correspondent banking, and
securities and payments processing. Bank of Boston's principal business address
is 100 Federal Street,
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Boston, MA 02110. Prior to the organization of the Trust in 1993, Bank of
Boston had not served as the investment adviser for management investment
companies. Bank of Boston also manages the other funds comprising the Trust.
Bank of Boston has been providing asset management services since 1890. Its
portfolio managers are responsible for investing in money market, equity, and
fixed income securities and they have earned national recognition and respect.
The investment management group within Bank of Boston which manages the Equity
Funds is the same group which has managed Bank of Boston's collective trust
funds with similar investment objectives. As of December 31, 1994, Bank of
Boston and its affiliates managed more than $13 billion in assets worldwide.
Kleinwort Benson, 200 Park Avenue, New York, New York 10166, is the U.S.
registered investment management subsidiary of the London based Kleinwort
Benson Group plc, a merchant banking group whose origins date back to 1792,
which in turn is a subsidiary of Dresdner Bank A.G. Kleinwort Benson has
offices in London, Hong Kong and Tokyo and may utilize the general expertise of
Kleinwort Benson Group plc and its affiliates in respect of, for example,
economic analyses and predictions and market developments and trends.
Since it commenced operations in 1980, Kleinwort Benson has managed investment
accounts, primarily for institutions in North America, comprised of equity,
fixed income and balanced portfolios. As of December 31, 1994, Kleinwort Benson
had approximately $1.014 billion of assets under management.
Bank of Boston and its affiliates, and Kleinwort Benson and its affiliates, may
have deposit, loan and other commercial banking relationships with the issuers
of securities purchased on behalf of the Funds, including outstanding loans to
such issuers which may be repaid in whole or in part with the proceeds of
securities so purchased. Bank of Boston and its affiliates, and Kleinwort
Benson and its affiliates, deal, trade and invest for their own account in
certain types of securities purchased on behalf of the Funds. Each Adviser and
its affiliates may sell such securities to and purchase them from other
investment companies sponsored by SEI Financial Services Company or its
affiliates. Each Adviser has informed the Trust that, in making its investment
decisions, it does not obtain or use material inside information in the
possession of any of its divisions or departments or in the possession of any
of its affiliates.
The Glass-Steagall Act prohibits certain financial institutions, such as Bank
of Boston, from engaging in the business of underwriting securities of open-end
investment companies, such as the Funds. Bank of Boston takes the position,
based on the advice of counsel, that the investment advisory services it
provides under the Advisory Agreements do not constitute underwriting
activities and are consistent with the requirements of the Glass-Steagall Act
and other relevant federal and state legal and regulatory precedent. State laws
on this issue may differ from applicable federal law, and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Future changes in either federal or state statutes or
regulations relating to the permissible activities of banks, as well as future
judicial or administrative decisions and interpretations of present and future
federal and state statutes and regulations, could prevent Bank of Boston from
continuing to perform such services for the Trust. If Bank of Boston were to be
prevented from acting as an Adviser, the Trust would seek alternative means for
obtaining such services.
THE ADMINISTRATOR
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SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), and the Trust are parties to an
administration agreement dated as of June 1, 1993 (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
provides the Trust with administrative services other than investment advisory
services, including all regulatory
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reporting, necessary office space, equipment, personnel, and facilities.
The Administrator is entitled to a fee which is calculated daily and paid
monthly at an annual rate of 0.15% of the Trust's first $300 million of average
daily net assets, 0.12% of the Trust's second $300 million of average daily net
assets and 0.10% of the Trust's average daily net assets over $600 million.
Each Equity Fund's portion of such fee is based on the average daily net assets
of such Fund. The Administrator has agreed to waive a portion of its fees on a
month to month basis under certain circumstances for certain of the portfolios
of the Trust.
THE SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
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Boston Financial Data Services acts as dividend disbursing agent and
shareholder servicing agent (the "Shareholder Servicing Agent") for the Funds,
and receives a fee for these services. The principal business address for 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 Funds, and receives a fee for these services. The principal business
address for the Transfer Agent is 225 Franklin Street, Boston, MA 02110-2875.
THE DISTRIBUTOR
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SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") dated as of June 1, 1993, and the Trust has adopted a
distribution plan (the "Plan") dated as of June 1, 1993 pursuant to Rule 12b-1
under the Investment Company Act of 1940. As provided in the Distribution
Agreement and the Plan, the Trust will pay the Distributor a fee for its
services, calculated daily and paid monthly, at an annual rate of .25% of the
average daily net assets of each Equity Fund. The Distributor may apply all or
a portion of this fee toward: (a) compensation for its services in connection
with distribution assistance or provision of Shareholder services; or (b)
payments to financial institutions and intermediaries such as banks (including
Bank of Boston), savings and loan associations, insurance companies, and
investment counselors, broker-dealers and the Distributor's affiliates and
subsidiaries, as compensation for services, reimbursement of expenses incurred
in connection with distribution assistance or provision of Shareholder
services. The Plan is characterized as a "compensation plan" (in contrast to
"reimbursement" arrangements in which a distributor's compensation is linked
directly to the distributor's expenses) since the distribution fee will be paid
to the Distributor without regard to the distribution or Shareholder service
expenses incurred by the Distributor or the amount of payments made to
financial institutions and intermediaries. The Distributor has agreed to waive
the 12b-1 fee. This waiver may be terminated by the Distributor at any time.
The Trust may create one or more additional classes of shares of any or all of
the Equity Funds to be offered without distribution fees to certain types of
investors.
The Funds may execute brokerage or other agency transactions through the
Distributor, for which the Distributor receives compensation.
From time to time the Distributor may provide incentive compensation to
employees of banks (including Bank of Boston), broker-dealers and investment
counselors, and to its own employees, in connection with the sale of shares of
the Funds or other portfolios of the Trust. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation, including merchandise, airline vouchers, trips and vacation
packages. Such promotional incentives will be offered uniformly to all program
participants and will be predicated upon the amount of shares of the Funds and
other portfolios of the Trust sold by the participant.
PURCHASE OF SHARES
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Shares of the Funds are sold on a continuous basis and may be purchased
directly from the Trust's Distributor
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either by mail or by telephone. Shares may also be purchased through a broker-
dealer which has established a dealer agreement with the Distributor.
Purchases of shares of each Fund may be made Monday through Friday except on
days when the New York Stock Exchange or the Federal Reserve Bank of Boston is
closed ("Business Days"). Current holidays for the New York Stock Exchange
and/or the Federal Reserve Bank of Boston are New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Thanksgiving and Christmas. Except as provided below, the
minimum initial investment in the shares is $1,000, and all subsequent
purchases of shares must be at least $250. Minimum purchase amounts may be
waived by the Distributor in its discretion. No minimum purchase amount applies
to subsequent purchases made by reinvestment of dividends.
The purchase price for shares of a Fund is their net asset value next
determined after the Distributor receives a purchase order in good form. Net
asset value per share is determined as of the close of regular trading on the
New York Stock Exchange, 4:00 p.m. ET, on each Business Day. Purchases will be
made in full and fractional shares of a Fund calculated to three decimal
places.
A purchase order for shares of a Fund will be effective as of the Business Day
the order is received by the Distributor if the Distributor receives a purchase
order, in good form, for the shares and payment (by wire transfer or check) for
the shares before 4:00 p.m. ET on that day. Purchase orders submitted through
broker-dealers which have established dealer agreements with the Distributor
normally will be received by the Distributor on the Business Day after they are
received by the broker-dealer. In certain circumstances where the agreement
between the Distributor and the customer's broker so permits, a purchase order
for additional shares of an Equity Fund will be effective as of the Business
Day the order is received by the Distributor if the Distributor receives a
purchase order in good form for the shares before 4:00 p.m. ET on that day and
payment (by wire transfer or check) for the shares is received before 4:00 p.m.
ET within 3 Business Days thereafter.
By Mail
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Investors may purchase shares of any Fund by completing and signing an Account
Application and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to the Fund in which shares are being
purchased, e.g., "1784 Growth and Income Fund," "1784 Asset Allocation Fund" or
"1784 International Equity Fund," to the Fund, P.O. Box 8524, Boston, MA 02266-
8524. Subsequent purchases of shares may be made at any time by mailing a check
(or other negotiable bank draft or money order) to the Fund.
Account Applications can be obtained by calling the Distributor at 1-800-252-
1784.
By Telephone
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If a Shareholder has previously submitted an Account Application, that
Shareholder may also purchase shares by telephone by calling the Distributor
toll-free at 1-800-252-1784. 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 an
Equity Fund will be executed prior to receipt of payment, but payment must be
received before 4:00 p.m. ET within 3 Business Days thereafter.
Tax-Deferred Retirement Programs
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The Funds are eligible for purchase by tax-deferred retirement programs such as
IRAs, KEOGHs, and 401(k) plans, and the minimum initial investment requirement
for an account established under such a program is $250. Bank of Boston offers
a number of tax-deferred retirement plans through which shares of
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the Funds may be purchased. All accounts in a Fund established under a tax-
deferred retirement program must elect to have all dividends reinvested in the
Fund.
Systematic Investment Plan (SIP)
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A Shareholder may also arrange for periodic additional investments in an Equity
Fund through automatic deductions by Direct Deposit (if available from a
Shareholder's employer) or by Automated Clearing House ("ACH") transactions
from a checking account by completing the appropriate section of the Account
Application. The Systematic Investment Plan is subject to account minimum
initial purchase amounts and minimum maintained balance requirements. The
minimum pre-authorized investment amount is $50 per month. An Account
Application may be obtained by contacting the Distributor at 1-800-252-1784.
Other Information Regarding Purchases
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Shares of a Fund may also be purchased through financial institutions,
including Bank of Boston, which provide shareholder service or other assistance
to the Trust. Texas residents may only purchase shares through the Distributor.
Shares purchased by persons ("Customers") through financial institutions may be
held of record by the financial institution. Financial institutions may impose
cut-off times for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Distributor. Customers should
contact their financial institution for information as to the institution's
procedures for transmitting purchase, exchange or redemption orders to the
Distributor. The Distributor's receipt of an order may be delayed by one or
more Business Days.
Customers who desire to transfer the registration of shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change. Other Shareholders who desire to
transfer the registration of their shares should contact the Shareholder
Servicing Agent.
Purchases may be made by ACH transactions, as well as by check or wire
transfer.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution.
No certificates representing shares will be issued.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such offer. Each Fund will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. These
procedures will include verification of a caller's identity by asking for his
or her name, address, telephone number, Social Security number, and account
number. If these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine are not followed, the Fund may be liable
for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
For all purchases, if payment is not made or a check received for shares does
not clear, the purchase will be cancelled and the investor could be liable for
any losses to the Fund, including losses resulting from a decline in the net
asset value of the applicable shares between the date of purchase and the date
of cancellation, and for a check return fee up to $25.00, as applicable. Shares
purchased will begin accruing dividends on the date following the date of
purchase.
The net asset value per share of each Fund is determined by dividing the total
market value of the Fund's investments and other assets, less any liabilities,
by the total outstanding shares of the Fund. Each Fund may use a pricing
service to provide market quotations. A pricing service may use a matrix system
of valuation to value fixed income securities which considers factors
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such as securities prices, yield features, ratings, and developments related to
a specific security.
REDEMPTION OF SHARES
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Shareholders may redeem their shares on any Business Day and shares may
ordinarily be redeemed by mail or telephone, with proceeds payable by check,
ACH or wire transfer. A redemption is treated, for federal and state income tax
purposes, as a sale of the Fund shares redeemed; a redemption could, therefore,
result in taxable gain or loss to the Shareholder. If proceeds are paid by wire
transfer, a wire transfer charge (presently $12.00) will be imposed.
By Mail
- --------------------------------------------------------------------------------
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
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Shares may be redeemed by telephone if the Shareholder elects that option on
the Account Application (unless a written redemption request, with the
Shareholder's signature guaranteed, is required; see "Signature Guarantees"
below). Telephone redemption orders must be placed with the 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 Funds' address for overnight deliveries is 1784
Funds, c/o Boston Financial Data Services, 2 Heritage Drive, North Quincy, MA
02171.
Signature Guarantees
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If a Shareholder requests a redemption for an amount in excess of $25,000, a
redemption of any amount to be payable to anyone other than the Shareholder of
record or a redemption of any amount to be sent to any address other than the
Shareholder's address of record with the applicable Fund (or in the case of ACH
or wire transfers, other than as provided in the Shareholder's Account
Application), all account holders on the Shareholder's account must sign a
written redemption request and their signatures must be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange or by another
eligible guarantor institution. The Trust and the Shareholder Servicing Agent
reserve the right to amend these requirements for the applicable Fund at any
time without notice. For questions about the proper form of redemption
requests, call 1-800-252-1784.
Other Information Regarding Redemptions
- --------------------------------------------------------------------------------
All redemption orders for shares of the Funds are effected at the net asset
value per share next determined after receipt, by the 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. Each Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
These procedures will include verification of a caller's identity by asking for
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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 Funds intend to pay cash for all shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in Fund securities with a market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem, at net asset value, the shares of any Shareholder
if, because of redemptions of shares by or on behalf of the Shareholder (and
not solely because of market declines), the account of such Shareholder in the
Fund has a value of less than the minimum initial purchase amount (normally
$1,000). Accordingly, an investor purchasing shares of a Fund in only the
minimum investment amount may be subject to such involuntary redemption if he
or she thereafter redeems any of these shares. Before the Fund exercise its
right to redeem such shares and to send the proceeds to the Shareholder, the
Shareholder will be given notice that the value of the shares in his or her
account is less than the minimum amount and will be allowed 60 days to make an
additional investment in the Fund in an amount which will increase the value of
the account to at least the minimum amount. Accounts established under a tax-
deferred retirement program may be subject to involuntary redemption as
described above only if such account has a value of less than $250, the minimum
initial purchase amount for such accounts.
The right of any Shareholder to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or to the extent otherwise
permitted by the Investment Company Act of 1940, as amended, if an emergency
exists. See "Purchase and Redemption of Shares" in the Statement of Additional
Information for examples of when the right of redemption may be suspended.
SYSTEMATIC WITHDRAWAL PLAN
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A Shareholder may direct the Shareholder Servicing Agent to send him or her
regular monthly, quarterly, semi-annual or annual payments, as designated on
the Account Application and based upon the value of his or her account. Each
payment under a systematic withdrawal plan must be at least $100, except in
certain limited circumstances. A withdrawal payment under the plan is treated,
for federal and state income tax purposes, as a sale of a number of Fund shares
sufficient to fund the payment; such payment could, therefore, result in
taxable gain or loss to the Shareholder.
EXCHANGES
- --------------------------------------------------------------------------------
Some or all of the shares of an Equity Fund for which payment has been received
by the Distributor (i.e., an established account) may be exchanged at their net
asset value for shares of one or more of the other portfolios of the Trust,
including shares of another Equity Fund. Exchanges will be made only after
instructions in writing or by telephone are received for an established account
by the Distributor.
In the case of shares held of record by Bank of Boston or one of its affiliates
but beneficially owned by a Customer, to exchange such shares the Customer
should contact Bank of Boston or the affiliate, who will contact the
Distributor and effect the exchange on behalf of the Customer. If an exchange
request in good order is received by the Distributor by 4:00 p.m. ET on any
Business Day, the exchange usually will occur
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on that day; however, requests for exchange for shares of a money market fund
must be received earlier than 4:00 p.m. ET (in cases when regular trading on
the New York Stock Exchange closes earlier than 4:00 p.m. ET, as early as 12:00
noon ET) for the exchange to occur on that day. Any Shareholder or Customer who
wishes to make an exchange must have received a current prospectus of the
portfolio in which he or she wishes to invest before the exchange will be
effected. Residents of any state may only exchange shares for shares of another
portfolio of the Trust if that portfolio is registered in that state.
Each exchange must involve either shares having an aggregate value of at least
$250 or all the shares in the account, and the amount of the exchange must meet
the minimum investment requirements for the portfolio of the Trust into which
the exchange is being made.
Exchanges may be made by telephone only if that option has been elected by the
Shareholder on the Account Application. Shares may be exchanged by telephone by
calling the Distributor toll free at 1-800-252-1784.
No fees are currently charged to Shareholders directly in connection with
exchanges, although each of the Equity Funds reserves the right, upon not less
than 60 days' written notice, to charge Shareholders a nominal fee in
accordance with rules promulgated by the SEC. Each of the Equity Funds also
reserves the right to reject any exchange request in whole or in part. The
exchange privilege (or any aspect of it) may be changed or terminated at any
time.
An exchange is treated, for federal and state income tax purposes, as a sale of
the Equity Fund shares exchanged; an exchange could, therefore, result in
taxable gain or loss to the Shareholder.
PERFORMANCE
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From time to time, the Trust may advertise a Fund's yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. The yield of a Fund refers to the annualized
income generated by an investment in the Fund over a specified 30-day period.
The yield is calculated by assuming that the income generated by the investment
during that period is generated over one year and is shown as a percentage of
the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, net of any sales charge imposed, for designated time
periods (including but not limited to the period from which the Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all
dividend and capital gain distributions.
A Fund's performance may from time to time be compared to that of other mutual
funds tracked by mutual fund rating services, to that of broad groups of
comparable mutual funds or to that of unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs.
TAXES
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The following is a discussion of certain United States federal income tax
considerations relevant to the purchase, ownership, and disposition of shares
in the Funds. The discussion, which is based on current tax laws, regulations,
rulings and judicial decisions (all of which are subject to change at any time
by legislative, judicial or administrative action), is not intended to be
complete; therefore, prospective investors should consult their own tax
advisers as to the tax consequences to them of an investment in a Fund.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
Tax Status of the Equity Funds
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Each Fund is treated as a separate entity for federal income tax purposes, and
is not combined with the
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other Funds or the Trust's other portfolios. The Trust intends to qualify each
Fund each year as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and to make
distributions to that Fund's shareholders in accordance with the timing
requirements set out in the Code. As a result, it is expected that the Funds
will not be required to pay any federal income or excise taxes, although
foreign source income received by a Fund may be subject to foreign withholding
taxes.
Tax Treatment of Shareholders
- --------------------------------------------------------------------------------
Shareholders of the Funds normally will have to pay federal income taxes and
any state or local taxes on the dividends and capital gain distributions they
receive from the Funds, whether paid in cash or in additional shares.
Distributions from net investment income and short-term capital gains will be
taxable to Shareholders as ordinary income, while distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) will be taxable to Shareholders as long-term capital gains, regardless
of how long Shareholders have held their shares. Foreign exchange gain or loss
will generally be treated as ordinary gain or loss. A portion of the dividends
received from the Funds (but none of the Funds' capital gains distributions)
may be eligible for the dividends received deduction for corporations. Any Fund
dividend that is declared in October, November, or December of a calendar year,
payable to Shareholders of record in such a month, and that is paid the
following January will be treated as if received by the Shareholders on
December 31 of the year in which the dividend is declared.
The Trust will make annual reports to Shareholders of the federal income tax
status of all distributions from each Fund.
The exchange or redemption of Equity Fund shares is a taxable event to the
Shareholder; however, under certain circumstances, realized losses may be
disallowed and short-term capital losses may be converted into long-term
capital losses.
Income received by a Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is impossible to determine the effective rate of foreign tax in
advance since the amount of a Fund's assets to be invested in various countries
is not known. Investment by a Fund in certain "passive foreign investment
companies" may be limited in order to avoid imposition of a tax on the Fund.
If the 1784 International Equity Fund is liable for foreign taxes and if more
than 50% of the value of the Fund's total assets at the close of its taxable
year consists of stocks or securities of foreign corporations, the Fund may
make an election pursuant to which certain foreign taxes paid by it would be
treated as having been paid directly by its Shareholders. Pursuant to such
election, the amount of foreign taxes paid by the 1784 International Equity
Fund would be included in the general gross income of its Shareholders, and
Shareholders (except tax-exempt Shareholders) may, subject to certain
limitations, claim either a credit or deduction for the taxes on their federal
income tax returns. Shareholders who do not itemize deductions may (subject to
these limitations) claim a credit, but not a deduction for the taxes. Each
Shareholder will be notified after the close of the 1784 International Equity
Fund's taxable year whether the foreign taxes paid by the Fund will "pass
through" for that year and, if so, such notification will designate (a) the
Shareholder's portion of the foreign taxes paid to each such country and (b)
the portion of the Fund distributions for such year which represents income
derived from sources within each such country.
The Funds will generally withhold tax payments at the rate of 30% on dividends
and other payments that are subject to such withholding and that are made to
persons who are neither citizens nor residents of the
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U.S., although the 30% rate may be reduced to the extent provided by an
applicable tax treaty. Each Fund is also required in certain circumstances to
withhold 31% of taxable dividends and certain redemption proceeds paid to any
Shareholder (including a Shareholder who is neither a citizen nor a resident of
the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. Backup
withholding will not, however, be applied to payments that have been subject to
30% (or lower treaty rate) withholding.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust
- --------------------------------------------------------------------------------
The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated February 5, 1993. The Declaration of Trust permits the Trust to
issue an unlimited number of shares of beneficial interest of each of the
portfolios (referred to as "series") of the Trust, each of which is a separate
fund. In addition to the Equity Funds, the Trust includes the following funds:
1784 Institutional U.S. Treasury Money Market Fund, 1784 U.S. Treasury Money
Market Fund, 1784 Tax-Free Money Market Fund, 1784 U.S. Government Medium-Term
Income Fund, 1784 Short-Term Income Fund, 1784 Income Fund, 1784 Tax-Exempt
Medium-Term Income Fund, 1784 Connecticut Tax-Exempt Income Fund, 1784 Rhode
Island Tax-Exempt Income Fund, and 1784 Massachusetts Tax-Exempt Income Fund.
All consideration received by the Trust for shares of any fund and all assets
of such fund belong to that fund and are subject to liabilities related
thereto. The Trust reserves the right to create and issue additional series of
shares, and reserves the right to create and issue shares of additional classes
of any or all series.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses and reports to Shareholders,
costs of custodian services and registering the shares of the Funds and other
series under federal and state securities laws, pricing, insurance expenses,
brokerage costs, interest charges, taxes, amortization of organization
expenses, and any extraordinary expenses including but not limited to
litigation expenses. For the fiscal year ended May 31, 1995, the total expenses
of each of the 1784 Growth and Income Fund and the 1784 Asset Allocation Fund
were as follows: for the 1784 Growth and Income Fund, $2,316,713, of which
$548,845 was voluntarily waived or reimbursed by the Bank of Boston (after
giving effect to such waiver, 0.94% of such Fund's average daily net assets for
that period); and for the 1784 Asset Allocation Fund, $177,944, of which
$84,921 was voluntarily waived or reimbursed by the Bank of Boston (after
giving effect to such waiver, 1.25% of such Fund's average daily net assets for
that period). For the period from January 3, 1995 (commencement of operations)
through May 31, 1995, the total expenses of the 1784 International Equity Fund
were $677,200, of which $321,000 was voluntarily waived or reimbursed by the
Bank of Boston (after giving effect to such waiver or reimbursement, 0.89% of
the Fund's average daily net assets for that period).
Under applicable law, Shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the risk of a
Shareholder incurring financial loss on account of such Shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations and inadequate insurance existed. The Trust believes that the
likelihood of such circumstances is remote.
Trustees of the Trust
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The management and affairs of the Trust are supervised by its Board of
Trustees. The Trustees have approved contracts under which, as described above,
certain companies provide management, administrative and Shareholder services
to the Trust.
Voting Rights
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Each share held entitles the Shareholder of record to one vote. Each fund or
class will vote separately on
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matters relating solely to that fund or class. As a Massachusetts business
trust, the Trust is not required to hold annual meetings of Shareholders but
approval will be sought for certain changes in the operation of the Trust and
for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by Shareholders at a
special meeting called upon written request of Shareholders owning at least 10%
of the outstanding shares of the Trust. In the event that such a meeting is
requested, the Trust will provide appropriate assistance and information to the
Shareholders requesting the meeting.
Reporting
- --------------------------------------------------------------------------------
The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
Shareholder Inquiries
- --------------------------------------------------------------------------------
Shareholder inquiries should be directed to SEI Financial Management
Corporation, P.O. Box 1784, Wayne, Pennsylvania 19087-8784, at 1-800-252-1784.
Dividends and Distributions
- --------------------------------------------------------------------------------
Substantially all of the net investment income (not including capital gains) of
the Equity Funds is distributed in the form of dividends which are paid
quarterly in the case of the 1784 Growth and Income Fund and the 1784 Asset
Allocation Fund and at least annually in the case of the 1784 International
Equity Fund. Shareholders of record will be entitled to receive the dividend.
Currently, capital gains of each Fund, if any, will be distributed at least
annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the Shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Administrator at least 15 days prior to the distribution.
Dividends and distributions of the Funds are paid on a per-share basis. The
value of each share will be reduced by the amount of the payment. If the shares
are purchased shortly before the record date for a dividend or the distribution
of capital gains, a Shareholder will pay the full price for the shares and
receive some portion of the price back as a taxable dividend or distribution.
If dividend payments are returned and unclaimed within 30 days, they will be
reinvested and the Shareholder will be deemed to have elected to receive future
dividend and capital gain distributions in additional shares.
Counsel and Independent Accountants
- --------------------------------------------------------------------------------
Bingham, Dana & Gould LLP, Boston, MA, serve as counsel to the Trust. Coopers &
Lybrand L.L.P., Boston, MA, serve as the independent accountants of the Trust.
Custodian
- --------------------------------------------------------------------------------
Bank of Boston, 100 Federal Street, Boston, MA 02110, acts as Custodian of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940. Foreign securities may be held
through subcustodians approved by the Trust's Board of Trustees. Under a
separate agreement, Bank of Boston also provides certain accounting services
for the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS AND TECHNIQUES
- --------------------------------------------------------------------------------
The following is a description of certain of the permitted investments and
investment techniques for the Funds. Not all of the Funds will normally invest
in all of the investments, nor engage in all of the investment techniques,
listed below. See "Investment Policies." Except as specifically stated below or
elsewhere in this Prospectus or in the Statement of Additional Information with
respect to certain of the Funds' permitted investments and investment
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techniques, there are no limits on the amount of assets a Fund may invest in
particular types of securities.
Common and Preferred Stock -- Common stocks are generally more volatile than
other securities. Preferred stocks share some of the characteristics of both
debt and equity and are generally preferred over common stocks with respect to
dividends and in liquidation.
Convertible Securities -- Convertible securities have characteristics similar
to both fixed income and equity securities. Because of the conversion feature,
the market value of convertible securities tends to move together with the
market value of the underlying stock. As a result, a Fund's selection of
convertible securities is based, to a great extent, on the potential for
capital appreciation that may exist in the underlying stock. The value of
convertible securities is also affected by prevailing interest rates, the
credit quality of the issuer, and any call provisions. The convertible
securities in which the Funds may invest include both debt obligations and
preferred stock.
Options -- A Fund may engage in writing call options from time to time as
deemed by the Adviser or Advisers to a Fund to be appropriate. Under a call
option, the purchaser of the option has the right to purchase, and the writer
(the Fund) the obligation to sell, the underlying security at the exercise
price during the option period. Options written on individual securities are
written solely as covered call options (such as options written on securities
owned by the Fund) and may be written in order to generate additional income or
for hedging purposes. Such options must be listed on a national securities
exchange. In order to close out an option position, the Fund may enter into a
"closing purchase transaction" -- the purchase of a call option on the same
security with the same exercise price and expiration date as any call option
which it may previously have written on any particular security. When the Fund
security is sold, the Fund effects a closing purchase transaction so as to
close out any existing call option on that security. If the Fund is unable to
effect a closing purchase transaction, it will not be able to sell the
underlying security until the option expires or the Fund delivers the
underlying security upon exercise.
A Fund may write covered call options on its securities provided the aggregate
value of such options does not exceed 10% of the Fund's net assets as of the
time such options are entered into by the Fund.
The 1784 International Equity Fund may purchase put options on its securities
provided the aggregate value of such options does not exceed 10% of the Fund's
net assets as of the time such options are entered into by the Fund. Under a
put option, the purchaser of the option has the right to sell the underlying
security at the exercise price during the option period.
There are risks associated with options transactions, including the following:
(1) the success of a hedging strategy may depend on the ability of the Adviser
or Advisers to a Fund to predict movements in the prices of individual
securities, market fluctuations and movements in interest rates; (2) there may
be an imperfect correlation between the movement in prices of securities held
by a Fund and price movements of the related options; (3) there may not be a
liquid secondary market for options; and (4) while a Fund will receive a
premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security.
American, European and Continental Depositary Receipts --American Depositary
Receipts ("ADRs") are securities, typically issued by a U.S. financial
institution, that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer. ADRs include American Depositary Shares
("ADSs") and New York Shares. European Depositary Receipts ("EDRs"), which are
sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security
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underlying the receipt and a depositary, whereas an unsponsored facility may be
established by a depositary without participation by the issuer of the
receipt's underlying security. Holdings of an unsponsored depositary receipt
generally bear all the costs of the unsponsored facility and the depositary of
an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security
or to pass voting rights through to the holders of the receipts in respect of
the deposited securities.
Securities of Foreign Issuers -- Investments in securities of foreign issuers
(including ADRs, EDRs and CDRs) are subject to special risks such as future
adverse political and economic developments, possible seizure, nationalization
or expropriation of foreign investments, less stringent disclosure
requirements, more volatile or less liquid markets, the possible establishment
of exchange controls or taxation at the source, greater fluctuation in value
due to changes in exchange rates, or the adoption of other foreign governmental
restrictions. These risks are heightened for securities of issuers in
developing countries. Such investments may also entail higher custodial fees
than domestic investments. Foreign securities issuers are often subject to
accounting treatment and engage in business practices different from those of
domestic securities issuers. Each of the 1784 Growth and Income Fund and the
1784 Asset Allocation Fund may invest up to 5% of its assets in securities of
issuers in developing countries and up to 25% of its assets in securities of
foreign issuers, including the 5% it may invest in the securities of issuers in
developing countries. As a non-fundamental policy, at least 65% of the 1784
International Equity Fund's total assets will be invested in securities of
issuers organized in at least three countries other than the United States,
including developing countries. The 1784 International Equity Fund may invest
in foreign securities that impose restrictions on transfer within the United
States or to United States persons. Although securities subject to such
transfer restrictions may be marketable abroad, they may be less liquid than
foreign securities of the same class that are not subject to such restrictions.
Foreign Currency Transactions -- A Fund may engage in currency exchange
transactions to protect against uncertainty in the level of future exchange
rates in connection with hedging and other non-speculative strategies involving
specific settlement transactions. A Fund will conduct currency exchange
transactions either on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, or through entering into forward contracts to
purchase or sell currencies. A forward currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which must
be more than two days from the date of the contract, at a price set at the time
of the contract. Transaction hedging is the purchase or sale of forward
currency with respect to specific receivables or payables of a Fund generally
arising in connection with the purchase or sales of its portfolio securities.
These contracts are entered into in the interbank market conducted directly
between currency traders (typically commercial banks or other financial
institutions) and their customers.
Each Fund has established procedures consistent with statements by the SEC and
its staff regarding the use of forward currency exchange contracts by
registered investment companies, which require the use of segregated assets or
"cover" in connection with the purchase and sale of such contracts. In those
instances in which a Fund satisfies this requirement through segregation of
assets, it will maintain, in a segregated account, cash, short-term money
market instruments or high quality debt securities, which will be marked to
market on a daily basis, in an amount equal to the value of its commitments
under forward currency exchange contracts entered into by the Fund.
It is intended that the Funds would use currency exchange transactions only for
bona fide hedging purposes and other non-speculative strategies involving
specified settlement transactions.
Currency Swaps -- The Funds may enter into currency swaps for hedging purposes
and to seek to increase total return. Currency swaps involve the exchange of
rights to make or receive payments in specified
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I784 FUNDS
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currencies. Since currency swaps are individually negotiated, each Fund expects
to achieve an acceptable degree of correlation between its portfolio
investments and its currency swap positions. Currency swaps usually involve the
delivery of the entire principal value of one designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Adviser or Advisers to a Fund are
incorrect in their forecasts of market values and currency exchange rates, the
investment performance of the Fund would be less favorable than it would have
been if this investment technique were not used.
Small Capitalization Companies -- The Funds may invest in smaller, lesser-known
companies which the Adviser or Advisers to the Fund believe offer growth
potential. See "Certain Additional Risk Considerations" above for a discussion
of some of the risks associated with investing in small capitalization
companies.
Securities Lending -- In order to generate additional income, a Fund may lend
the securities in which it is invested pursuant to agreements requiring that
the loan be continuously secured by cash, securities of the U.S. Government or
its agencies or instrumentalities or any combination of cash and such
securities as collateral equal at all times to 100% of the market value of the
securities lent plus accrued interest . A Fund may lend up to 33 1/3% of its
total assets. Collateral is marked to market daily. The Fund will continue to
receive interest on the securities lent while simultaneously earning interest
on the investment of cash collateral in U.S. Government securities. There may
be risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans will be made only to borrowers deemed by the Adviser or Advisers to a
Fund to be of good standing and when, in the judgment of such Adviser or
Advisers, the consideration which can be earned currently from such securities
loans justifies the attendant risk.
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933 or an exemption from
registration are referred to as "restricted securities." A Fund may invest up
to 15% of its net assets in illiquid securities, including restricted
securities; however, this limit will not apply to a restricted security if it
is determined by or under the direction of the Trust's Board of Trustees, based
on trading markets for the specific restricted security, that such security is
liquid. The liquidity of these investments could be impaired if trading does
not develop or declines. In the case of illiquid securities, the absence of a
trading market can make it difficult to ascertain a market value for these
investments. Disposing of illiquid securities may involve time-consuming
negotiation and legal expense, and it may be difficult or impossible for a Fund
to sell them promptly at an acceptable price.
U.S. Treasury Obligations -- U.S. Treasury obligations include bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS"). STRIPS are sold as zero coupon securities. These
securities are usually structured with two classes that receive different
portions of the interest and principal payments from the underlying obligation.
The yield to maturity on the interest-only class is extremely sensitive to the
rate of principal payments on the underlying obligation. The market value of
the principal-only class generally is unusually volatile in response to changes
in interest rates. See "Zero Coupon Securities" below for more information on
these securities.
U.S. Government Agencies -- Certain Federal agencies such as the Government
National Mortgage Association ("GNMA") have been established as
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instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States (e.g., GNMA) or supported by the issuing agencies' right to borrow from
the Treasury. The issues of other agencies are supported only by the credit of
the instrumentality (e.g., Federal National Mortgage Association, "FNMA").
Receipts -- A Fund may purchase interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
and brokerage firms and are created by depositing U.S. Treasury obligations
into a special account at a custodian bank. The custodian holds the interest
and principal payments for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register.
Receipts include "Treasury Receipts" ("TRs"), "Treasury Investment Growth
Receipts" ("TIGRs") and Certificates of Accrual on Treasury Securities"
("CATS"). TRs, TIGRs, and CATS are sold as zero coupon securities. See "Zero
Coupon Securities" below for more information on these securities.
Mortgage-Backed Securities -- A Fund may acquire securities representing an
interest in a pool of mortgage loans that are issued or guaranteed by a U.S.
Government agency. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, FNMA and the Federal Home Loan Mortgage Corporation. A
Fund may also invest in mortgage-backed securities issued by non-governmental
entities which consist of collateralized mortgage obligations ("CMOs") and real
estate mortgage investment conduits ("REMICs") that are rated in one of the top
three rating categories by S&P or Moody's. The mortgages backing these
securities include conventional thirty-year fixed rate mortgages, graduated
payment mortgages, and adjustable rate mortgages. The Funds will purchase only
CMOs and REMICs that are backed solely by GNMA certificates or other mortgage
pass-through certificates issued or guaranteed by the U.S. Government or its
agencies and instrumentalities. However, the guarantees do not extend to the
mortgage-backed securities' value, which is likely to vary inversely with
fluctuations in interest rates. Mortgage-backed securities are in most cases
"pass-through" instruments, through which the holder receives a share of all
interest and principal payments from the mortgages underlying the certificate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the average life or realized yield of a
particular issue of pass-through certificates. During periods of declining
interest rates, prepayment of mortgages underlying mortgage-backed securities
can be expected to accelerate. When the mortgage obligations are prepaid, the
Fund reinvests the prepaid amounts in securities, the yield of which reflects
interest rates prevailing at the time. Moreover, prepayment of mortgages which
underlie securities purchased at a premium could result in capital losses.
Zero Coupon Securities -- A zero coupon security pays no interest or principal
to its holder during its life. A zero coupon security is sold at a discount,
frequently substantial, and redeemed at face value at its maturity date. The
amount of the discount is accrued over the life of the security and constitutes
the income earned on the security for both accounting and tax purposes. The
market prices of zero coupon securities are generally more volatile than the
market prices of securities of similar maturity that pay interest periodically,
and zero coupon securities are likely to respond to a greater degree to
interest rate changes than are non-zero coupon securities with similar maturity
and credit qualities.
Bank Obligations -- A Fund may invest in bank obligations, i.e., certificates
of deposit, time deposits (including Eurodollar time deposits) and bankers'
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and
foreign branches of foreign banks, domestic savings and loan associations and
other banking institutions. A Fund may invest in such obligations, however,
only if
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the issuer (or the parent company, in the case of subsidiaries or branches) has
assets of at least $1 billion, and only if the Adviser or each of the Advisers
to such Fund deems the bank obligation to be of comparable credit quality to
the commercial paper in which the applicable Fund may invest.
Bankers' Acceptances -- A banker's acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
Certificates of Deposit -- A certificate of deposit is a negotiable interest-
bearing instrument with a specific maturity. Certificates of deposit are issued
by banks and savings and loan institutions in exchange for the deposit of funds
and normally can be traded in the secondary market prior to maturity.
Money Market Funds -- A money market fund is an investment company that limits
its investments to high quality money market instruments with a weighted
average maturity of 90 days or less. A Fund may not invest more than 5% of its
assets in any one money market fund or more than 10% of its assets in other
investment companies, including money market funds, and a Fund may not hold
more than 3% of the total outstanding voting stock of any one investment
company, including money market funds, except that the 1784 International
Equity Fund may, in the future, seek to achieve its investment objective by
investing all of its assets in a diversified, open-end management investment
company having the same investment objective and policies and substantially the
same investment restrictions as those applicable to the Fund. When a Fund
invests in a money market fund, a Shareholder bears not only his or her
proportionate share of the Fund's expenses, but also indirectly his or her
share of the expenses of the money market fund, including management fees.
Time Deposits -- A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities; therefore, a Fund will not invest more
than 15% of its net assets in such time deposits and other illiquid securities.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by the Funds may carry variable or floating rates of interest and may involve a
conditional or unconditional demand feature permitting the holder to demand
payment of principal at any time, or at specified intervals. Such obligations
may include variable amount master demand notes. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a Federal Reserve composite index. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security; none of the Equity
Funds will invest more than 15% of its net assets in illiquid securities.
The interest rate on these securities may be reset daily, weekly, quarterly, or
some other reset period and may have a floor or ceiling on interest rate
charges. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates.
Commercial Paper -- Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from one to 270 days.
Repurchase Agreements -- A repurchase agreement is an agreement by which a
person obtains a security and simultaneously commits to return the security to
the seller at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days from the date of purchase. The
custodian or its agent will hold the security as collateral for the repurchase
agreement. Collateral must be maintained at a value at least equal to 100% of
the purchase price. A Fund bears a risk of loss in the event the other party
defaults on its obligations and the Fund is delayed or
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prevented from its right to dispose of the collateral securities or if the Fund
realizes a loss on the sale of the collateral securities. The Adviser or
Advisers to a Fund will enter into repurchase agreements on behalf of a Fund
only with financial institutions deemed to present minimal risk of bankruptcy
during the term of the agreement based on guidelines established and
periodically reviewed by the Trustees. Pursuant to an exemptive order from the
SEC, each of the Funds may enter into repurchase agreements on a pooled basis
with other portfolios of the Trust.
Reverse Repurchase Agreements -- Reverse repurchase agreements involve the sale
of securities held by a Fund and the agreement by the Fund to repurchase the
securities at an agreed-upon price, date and interest payment. When a Fund
enters into reverse repurchase transactions, securities of a dollar amount
equal in value to the securities subject to the agreement will be maintained in
a segregated account with the Fund's custodian. The segregation of assets could
impair the Fund's ability to meet its current obligations or impede investment
management if a large portion of the Fund's assets are involved. Reverse
repurchase agreements are considered to be a form of borrowing.
Futures and Options on Futures -- A Fund may also enter into futures contracts
and options on futures contracts provided that the sum of the Fund's initial
margin deposits on open futures contracts plus the amount paid for premiums for
unexpired option on futures contracts does not exceed 5% of the market value of
the Fund's total assets and the outstanding obligations to purchase securities
under futures contracts do not exceed 20% of the Fund's total assets. Futures
contracts provide for the future sale by one party and purchase by another
party of a specified amount of a specified security at a specified future time
and at a specified price. An option on a futures contract gives the purchaser
the right, in exchange for a premium, to assume a position in a futures
contract at a specified exercise price during the term of the option. A Fund
will minimize the risk that it will be unable to close out a futures contract
by entering into only those futures contracts which are traded on national
futures exchanges.
It is intended that the Funds would use futures contracts and related options
only for bona fide hedging purposes, i.e., to offset unfavorable changes in the
value of securities otherwise held or expected to be acquired for investment
purposes. There are risks associated with these hedging activities, including
the following: (1) the success of a hedging strategy may depend on the ability
of the Adviser or the Advisers to the Fund to predict movements in the prices
of individual securities, fluctuations in markets, and movements in interest
rates; (2) there may be an imperfect or no correlation between the changes of
market value of the securities held by the Fund and the prices on futures and
options on futures; (3) there may not be a liquid secondary market for a
futures contract or futures option; (4) trading restrictions or limitations may
be imposed by an exchange; and (5) government regulations may restrict trading
in futures contracts and futures options.
The Funds may purchase and sell the following types of futures contracts and
options on futures contracts: (1) interest rate futures contracts and options
on interest rate futures contracts; (2) stock index futures contracts and
options on stock index futures contracts; and (3) currency futures contracts
and options on currency futures contracts.
Forward Commitments or Purchases on a When-Issued Basis -- A Fund may enter
into forward commitments or purchase securities on a when-issued basis, which
means that the price of the securities is fixed at the time of commitment and
that the delivery and payment will ordinarily take place beyond customary
settlement time. The interest rate realized on these securities is fixed as of
the purchase date and no interest accrues to the Fund before settlement. These
securities are subject to market fluctuation due to changes in market interest
rates and will have the effect of leveraging the Fund's assets; the securities
are also subject to fluctuation in value pending settlement based upon public
perception of the creditworthiness of the issuer of these securities.
Securities purchased on a when-issued or forward commitment basis may expose a
Fund to risk because such securities may experience such fluctuations in
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value prior to their actual delivery. Agreements to purchase securities on a
when-issued or forward commitment basis will only be made with the intention of
taking delivery and not for speculative purposes. A Fund may invest up to 25%
of its assets in forward commitments or commitments to purchase securities on a
when-issued basis. While awaiting delivery of securities purchased on such
bases, a Fund will establish a segregated account consisting of cash, short-
term money market instruments or high quality debt securities equal to the
amount of the commitments to purchase securities on such bases.
Warrants -- A Fund may invest up to 5% of its net assets in warrants, except
that this limitation does not apply to warrants acquired in units or attached
to securities. Included in this limitation, but not to exceed 2% of the Fund's
net assets, may be warrants not listed on the New York Stock Exchange or
American Stock Exchange. A warrant is an instrument issued by a corporation
which gives the holder the right to subscribe to a specified amount of the
corporation's capital stock at a set price for a specified period of time.
Investment Company Securities -- The 1784 International Equity Fund may
purchase shares of investment companies investing primarily in foreign
securities, including so-called "country funds" which have portfolios
consisting exclusively of securities of issuers located in one foreign country
and "region funds" which have portfolios consisting of securities of issuers
located in a particular region. The Fund also may purchase interests in foreign
investment trusts. In addition to the advisory fees and other expenses the Fund
bears directly in connection with its own operations, as a shareholder of
another investment company or trust, the Fund would bear its pro rata portion
of the other investment company's or trust's advisory fees and other expenses.
As such, the Fund's shareholders would indirectly bear the expenses of the
other investment company or trust, some or all of which would be duplicated.
The Fund may invest a maximum of up to 10% of its total assets in securities of
other investment companies so long as not more than 5% of the Fund's assets are
invested in any one investment company and not more than 3% of the total
outstanding voting stock of any one investment company is held by the Fund,
except that the Fund may, in the future, seek to achieve its investment
objective by investing all of its assets in a diversified, open-end management
company having the same investment objective and policies and substantially the
same investment restrictions as those applicable to the Fund.
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APPENDIX
DESCRIPTION OF RATINGS
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The following descriptions are summaries of certain published ratings.
Description of Commercial Paper Ratings
- --------------------------------------------------------------------------------
The following descriptions of commercial paper ratings have been published by
Standard and Poor's Ratings Group ("S&P") and Moody's Investors Service, Inc.
("Moody's").
S&P's ratings are graded into several categories of which A is the highest.
This category is divided into sub-categories as follows:
A-1 This highest sub-category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality, respectively, on the
basis of relative repayment capacity.
Description of Corporate Bond Ratings
- --------------------------------------------------------------------------------
Bonds rated AAA by S&P have the highest rating S&P assigns to debt obligations.
Such a rating indicates an extremely strong capacity to repay principal and pay
interest. Bonds rated AA also qualify as high-quality debt obligations.
Capacity to repay principal and pay interest is very strong, and differs from
AAA issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher rated categories.
Bonds rated BBB by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than with Aaa securities.
Bonds which are rated A by Moody's possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated Baa by Moody's are considered to be medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
A-1
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PROSPECTUS
[LOGO OF 1784 FUNDS APPEARS HERE]
Investment Adviser:
THE FIRST NATIONAL BANK OF BOSTON
1784 FUNDS (the "Trust") is a mutual fund consisting of several professionally
managed portfolios, or funds, of securities. The Trust provides a convenient
way to invest in one or more of these funds. This Prospectus relates to shares
of the 1784 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
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TABLE OF CONTENTS
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<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>
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EXPENSE SUMMARY
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Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of the Fund and annual operating expenses of the Fund, and (ii) an
example illustrating the dollar cost of such expenses on a hypothetical $1,000
investment in the Fund.
Shareholder Transaction Expenses
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<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
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(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>
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(1) If proceeds of a redemption of Fund shares are paid by wire transfer, a
wire transfer charge (presently $12.00) will be imposed.
(2) Bank of Boston, which serves as the Adviser for the Fund, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
the Fund to not more than 1.25% of average daily net assets on an annualized
basis; this limitation would not apply to any brokerage commissions, interest
expense or taxes or to extraordinary expense items, including but not limited
to litigation expenses. SEI Financial Services Company, which acts as
Distributor of the Trust's shares, has agreed to waive its 12b-1 fee, which is
computed at an annual rate of 0.25% of the Fund's average daily net assets. If
the Distributor should terminate this waiver, long-term Shareholders may pay
more than the economic equivalent of the maximum front-end sales charge that
would have been permitted. SEI Financial Management Corporation, which acts as
the Trust's Administrator, has agreed to waive its fee from certain funds of
the Trust to assist these funds in maintaining a competitive expense ratio.
Bank of Boston may contribute to the Fund or waive additional portions of its
fees in order to limit other operating expenses and to assist the Fund in
maintaining a 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
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An investor would pay the following expenses on a hypothetical $1,000
investment assuming a 5% annual total return and redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 Year 3 Years
---------------------------------------------------------------------
<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
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be directly or indirectly borne by investors in the Fund. Additional
information may be found under "General Information -- The Trust," "The
Adviser," "The Administrator" and "The Distributor."
SUMMARY
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The following information is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information.
1784 Funds (the "Trust") is an open-end management investment company which
provides a convenient way to invest in one 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
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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."
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How Are Distributions Paid? Substantially all of the net investment income
(exclusive of capital gains) of the Fund is distributed in the form of
dividends which are paid at least semi-annually. Shareholders of record on the
record date for the dividend distribution will be entitled to the dividends,
except that shares will not begin accruing dividends until the day following
the date of their purchase. On redemption, a Shareholder will receive dividends
through and including the day a valid redemption request is received by the
Shareholder Servicing Agent. Any capital gain is distributed at least annually.
Distributions are paid in additional shares unless the Shareholder elects to
take the payment in cash. See "Dividends and Distributions."
How Do I Make Exchanges? Once payment for shares of the Fund has been received
by the Distributor, those shares may be exchanged for shares of one or more
other portfolios of the Trust at net asset value, provided the amount of the
exchange meets the minimum investment requirements for the other portfolio of
the Trust. There are no charges for an exchange. If an exchange request in good
order is received by the Distributor by 4:00 p.m. ET on any Business Day, the
exchange usually will occur on that day; however, requests for exchange for
shares of a money market fund must be received earlier than 4:00 p.m. ET (in
cases when regular trading on the New York Stock Exchange closes earlier than
4:00 p.m. ET, as early as 12:00 noon ET) for the exchange to occur on that day.
A Shareholder must obtain and should read the prospectus of the other portfolio
and consider the differences in investment objectives and policies before
making any exchange. An exchange is treated, for federal and state income tax
purposes, as a sale of the Fund shares exchanged, and could result in gain or
loss to the Shareholder. See "Exchanges."
THE TRUST
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1784 Funds (the "Trust") is an open-end management investment company that
currently offers units of beneficial interest ("shares") in several separate
professionally managed investment portfolios, or funds. Each share of each fund
represents an undivided, proportionate interest in that fund. This Prospectus
relates to shares of the Trust's 1784 Growth Fund, a diversified fund. The
Trust's other funds include the 1784 U.S. Government Medium-Term Income Fund,
1784 Short-Term Income Fund, 1784 Income Fund, 1784 Tax-Exempt Medium-Term
Income Fund, 1784 Connecticut Tax-Exempt Income Fund, 1784 Rhode Island Tax-
Exempt Income Fund, 1784 Massachusetts Tax-Exempt Income Fund, 1784 Florida
Tax-Exempt Income Fund, 1784 U.S. Treasury Money Market Fund, 1784
Institutional U.S. Treasury Money 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
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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
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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
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The Fund may make any of the investments or engage in any of the investment
practices described under "Description of Permitted Investments and
Techniques." The Fund's investments normally consist primarily of securities
that are listed on recognized exchanges or actively traded in the over-the-
counter market. The Fund may also hold securities that are neither so listed
nor so traded. However, the Fund will not invest more than 15% of its net
assets in illiquid securities.
Investments in equity securities will fluctuate in value based on many factors,
including actual and anticipated earnings, changes in management, political and
economic developments and the potential for takeovers and acquisitions. Smaller
companies are especially sensitive to these factors.
In addition, the market value of fixed income investments (including money
market instruments) will change in response to interest rate changes and other
factors such as perceived changes in the credit quality of or the supply and
demand for such investments. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely,
during periods of rising interest rates, the values of such securities
generally decline. Moreover, while securities with longer maturities tend to
produce higher yields, the prices of longer maturity securities
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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
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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.
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THE ADVISER
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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
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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
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Boston Financial Data Services acts as dividend disbursing agent and
shareholder servicing agent (the "Shareholder Servicing Agent") for the Fund,
and receives a fee for these services. The principal business address of the
Shareholder Servicing Agent is 2 Heritage Drive, North Quincy, MA 02171. State
Street Bank and Trust Company acts as transfer agent (the "Transfer Agent") for
the Fund, and receives a fee for these services. The principal business address
of the Transfer Agent is 225 Franklin Street, Boston, MA 02110-2875.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") dated as of June 1, 1993 and amended and restated as
of September 14, 1995, and the Trust has adopted a distribution plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. As
provided in the Distribution Agreement and the Plan, the Trust will pay the
Distributor a fee for its services, calculated daily and paid monthly, at an
annual rate of 0.25% of the average daily net assets of the Fund. The
Distributor may apply all or a portion of this fee toward: (a) compensation for
its services in connection with distribution assistance or provision of
Shareholder services; or (b) payments to financial institutions and
intermediaries such as banks (including Bank of Boston), savings and loan
associations, insurance companies, and investment counselors, broker-dealers
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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 3 Business Days thereafter.
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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
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If a Shareholder has previously submitted an Account Application, that
Shareholder may also purchase shares by telephone by calling the Distributor
toll-free at 1-800-252-1784. 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 3 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)
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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.
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No certificates representing shares will be issued.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such offer. 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
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Shareholders may redeem their shares on any Business Day and shares may
ordinarily be redeemed by mail or telephone, with proceeds payable by check,
ACH or wire transfer. A redemption is treated, for federal and state income tax
purposes, as a sale of the Fund shares redeemed; a redemption could, therefore,
result in taxable gain or loss to the Shareholder. If proceeds are paid by wire
transfer, a wire transfer charge (presently $12.00) will be imposed.
By Mail
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A written request for redemption must be received by the 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
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Shares may be redeemed by telephone if the Shareholder elects that option on
the Account Application (unless a written redemption request, with the
Shareholder's signature guaranteed, is required; see "Signature Guarantees"
below). Telephone redemption orders must be placed with the 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.
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Signature Guarantees
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If a Shareholder requests a redemption for an amount in excess of $25,000, a
redemption of any amount to be payable to anyone other than the Shareholder of
record or a redemption of any amount to be sent to any address other than the
Shareholder's address of record with the 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.
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SYSTEMATIC WITHDRAWAL PLAN
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A Shareholder may direct the Shareholder Servicing Agent to send him or her
regular monthly, quarterly, semi-annual or annual payments, as designated on
the Account Application and based upon the value of his or her account. Each
payment under a systematic withdrawal plan must be at least $100, except in
certain limited circumstances. A withdrawal payment under the plan is treated,
for federal and state income tax purposes, as a sale of a number of Fund shares
sufficient to fund the payment; such payment could, therefore, result in
taxable gain or loss to the Shareholder.
EXCHANGES
- --------------------------------------------------------------------------------
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.
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
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I784 FUNDS
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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
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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
- --------------------------------------------------------------------------------
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
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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 LLP, 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
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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
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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
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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.
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
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("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.
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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
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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.
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PROSPECTUS
[LOGO OF 1784 FUNDS APPEARS HERE]
Investment Adviser:
THE FIRST NATIONAL BANK OF BOSTON
1784 FUNDS (the "Trust") is a mutual fund consisting of several professionally
managed portfolios, or funds, of securities. The Trust provides a convenient
way to invest in one or more of these funds. This Prospectus relates to shares
of the 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND (the "Fund").
Shares of the Fund are offered primarily to institutional investors
("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 or
distribution fees.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANK OF BOSTON OR ANY OF ITS AFFILIATES. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING RISK
TO PRINCIPAL.
This Prospectus sets forth concisely the information about the Trust and the
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, 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.
OCTOBER 2, 1995
AS SUPPLEMENTED DECEMBER 4, 1995
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
- ------------------------------------------------
<S> <C>
Expense Summary 2
Summary 2
Condensed Financial Information 4
The Trust 5
Investment Objective 5
Investment Policies 5
Certain Investment Policies and Guidelines 6
Investment Limitations 6
The Adviser 7
The Administrator 9
</TABLE>
<TABLE>
<CAPTION>
Page
- ---------------------------------------------------------
<S> <C>
The Shareholder Servicing Agent and Transfer Agent 9
The Distributor 9
Purchase of Shares 9
Redemption of Shares 11
Exchanges 12
Performance 13
Taxes 13
General Information 14
Description of Permitted Investments and Techniques 15
</TABLE>
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EXPENSE SUMMARY
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Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of the Fund and annual operating expenses of the Fund, and (ii) an
example illustrating the dollar cost of such expenses on a hypothetical $1,000
investment in the Fund.
Shareholder Transaction Expenses
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<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering price) None
Sales Charge Imposed on Reinvested Dividends
(as a percentage of the offering price) None
Deferred Sales Charge Imposed on Redemptions (as a percentage of the of-
fering price) None
Redemption Fees(1) None
Exchange Fee None
</TABLE>
Annual Operating Expenses
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(As a percentage of average net assets)
<TABLE>
<S> <C>
Advisory Fees (after fee waiver)(2) 0.12%
Other Expenses(2) 0.20%
- ------------------------------------------
Total Operating Expenses(2) 0.32%
</TABLE>
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(1) If proceeds of a redemption of Fund shares are paid by wire transfer, a
wire transfer charge (presently $12.00) will be imposed.
(2) Bank of Boston, which serves as the Adviser for the Trust, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
the Fund to not more than 0.45% of the Fund's average daily net assets on an
annualized basis; this limitation would not apply to any brokerage commissions,
interest expense or taxes or to extraordinary expense items, including but not
limited to litigation expenses. SEI Financial Management Corporation, which
acts as the Trust's Administrator, has agreed to waive its fee from certain
funds of the Trust to assist these funds in maintaining a competitive expense
ratio. Bank of Boston contributes to the Fund in order to limit other operating
expenses and to assist the Fund in maintaining a competitive expense ratio. Fee
waivers by the Adviser and the Administrator, and contributions by the Bank of
Boston, are voluntary and may be terminated at any
time. From time to time the Adviser may also waive additional portions of its
fees to reduce net operating 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" and "The Administrator." Absent waivers, the
Adviser's investment advisory fee is calculated at an annual rate of 0.20% of
average daily net assets of the Fund. Other expenses are based on actual
expenses for the Fund's fiscal year ended May 31, 1995, and include expense
items described under "General Information -- The Trust." A person who
purchases shares through a financial institution may be charged separate fees
by the financial institution.
Example
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An investor would pay the following expenses on a hypothetical $1,000
investment assuming a 5% annual total return and redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-------------------------------
<S> <C> <C> <C>
$3 $10 $18 $41
</TABLE>
Absent voluntary waivers by the Adviser and Administrator and contributions
made by the Bank of Boston, the amounts for this example for one year, three
years, five years and ten years would be $4, $14, $24 and $54. The example is
based on actual expenses for the Fund's fiscal year ended May 31, 1995. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURN, AND ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that may be directly or indirectly borne by
investors in the Fund. Additional information may be found under "General
Information -- The Trust," "The Adviser," and "The Administrator."
SUMMARY
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The following information is qualified in its entirety by reference to the more
detailed information included
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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
Institutional U.S. Treasury Money Market Fund (the "Fund"). The Fund is a
diversified fund.
What Is the Investment Objective? The investment objective of the Fund is to
preserve principal value and maintain a high degree of liquidity while
providing current income. 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 will limit its investments to
"eligible securities" under applicable SEC rules which are deemed to present
minimal credit risks. The securities in the Fund's portfolio mature or are
deemed to mature within 397 days, and the average maturity of the investments
in the Fund's portfolio (on a dollar-weighted basis) is 90 days or less. The
Fund under normal circumstances invests at least 65% of its total assets in
U.S. Treasury Obligations and repurchase agreements involving such obligations.
Under normal circumstances the Fund intends to invest the balance of its
investable assets in other securities issued or guaranteed as to principal and
interest by the U.S. Government or any of its agencies or instrumentalities
(collectively, "U.S. Government Obligations"), repurchase agreements involving
such obligations, and, to the extent permitted by the Investment Company Act of
1940, securities of registered investment companies which invest solely in U.S.
Treasury Obligations, U.S. Government Obligations and repurchase agreements
involving such obligations. Distributions of the Fund derived from interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from
state and local taxes in certain states. See "Taxes," "Investment Policies,"
"Description of Permitted Investments and Techniques" and "Certain Investment
Policies and Guidelines."
Who Is the Adviser? The First National Bank of Boston ("Bank of Boston" or the
"Adviser") serves as the Adviser for the Trust and is entitled to a fee which
is calculated daily and paid monthly at an annual rate of 0.20% of the average
daily net assets of the Fund. The Adviser has agreed for an indefinite period
of time to waive all or a portion of its fee in order to limit the total
operating expenses of the Fund on an annualized basis to not more than 0.45% of
the average daily net assets of the Fund. Bank of Boston contributes to the
Fund in order to limit operating expenses and to assist the Fund in maintaining
a competitive expense ratio. Fee waivers 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 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. No compensation is paid to the Distributor for distribution
services for shares of the Fund. See "The Distributor."
3
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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") or by noon on a Half Day. A "Half Day" is the day after
Thanksgiving and the day before Christmas during 1995, or any other day the
bond market closes at 1:00 p.m. ET. 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.
Except as described below, a purchase order for shares will be effective as of
the Business Day the order is received by the Distributor if the Distributor
receives a purchase order in good form for the shares prior to 3:00 p.m.
Eastern time ("ET") on a Business Day and noon on Half Days. An order for Fund
shares may be cancelled by the Distributor, and the investor held liable for
any losses or fees incurred, if the Distributor does not receive federal funds
that Business Day. Shares purchased will begin accruing dividends on the date
of purchase.
Investors are encouraged to submit orders as early as practicable on the date
of investment; an order for Fund shares (even if otherwise timely) may be
rejected if in the Adviser's judgment appropriate investments are unavailable
when the order is received. The purchase price for Fund shares is the net asset
value per share (normally $1.00) next computed after the order is received and
accepted by the Distributor. The minimum initial investment is $100,000; all
subsequent purchases must be at least $5,000. See "Purchase of Shares."
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 prior to 3:00 p.m. ET on any Business Day, or by noon on a
Half Day, for the order to be effective on that day. See "Redemption of
Shares."
How Are Distributions Paid? Substantially all of the net investment income
(exclusive of capital gains) of the Fund is determined and declared on each
Business Day as a dividend to shareholders of record as of the close of
business on that day. On redemption, a Shareholder will receive dividends up to
but not including the day a valid redemption request is received by the
Shareholder Servicing Agent. Any capital gains will be 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 3:00 p.m. ET on any Business Day, or by
noon on a Half Day, the exchange usually will occur on that day. A Shareholder
must obtain and should read the prospectus of the other portfolio and consider
the differences in investment objectives and policies before making any
exchange. See "Exchanges."
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following table provides condensed financial information about the Fund for
the period from June 14, 1993 (commencement of operations) through May 31,
1995. The information should be read in conjunction with the financial
statements appearing in the Fund's Annual Report to Shareholders, which are
incorporated by reference in the Statement of Additional Information. The
financial statements and notes, as well as the table below, covering the period
through May 31, 1995, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report is included in the Fund's Annual Report.
Copies of the Annual Report may be obtained without charge from the
Distributor.
4
<PAGE>
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I784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Period Ended May 31, 1995
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Ratio
Net Net Ratio of Expenses
Asset Dividends Net Assets Ratio of Net to Average
Value Net from Net Asset Value End of Expenses Income Net Assets
Beginning Investment Investment End Total of Period to Average to Average (Excluding
of Period Income Income of Period Return (000) Net Assets Net Assets Waivers)
--------- ---------- ---------- ----------- ------ --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
U.S. TREASURY
MONEY MARKET
FUND(1)
- ---------------------------
- ---------------------------
6/14/93-5/31/94 $1.00 $0.03 (0.03) $1.00 2.99%* $181,568 0.22%** 3.16%** 0.55%**
6/1/94-5/31/95 $1.00 $0.05 (0.05) $1.00 5.05% $395,585 0.30% 5.12% 0.41%
<CAPTION>
Ratio of
Net Income
to Average
Net Assets
(Excluding
Waivers)
------------
<S> <C>
INSTITUTIONAL
U.S. TREASURY
MONEY MARKET
FUND(1)
- ---------------------------
- ---------------------------
6/14/93-5/31/94 2.83%**
6/1/94-5/31/95 5.01%
</TABLE>
* Returns are for the period indicated and have not been annualized.
** Ratios for this period have been annualized.
(1) The Institutional U.S. Treasury Money Market Fund commenced operations on
June 14, 1993.
--------------
THE TRUST
- --------------------------------------------------------------------------------
1784 Funds (the "Trust") is an open-end management investment company that
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 Institutional U.S. Treasury Money Market
Fund, which is a diversified 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 Fund is to preserve principal value and
maintain a high degree of liquidity while providing current income.
There can be no assurance that the investment objective of 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 Fund is required to comply with regulations of the SEC applicable to money
market funds using the amortized cost method for calculating net asset value.
These regulations impose certain quality, maturity and diversification
restraints on investments by the Fund. Under these regulations, the Fund
invests only in U.S. dollar-denominated securities, maintains an average
maturity on a dollar-weighted basis of 90 days or less, and acquires only
"eligible securities" (as defined under applicable SEC rules) that have a
maturity of 397 days or less and that present minimal credit risks as
determined by or on behalf of the Board of Trustees of the Trust. In certain
circumstances, the maturity of a security will be deemed to be the period
remaining until the next interest rate adjustment date or until payment of the
security may be demanded. For a further discussion of these rules, see
"Description of Permitted Investments and Techniques -- Restraints on
Investments by the Fund."
5
<PAGE>
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I784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund is a diversified fund which will under normal circumstances invest at
least 65% of its total assets in bills, notes, and bonds issued by the U.S.
Treasury and separately traded interest and principal component parts of such
obligations that are transferable through the Federal Reserve book-entry system
(such component parts of obligations are commonly referred to as "STRIPS" and
all of the foregoing obligations are referred to collectively as "U.S. Treasury
Obligations") and in repurchase agreements involving U.S. Treasury Obligations.
In addition to U.S. Treasury Obligations, the Fund may invest in other
securities issued or guaranteed as to principal and interest by the U.S.
Government or any of its agencies and instrumentalities (the foregoing
obligations are referred to collectively as "U.S. Government Obligations"),
repurchase agreements involving U.S. Government Obligations and, to the extent
permitted by the Investment Company Act of 1940, securities of registered
investment companies which invest solely in U.S. Treasury Obligations, U.S.
Government Obligations and repurchase agreements involving such obligations.
Under normal circumstances, the Fund intends to invest all of its investable
assets in U.S. Treasury Obligations, U.S. Government Obligations, repurchase
agreements involving U.S. Treasury Obligations or U.S. Government Obligations,
and securities of registered investment companies which invest solely in the
foregoing types of 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" and
"Description of Permitted Investments and Techniques."
CERTAIN INVESTMENT POLICIES AND GUIDELINES
- --------------------------------------------------------------------------------
The Fund's investment in STRIPS will be limited to securities with maturities
of less than 397 days. Investing in these securities entails certain risks,
including that the interest components of these securities may be more volatile
in market value than Treasury bills of comparable maturity, as further
described in "Description of Permitted Investments and Techniques." The Fund
may not invest more than 20% of its total assets in STRIPS or actively trade
STRIPS (i.e., combine the components of STRIPS to create derivative
securities).
The Fund may invest in when-issued securities and variable rate and floating
rate obligations. When investing in when-issued securities, the Fund will not
accrue income until delivery of the securities and will invest in such
securities only for the purpose of actually acquiring the securities and not
for the purpose of leveraging. Investing in when-issued securities may have the
effect of leveraging. The Fund may invest up to 25% of its total assets in
forward commitments or commitments to purchase securities on a when-issued
basis. While awaiting delivery of securities purchased on such basis, the Fund
will establish a segregated account consisting of cash, U.S. Treasury
Obligations and U.S. Government Obligations equal to the amount of the
commitments to purchase securities on such basis.
In addition, 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.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The investment objective of the Fund and the following investment limitations
are fundamental policies of the Fund. Fundamental policies cannot be changed
with respect to the Fund 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.
6
<PAGE>
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I784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if as a result more than 5% of the total assets of
the Fund would be invested in the securities of such issuer or more than 10% of
the outstanding voting securities of such issuer would be owned by the Fund.
The Fund will be diversified with respect to 100% of its assets provided that
the Fund may invest up to 25% of its total assets in a single issuer for a
period of up to three business days if such
securities qualify as "first tier securities" under applicable SEC rules. For
purposes of these limitations, loan participations are considered to be issued
by both the issuing bank and the underlying corporate borrower, and a
repurchase agreement is deemed to be an acquisition of the underlying
securities, provided that the seller's obligation to repurchase the securities
from the Fund is fully collateralized.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry or securities the
interest upon which is paid from revenue of similar type of industrial
development projects, provided that this limitation does not apply to (i)
investments in obligations issued or guaranteed by the U.S. Government or any
of its agencies and instrumentalities and repurchase agreements involving such
securities; and (ii) obligations issued by domestic banks, foreign branches of
domestic banks and U.S. branches of foreign banks, to the extent that the Fund
may under the Investment Company Act of 1940, as amended, reserve freedom of
action to concentrate its investments in such securities. The Fund has reserved
its freedom of action to concentrate its investments in government securities
and bank instruments described in the foregoing clause (ii). For purposes of
these limitations, (i) loan participations are considered to be issued by both
the issuing bank and the underlying corporate borrower; (ii) utility companies
will be divided according to their services; for example, gas, gas
transmission, electric and telephone will each be
considered a separate industry; and (iii) financial service companies will be
classified according to the end users of their services; for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry.
3. Make loans, except that 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 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 will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISER
- --------------------------------------------------------------------------------
The First National Bank of Boston ("Bank of Boston" or the "Adviser") manages
the assets of 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. 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
0.20% of the average daily net assets of the Fund. However, the Adviser has
agreed for an indefinite period of time to waive all or a portion of its fees
in order to limit the total operating expenses of the Fund on an annualized
basis to not more than 0.45% of its average daily net assets. Fee waivers may
be terminated at any time. From time to time the Adviser may also
7
<PAGE>
- --------------------------------------------------------------------------------
I784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
waive additional portions of its fees to reduce net operating expenses to less
than the amount specified above. For the fiscal year ended May 31, 1995, the
fees payable to Bank of Boston under the Advisory Agreement with respect to the
Fund were $516,057, of which $231,493 was voluntarily waived (after giving
effect to such waiver, 0.11% of the Fund's average daily net assets for that
period). In addition, the Bank of Boston contributed $47,033 to the Fund to
decrease the Fund's other operating expenses and to assist the Fund in
maintaining a competitive expense ratio. Management's discussion of the Fund's
performance is included in the Fund's Annual Report to Shareholders which
investors may obtain without charge by contacting the Distributor. The Fund may
execute brokerage or other agency transactions through the Adviser or an
affiliate.
Bank of Boston, a national banking association, is the successor to a number of
banking institutions, the first of which was chartered in 1784. All of the
capital stock of Bank of Boston (except directors' qualifying shares) is owned
by Bank of Boston Corporation, a registered bank holding company. Bank of
Boston is engaged in providing a wide variety of financial services to
individuals, corporate and institutional customers, governments, and other
financial institutions throughout New England, the United States and
internationally. These services include individual and community banking,
consumer finance, mortgage origination and servicing, domestic corporate and
investment banking, leasing, international banking services, commercial real
estate lending, private banking, trust services, correspondent banking, and
securities and payments processing. Prior to the organization of the Trust in
1993, the Adviser had not served as the investment adviser for management
investment companies. The Adviser also manages the other funds comprising the
Trust.
Bank of Boston has been providing asset management services since 1890. Its
portfolio managers are responsible for investing in money market, equity, and
fixed income securities and they have earned national recognition and respect.
The investment management
group within Bank of Boston which manages the Fund is the same group which has
managed Bank of Boston's collective trust funds with similar investment
objectives. As of December 31, 1994, Bank of Boston and its affiliates managed
more than $13 billion in assets worldwide.
Bank of Boston and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Fund, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Bank of Boston and its
affiliates deal, trade and invest for their own account in certain types of
securities purchased on behalf of the Fund. Bank of Boston and its affiliates
may sell such securities to and purchase them from other investment companies
sponsored by SEI Financial Services Company or its affiliates. The Adviser has
informed the Trust that, in making its investment decisions, it does not obtain
or use material inside information in the possession of any division or
department of Bank of Boston or in the possession of any affiliate of Bank of
Boston.
The Glass-Steagall Act prohibits certain financial institutions, such as Bank
of Boston, from engaging in the business of underwriting securities of open-end
investment companies, such as the Fund. Bank of Boston takes the position,
based on the advice of counsel, that the investment advisory services it
provides under the Advisory Agreement do not constitute underwriting activities
and are consistent with the requirements of the Glass-Steagall Act and other
relevant federal and state legal and regulatory precedent. State laws on this
issue may differ from applicable federal law, and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Future changes in either federal or state statutes or
regulations relating to the permissible activities of banks, as well as future
judicial or administrative decisions and interpretations of present and future
federal and state statutes and regulations, could prevent Bank of Boston from
continuing to perform such services for the Trust. If Bank of Boston were to be
prevented from acting as
8
<PAGE>
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I784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 its average daily net assets. The
Administrator has agreed to waive a portion of its fees on a month to month
basis under certain circumstances for certain of the portfolios of the Trust.
THE SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
- --------------------------------------------------------------------------------
Boston Financial Data Services acts as dividend disbursing agent and
shareholder servicing agent (the "Shareholder Servicing Agent") for the Fund,
and receives a fee for these services. The principal business address of the
Shareholder Servicing Agent is 2 Heritage Drive, North Quincy, MA 02171. State
Street Bank and Trust Company acts as transfer agent (the "Transfer Agent") for
the Fund, and receives a fee for these services. The principal business address
of the Transfer Agent is 225 Franklin Street, Boston, MA 02110-2875.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") dated as of June 1, 1993. No
compensation is paid to the Distributor for distribution services for the Fund.
Financial institutions that are the record owner of shares for the accounts of
their customers may impose separate fees for the account services to their
customers. The 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 by telephone. Shares may also be purchased through
a broker-dealer which has established a dealer agreement with the Distributor.
Purchases of the 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. The minimum initial
investment in the Fund is $100,000; all subsequent purchases of the Fund's
shares must be at least $5,000. Minimum investment amounts may be waived at the
Distributor's discretion. No minimum purchase amount applies to subsequent
purchases made by reinvestment of dividends.
9
<PAGE>
- --------------------------------------------------------------------------------
I784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The purchase price for shares of the Fund is their net asset value (normally
$1.00 per share) next determined after the order is received and accepted by
the Distributor. Net asset value per share of the Fund is determined as of 3:00
p.m. ET on each Business Day and as of noon on each Half Day.
A purchase order for shares of the Fund will be effective as of the Business
Day the order is received by the Distributor, and Shares purchased will be
eligible to receive dividends declared the same day if the Distributor receives
a purchase order, in good form, before 3:00 p.m. ET or before noon on a Half
Day and the Distributor receives federal funds on such day. Otherwise the
purchase order will be effective the next Business Day. An order for Fund
shares may be cancelled by the Distributor and the investor held liable for any
losses or fees incurred, if the Distributor does not receive federal funds that
Business Day. Investors are encouraged to submit orders as early as practicable
on the date of investment; an order for Fund shares (even if otherwise timely)
may be rejected if in the Adviser's judgment appropriate investments are
unavailable when the order is received.
By Telephone
- --------------------------------------------------------------------------------
If a Shareholder has previously submitted an Account Application, that
Shareholder may purchase shares by telephone by calling the Distributor toll-
free at 1-800-252-1784.
Other Information Regarding Purchases
- --------------------------------------------------------------------------------
Shares 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 Automated Clearing House ("ACH") transactions, as well
as by check or wire transfer.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution.
No certificates representing shares will be issued.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such offer. The Fund will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. These
procedures will include verification of a caller's identity by asking for the
caller's name, address, telephone number, federal taxpayer identification
number, and account number. If these or other reasonable procedures to confirm
that instructions communicated by telephone are genuine are not followed, the
Fund may be liable for any losses to a Shareholder due to unauthorized or
fraudulent instructions. Otherwise, the investor will bear all risk of loss
relating to a purchase, redemption or exchange by telephone or a wire transfer.
For all purchases, if payment is not made or a check received for purchases of
Fund shares does not clear, the purchase will be canceled and the investor
could be liable for any losses or fees incurred.
10
<PAGE>
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I784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The net asset value per share of the Fund is determined by dividing the value
of the Fund's investments and other assets, less any liabilities, by the total
outstanding shares of the Fund. It is anticipated that the net asset value of
each share of the Fund will remain constant at $1.00 (although there can be no
assurance that the Fund will be able to maintain this stable net asset value).
Securities of the Fund are valued based on the amortized cost method described
in the Statement of Additional Information.
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 or 2 Heritage Drive, North Quincy, MA 02171.
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 3:00 p.m. ET on any Business Day or prior
to noon on a Half Day to be effective on such day. The Shareholder may have the
proceeds mailed to the Shareholder's address or wired to a commercial bank
account previously designated on the Account Application. Under most
circumstances, payments will be transmitted on the next Business Day following
receipt of a valid request for redemption. Telephone redemption requests may be
made by calling the 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 c/o Boston Financial Data Services, 2 Heritage Drive, North
Quincy, MA 02171.
Signature Guarantees
- --------------------------------------------------------------------------------
If a Shareholder requests a redemption for an amount in excess of $25,000, a
redemption of any amount to be payable to anyone other than the Shareholder of
record or a redemption of any amount to be sent to any address other than the
Shareholder's address of record with the Fund (or in the case of ACH or wire
transfers, other than as provided in the Shareholder's Account Application),
all account holders on the Shareholder's account must sign a written redemption
request and their signatures must be guaranteed by a commercial bank, by a
member firm of a domestic stock exchange or by another eligible guarantor
institution. The Trust and the Shareholder Servicing Agent reserve the right to
amend these requirements for the Fund at any time without notice. For questions
about the proper form of redemption requests, call 1-800-252-1784.
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
11
<PAGE>
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I784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
redeemed will be made within seven days after receipt by the Shareholder
Servicing Agent of the request for redemption. 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
the caller's name, address, telephone number, federal taxpayer identification
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.
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.
EXCHANGES
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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 3:00 p.m. ET on any
Business Day or by noon on any Half Day, the exchange usually will occur on
that day. Any Shareholder or Customer who wishes to make an exchange must have
received a current prospectus of the portfolio of the Trust in which such
Shareholder or Customer 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
$5,000 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 reserves the right to reject any exchange
request in whole or in part. The exchange privilege (or any aspect of it) may
be changed or terminated at any time.
Other portfolios of the Trust may impose distribution fees based on their net
assets.
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An exchange is treated, for federal or 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
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From time to time the Trust advertises the "current yield" and "effective
yield" (also referred to as "effective compound yield") of the Fund. Both yield
figures are based on historical earnings and are not intended to indicate
future performance. The "current yield" of the Fund refers to the income
generated by an investment in the 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
"current yield" because of the compounding effect of this assumed reinvestment.
The Trust may periodically compare performance of the Fund to that of other
mutual funds tracked by mutual fund rating services, to that of broad groups of
comparable mutual funds or to that of unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs.
TAXES
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The following is a discussion of certain United States federal income tax
considerations relevant to the purchase, ownership, and disposition of shares
in the 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
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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 its 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.
Tax Treatment of Shareholders
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Shareholders of the Fund generally will have to pay federal income taxes and
may be subject to state or local taxes on the dividends and capital gain
distributions they receive from the Fund, whether paid in cash or in additional
shares. Fund distributions from net investment income and short-term capital
gains will be taxable to Shareholders as ordinary income, while Fund
distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) will be taxable to Shareholders as long-
term capital gains, regardless of how long the Shareholders have held their
shares.
Distributions of the Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but
generally not from capital gains realized upon the disposition of such
obligations) may be exempt from state and local taxes. The Fund intends to
advise Shareholders of the extent, if any, to which their respective
distributions consist of such interest.
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I784 FUNDS
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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 Fund distributions.
The exchange or redemption of Fund shares is a taxable event to the
Shareholder, although the Trust intends to attempt to maintain a stable share
price of $1.00 per share.
The Fund will generally withhold tax payments at the rate of 30% on dividends
and other payments that are subject to such withholding and that are made to
persons who are neither citizens nor residents of the U.S., although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. The
Fund is also required in certain circumstances to withhold 31% of taxable
dividends and certain redemption proceeds paid to any Shareholder (including a
Shareholder who is neither a citizen nor a resident of the U.S.) who does not
furnish to the Fund certain information and certifications or who is otherwise
subject to backup withholding. Backup withholding will not, however, be applied
to payments that have been subject to 30% (or lower treaty rate) withholding.
GENERAL INFORMATION
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The Trust
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The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated February 5, 1993. The Declaration of Trust permits the Trust to
issue an unlimited number of shares of beneficial interest of each of the
portfolios (referred to as
"series") of the Trust, each of which is a separate fund. In addition to the
Fund, the Trust includes the following funds: 1784 U.S. Government Medium-Term
Income Fund, 1784 Short-Term Income Fund, 1784 Income Fund, 1784 Tax-Free Money
Market Fund, 1784 U.S. Treasury Money Market Fund, 1784 Tax-Exempt Medium-Term
Income Fund, 1784 Connecticut Tax-Exempt Income Fund, 1784 Rhode Island Tax-
Exempt Income Fund, 1784 Massachusetts Tax-Exempt Income Fund, 1784 Growth and
Income Fund, 1784 Asset Allocation Fund and 1784 International Equity Fund. All
consideration received by the Trust for shares of any fund and all assets of
such fund belong to that fund and would be 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. For the fiscal year ended May 31, 1995, the total expenses
of the Fund were $1,049,163, of which $284,681 was voluntarily waived or
reimbursed by the Bank of Boston (after giving effect to such waiver, 0.30% of
the Fund's average daily net assets for that period).
Under applicable law, Shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the risk of a
Shareholder incurring financial loss on account of such Shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations and inadequate insurance existed. The Trust believes that the
likelihood of such circumstances is remote.
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I784 FUNDS
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Trustees of the Trust
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The management and affairs of the Trust are supervised by its Board of
Trustees. The Trustees have approved contracts under which, as described above,
certain companies provide essential management, administrative and Shareholder
services to the Trust.
Voting Rights
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Each share held entitles the Shareholder of record to one vote. Each fund or
class will vote separately on 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
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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
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Shareholder inquiries should be directed to SEI Financial Management
Corporation, P.O. Box 1784, Wayne, Pennsylvania, 19087-8784, at 1-800-252-1784.
Dividends and Distributions
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The net investment income (exclusive of capital gains) of the Fund is
determined and declared on each business day as a dividend for Shareholders of
record as of the close of business on that day. On redemption, a
Shareholder will receive dividends up to but not including the day a valid
redemption request is received by the Shareholder Servicing Agent. Dividends
are paid by the Fund in additional shares, unless the Shareholder has elected
to take such payment in cash, on the first business day of each month.
Shareholders may change their election by providing written notice to the
Administrator at least 15 days prior to the change. Currently, capital gains of
the Fund, if any, are distributed at least annually.
If dividend payments are returned and unclaimed within 30 days, they will be
reinvested and the Shareholder will be deemed to have elected to receive future
dividend and capital gain distributions in additional shares.
Counsel and Independent Accountants
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Bingham, Dana & Gould LLP, Boston, MA, serve as counsel to the Trust. Coopers &
Lybrand L.L.P., Boston, MA, serve as the independent accountants of the Trust.
Custodian
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Bank of Boston, 100 Federal Street, Boston, MA 02110, acts as Custodian of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940. Under a separate agreement,
Bank of Boston also provides certain accounting services for the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS AND TECHNIQUES
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The following is a description of the permitted investments and investment
techniques for the Fund.
U.S. Treasury Obligations -- U.S. Treasury obligations include bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
Reserve book-entry system known as Separately Traded Registered Interest
15
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I784 FUNDS
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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. The Fund may also invest in Treasury Receipts, which are
unmatured interest coupons of U.S. Treasury bonds and notes which have been
separated and resold in a custodial receipt program administered by the U.S.
Treasury.
U.S. Government Obligations -- Certain Federal agencies such as the Government
National Mortgage Association ("GNMA") have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States (e.g., GNMA) or supported by the issuing agencies' right to borrow from
the Treasury. The issues of other agencies are supported only by the credit of
the instrumentality (e.g., Federal National Mortgage Association, "FNMA"). The
Fund may invest in securities issued by any Federal agency or instrumentality.
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; therefore, the Fund
will not invest more than 10% of
its net assets in such instruments and other illiquid securities.
The interest rate on these securities may be reset daily, weekly, quarterly, or
some other reset period and may have a floor or ceiling on interest rate
charges. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates.
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 of the SEC, the Fund may enter into repurchase agreements on
a pooled basis with other portfolios of the Trust.
Forward Commitments or Purchases On a When-Issued Basis -- The 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.
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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, U.S.
Treasury Obligations and U.S. Government Obligations 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, U.S. Treasury Obligations, U.S.
Government Obligations or any combination of cash and such securities as
collateral equal at all times to 100% of the market value of the securities
lent. The Fund may lend up to 33 1/3% of the value of its total assets. The
Fund will continue to receive interest on the securities lent while
simultaneously earning interest on the investment of cash collateral in U.S.
Treasury Obligations or U.S. Government Obligations. Collateral is marked to
market daily to provide a level of collateral at least equal to the market
value of the securities lent. There may be risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. However, loans will only be made to borrowers
deemed by the Adviser to be of good standing and when, in the judgment of the
Adviser, the consideration which can be earned currently from such securities
loans justifies the attendant risk.
Zero Coupon Securities -- Zero coupon securities are fixed income securities
that have been stripped of their unmatured interest coupons. A zero coupon
security pays no interest or principal to its holder during its life.
A zero coupon security is sold at a discount, frequently substantial, and
redeemed at face value at its maturity date. The amount of the discount
fluctuates with the market price of the security, and is accreted over the life
of the security. Such accretion constitutes the income earned on the security
for both accounting and tax purposes. The market prices of zero coupon
securities are generally more volatile than the market prices of securities of
similar maturity that pay interest periodically, and zero coupon securities are
likely to respond to a greater degree to interest rate changes than are non-
zero coupon securities with similar maturity and credit qualities.
Restraints on Investments by the Fund -- Investments by the Fund are subject to
limitations imposed under regulations adopted by the SEC. Under these
regulations money market funds may acquire only obligations that present
minimal credit risks and that are "eligible securities," which means they are
(i) rated, at the time of investment, by at least two nationally recognized
statistical rating organizations (one if it is the only organization rating
such obligation) in the highest short-term rating category or, if unrated,
determined to be of comparable quality (a "first tier security"), or (ii) rated
according to the foregoing criteria in the second highest short-term rating
category (or rated by one nationally recognized statistical rating organization
in the highest short-term rating category and by another organization in the
second highest short-term rating category) or, if unrated, determined to be of
comparable quality ("second tier security"). A security is not considered to be
unrated if its issuer has outstanding obligations of comparable priority and
security that have a short-term rating. The Adviser will determine that an
obligation presents minimal credit risks or that unrated instruments are of
comparable quality in accordance with guidelines established by the Trustees.
Under normal circumstances, the Fund intends to invest all of its investable
assets in U.S. Treasury Obligations, U.S. Government Obligations, repurchase
agreements involving U.S. Treasury Obligations or U.S. Government Obligations,
and securities of registered investment companies which invest solely in the
foregoing types of securities.
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The Board of Trustees of the Trust has certain obligations, in the event that a
security ceases to be a first-tier security or ceases to be a second-tier
security, to reassess whether such security continues to present only minimal
credit risks.
The Fund will invest only in U.S. dollar-denominated securities, will maintain
an average maturity on a dollar-weighted basis of 90 days or less and will
acquire only "eligible securities" that have or are deemed to have a maturity
of 397 days or less and that present minimal credit risks as determined by or
on behalf of the Board of Trustees of the Trust. The Fund will comply with the
various requirements of Rule 2a-7 under the Investment Company Act of 1940,
which regulates money market funds. In particular, the Fund will determine the
effective maturity of its investments (including certain variable rate
instruments, where maturity may be deemed to be the period remaining until the
next interest rate adjustment date or until payment of the security may be
demanded) according to Rule 2a-7 as in effect from time to time.
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INVESTMENT ADVISER
The First National Bank of Boston
100 Federal Street
Boston, MA 02110
CO-ADVISER FOR
1784 INTERNATIONAL EQUITY FUND
Kleinwort Benson Investment
Management Americas Inc.
200 Park Avenue
New York, NY 10166
DISTRIBUTOR
SEI Financial Services Company
680 East Swedesford Road
Wayne, PA 19087
ADMINISTRATOR
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, PA 19087
LEGAL COUNSEL
Bingham, Dana & Gould LLP
150 Federal Street
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
CUSTODIAN
The First National Bank of Boston
100 Federal Street
Boston, MA 02110
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The 1784 Funds:
. are not insured by the FDIC or any other governmental agency;
. are not guaranteed by The First National Bank of Boston or any of its
affiliates;
. are not deposits or obligations of The First National Bank of Boston or any
of its affiliates;
. involve investment risks, including possible loss of the principal amount
invested.
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 Services Counselors are registered
representatives of 1784 Investor Services, Inc., a wholly owned subsidiary of
The First National Bank of Boston.
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[LOGO OF 1784 FUNDS APPEARS HERE]
SOUND CHOICES, STRAIGHT TALK,
INVESTMENT MANAGEMENT STRENGTH.
