As filed with the Securities and Exchange Commission on July 17, 1996.
File Nos. 33-58004
811-7474
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SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 10
and /X/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 12
/X/
1784 FUNDS(R)
(Exact Name of Registrant as Specified in Charter)
2 Oliver Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, Including Area Code: (800)342-5734
ROBERT A. NESHER
C/O SEI CORPORATION
680 E. SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
(Name and Address of Agent for Service)
Copies to:
JOHN M. BAKER, SENIOR COUNSEL ROGER P. JOSEPH, ESQ.
THE FIRST NATIONAL BANK OF BOSTON BINGHAM, DANA & GOULD LLP
100 FEDERAL STREET, 01-19-02 150 FEDERAL STREET
BOSTON, MA 02110 BOSTON, MA 02110
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It is proposed that this filing will become effective on October 1, 1996
pursuant to paragraph (a) of Rule 485.
Pursuant to Rule 24f-2, Registrant has registered an indefinite number of its
Shares of Beneficial Interest (without par value) under the Securities Act of
1933 and will file a Rule 24f-2 Notice for Registrant's fiscal year ended May
31, 1996 on or before July 30, 1996.
<PAGE>
Explanatory Note
This post-effective amendment does not affect the separate prospectuses for
Class C and Class D shares of 1784 U.S. Treasury Money Market Fund.
<PAGE>
1784 FUNDS(R)
CROSS REFERENCE SHEET
N-1A ITEM NO. LOCATION
________________________________________________________________________________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Not applicable
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Investment Information; General
Information; Appendix A
Item 5. Management of the Fund Management; General Information
Item 5A. Management's Discussion of Fund Management
Performance
Item 6. Capital Stock and Other Securities General Information; Shareholder
Services; Dividends and
Distributions; Taxes
Item 7. Purchases of Securities Being Shareholder Services
Offered
Item 8. Redemption or Repurchase Shareholder Services
Item 9. Pending Legal Proceedings Not applicable
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History The Trust
Item 13. Investment Objectives and Policies Investment Objectives and
Policies; Permitted Investments
and Investment Practices;
Investment Restrictions
Item 14. Management of the Fund Management (Prospectus);
Management
Item 15. Control Persons and Principal Management (Prospectus)
Holders of Securities
Item 16. Investment Advisory and Other Management; Management
Services (Prospectus); General
Information (Prospectus)
Item 17. Brokerage Allocation and Other Fund Transactions; Trading
Practices Practices and Brokerage
Item 18. Capital Stock and Other Securities Description of Shares; Trustee
and Shareholder Liability
Item 19. Purchase, Redemption, and Shareholder Services
Pricing of Securities Being (Prospectus); Purchase and
Offered Redemption of Shares
Item 20. Tax Status Taxes (Prospectus); Taxes
Item 21. Underwriters Management
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Information
<PAGE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration
Statement.
<PAGE>
Prospectus
1784 Funds registered trademark
[logo]
This Prospectus describes the following no-load mutual funds advised by
Bank of Boston:
Money Market Funds:
1784 Tax-Free Money Market Fund
1784 Prime Money Market Fund
1784 U.S. Treasury Money Market Fund
1784 Institutional U.S. Treasury Money Market Fund
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
1784 Florida Tax-Exempt Income Fund
Bond Funds:
1784 U.S. Government Medium-Term Income Fund
1784 Short-Term Income Fund
1784 Income Fund
Stock Funds:
1784 Asset Allocation Fund
1784 Growth and Income Fund
1784 Growth Fund
1784 International Equity Fund
REMEMBER THAT SHARES OF THE FUNDS
(Degree) ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, BANK OF BOSTON OR ANY OF
ITS AFFILIATES
(Degree) ARE NOT INSURED BY THE FDIC, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY
(Degree) INVOLVE INVESTMENT RISKS, INCLUDING RISK TO
PRINCIPAL
INVESTMENTS IN THE MONEY MARKET FUNDS ARE NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET FUNDS
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Please read this Prospectus before investing, and keep it on file for
future reference. It contains important information, including how the Funds
invest and services available to shareholders.
<PAGE>
To learn more about the Funds and their investments, you can obtain a copy
of the Funds' most recent financial report and portfolio listing or a copy of
the Statement of Additional Information dated ________, 1996. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference. For a free
copy of either document call 1-800-252-1784.
LIKE ALL MUTUAL FUNDS, 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.
___________, 1996
<PAGE>
CONTENTS
Fund Summary
Expenses
Financial Highlights
Investment Information
Investment objectives and principal investment policies
Additional investment policies
Risk considerations
Dividends and Distributions
Management
Shareholder Services
Types of accounts
How to open an account
How to purchase shares
How to sell shares
Shareholder services and policies
Taxes
General Information
Net asset value
Organization
Voting and other rights
Performance information
Expenses
Appendix A - Taxable Equivalent Yield Tables
Appendix B - Permitted Investments and Investment Practices
<PAGE>
FUND SUMMARY
This section summarizes the Funds' investment objectives and who may want
to invest. See the rest of this Prospectus for more information, including risk
considerations. As with any mutual fund, there can be no assurance that a Fund
will achieve its investment objective. No Fund, by itself, is intended to be a
complete investment program.
MONEY MARKET FUNDS
1784 TAX-FREE
MONEY MARKET FUND Objective: to preserve principal
value and maintain a high degree of
liquidity while providing current
income exempt from federal income
tax.
1784 PRIME
MONEY MARKET FUND,
1784 U.S. TREASURY
MONEY MARKET FUND
and
1784 INSTITUTIONAL U.S.
TREASURY MONEY MARKET
FUND Objective: to preserve principal
value and maintain a high degree of
liquidity while providing current
income.
WHO MAY WANT TO INVEST
These Money Market Funds are designed for conservative investors who want
liquidity, current income at money market rates and stability of principal.
Because they emphasize stability, these Funds may be an appropriate component
of a savings plan. The Treasury Funds offer an added measure of safety with
their focus on U.S. government securities.
TAX-EXEMPT FUNDS
1784 TAX-EXEMPT
MEDIUM-TERM
INCOME FUND Objective: current income, exempt
from federal income tax, consistent
with preservation of capital.
1784 MASSACHUSETTS
TAX-EXEMPT
INCOME FUND Objective: current income, exempt
from both federal and Massachusetts
personal income tax, consistent with
preservation of capital.
<PAGE>
1784 RHODE ISLAND
TAX-EXEMPT
INCOME FUND Objective: current income exempt
from federal income tax, Rhode
Island personal income tax and Rhode
Island business corporation tax.
Preservation of capital is a
secondary objective.
1784 CONNECTICUT
TAX-EXEMPT
INCOME FUND Objective: current income exempt
from both federal and Connecticut
personal income tax. Preservation
of capital is a secondary objective.
1784 FLORIDA
TAX-EXEMPT
INCOME FUND Objective: to provide current
income exempt from federal income
tax through Fund shares which are
exempt from Florida intangible
personal property tax. Preservation
of capital is a secondary objective.
WHO MAY WANT TO INVEST
These Tax-Exempt Funds are designed for investors seeking income that is
exempt from federal income tax and from certain state taxes in Massachusetts,
Rhode Island, Connecticut or Florida. These Funds emphasize investment grade
debt securities with intermediate maturities. They may be appropriate for
investors who can tolerate moderate risk and some fluctuation in share price.
BOND FUNDS
1784 U.S. GOVERNMENT
MEDIUM-TERM
INCOME FUND Objective: current income
consistent with preservation of
capital.
1784 SHORT-TERM
INCOME FUND
and
1784 INCOME FUND Objective: to maximize current
income. Preservation of capital is
a secondary objective.
WHO MAY WANT TO INVEST
These Bond Funds are designed for investors seeking current income. The
Short-Term Income Fund may be appropriate for investors seeking a higher yield
than a money market fund and more price stability than a longer-term bond fund.
The Income Fund may be appropriate for investors seeking a higher level of
current income than is generally available from shorter-term securities and who
are willing to accept the greater price fluctuations associated with higher
levels of income. The U.S. Government Fund offers an added measure of
protection against credit risk with its focus on U.S. government securities,
but investors should still be able to tolerate fluctuations in share price
consistent with a medium-term fund.
<PAGE>
STOCK FUNDS
1784 ASSET
ALLOCATION FUND Objective: 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.
1784 GROWTH AND
INCOME FUND Objective: long-term growth of
capital with a secondary objective
of income.
1784 GROWTH FUND Objective: capital appreciation.
Dividend income, if any, is
incidental to this objective.
1784 INTERNATIONAL
EQUITY FUND Objective: long-term growth of
capital. Dividend income, if any,
is incidental to this objective.
WHO MAY WANT TO INVEST
These Stock Funds are designed for long-term investors seeking high
long-term returns who can tolerate changes in the value of their investments.
The Asset Allocation Fund offers a balanced investment program through both
stocks and bonds. The Growth and Income Fund may be appropriate for those who
seek a combination of growth and income from equity and some bond investments.
The Growth Fund and the International Equity Fund may be appropriate for those
who seek growth from equity investments, who can tolerate substantial changes
in the value of an investment and who do not require current income from the
investment. Investments in non-U.S. securities may involve risks in addition to
those of U.S. investments.
EXPENSES
These tables show shareholder transaction expenses and estimated annual
operating expenses for the Funds, and are intended to assist investors in
understanding the various costs and expenses that shareholders in the Funds
will bear, either directly or indirectly. For more information, see
"Management" on page __ and "General Information - Expenses" on page __.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on None
purchases and reinvested
dividends
Deferred sales charges imposed on None
redemptions
Redemption fee* None
Exchange fee None
*There is a $12 service fee if the Funds wire redemption proceeds to your bank
account.
<PAGE>
ANNUAL OPERATING EXPENSES(1)
(expressed as a percentage of average net assets)
Total
Advisory 12b-1 Other Operating
Fee(2) Fee(2)(3) Expenses(2) Expenses(2)
Tax-Free Money Market Fund .36% N/A .20% .56%
Prime Money Market Fund(4) .40 N/A .25 .65
U.S. Treasury Money Market Fund .40 N/A .24 .64
Institutional U.S. Treasury Money
Market Fund .20 N/A .20 .40
Tax-Exempt Medium-Term Income Fund .60 None .20 .80
Massachusetts Tax-Exempt Income Fund .60 None .20 .80
Rhode Island Tax-Exempt Income Fund .60 None .17 .77
Connecticut Tax-Exempt Income Fund .60 None .15 .75
Florida Tax-Exempt Income Fund(4) .60 None .20 .80
U.S. Government Medium-TermIncome Fund .60 None .20 .80
Short-Term Income Fund .50 None .16 .66
Income Fund .60 None .20 .80
Asset Allocation Fund .74 None .51 1.25
Growth and Income Fund .74 None .20 .94
Growth Fund .74 None .20 .94
International Equity Fund 1.00 None .37 1.37
EXAMPLE(1)
A shareholder would pay the following expenses on a $1,000 investment,
assuming a 5% annual return, reinvestment of all dividends and redemption of
the shares after the number of years indicated:
1 3 5 10
Year Years Years Years
Tax-Free Money Market Fund $6 $18 $31 $70
Prime Money Market Fund(4) 7 21 36 81
U.S. Treasury Money Market Fund 7 21 36 81
Institutional U.S. Treasury Money Market Fund 4 13 22 51
Tax-Exempt Medium-Term Income Fund 8 26 44 99
Massachusetts Tax-Exempt Income Fund 8 26 44 99
Rhode Island Tax-Exempt Income Fund 8 25 43 95
Connecticut Tax-Exempt Income Fund 8 24 42 93
Florida Tax-Exempt Income Fund(4) 8 26 44 99
U.S. Government Medium-Term Income Fund 8 26 44 99
Short-Term Income Fund 7 21 37 82
Income Fund 8 26 44 99
Asset Allocation Fund 13 40 69 151
Growth and Income Fund 10 30 52 115
Growth Fund 10 30 52 115
International Equity Fund 14 43 75 165
(1)Unless otherwise noted, the information in the expense table and the
example is based on the fiscal year ended May 31, 1996 and reflects voluntary
fee waivers and/or reimbursements. The assumption in the example of a 5% annual
return is required by the Securities and Exchange Commission for all mutual
funds, and is not a prediction of any Fund's future performance. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF ANY
FUND. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
(2)Without fee waivers and reimbursements, advisory fees would be 0.40%
for each Money Market Fund (0.20% for the Institutional U.S. Treasury Money
Market Fund), 0.74% for each Tax-Exempt Fund, 0.74% for each Bond Fund (0.50%
for the Short-Term Income Fund) and 0.74% for each Stock Fund (1.00% for the
International Equity Fund); 12b-1 fees would be 0.25% for each Fund (other than
the Money Market Funds); and other expenses and total operating expenses would
be .20% and .60% for the Tax-Free Money Market Fund, .20% and .60% for the
Prime Money Market Fund, .35% and .75% for the U.S. Treasury Money Market Fund,
.20% and .40% for the Institutional U.S. Treasury Money Market Fund, .22% and
1.21% for the Tax-Exempt Medium-Term Income Fund, .29% and 1.28% for the
Massachusetts Tax-Exempt Income Fund, .28% and 1.27% for the Rhode Island
Tax-Exempt Income Fund, .26% and 1.25% for the Connecticut Tax-Exempt Income
Fund, .41% and 1.41% for the Florida Tax-Exempt Income Fund, .25% and 1.24% for
the U.S. Government Medium-Term Income Fund, .27% and 1.02% for the Short-Term
Income Fund, .21% and 1.20% for the Income Fund, .92% and 1.91% for the Asset
Allocation Fund, .25% and 1.24% for the Growth and Income Fund, .76% and 1.75%
for the Growth Fund and .37% and 1.62% for the International Equity Fund.
(3)12b-1 fees are asset-based sales charges. Without waiver of this fee,
after a substantial period of time annual payment of the fee may total more
than the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge.
(4)Because the Fund is newly organized, amounts are
estimated for the current fiscal year.
FINANCIAL HIGHLIGHTS
These tables contain financial information about the Funds and are
included in the Funds' Annual Report. The tables have been audited by Coopers &
Lybrand L.L.P., independent accountants. Their reports on the financial
statements and financial highlights are included in the Annual Report. The
financial statements and financial highlights are incorporated by reference
into the Statement of Additional Information. Copies of the Annual Report may
be obtained without charge by calling 1-800-252-1784. The Prime Money Market
Fund and the Florida Tax-Exempt Income Fund are newly organized and have not
issued financial statements.
MONEY MARKET FUNDS To be filed by amendment.
TAX-EXEMPT FUNDS To be filed by amendment.
BOND FUNDS
To be filed by amendment.
STOCK FUNDS To be filed by amendment.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT POLICIES
This section describes each Fund's investment objective and principal
investment policies. Additional investment policies and risk considerations are
described in the next sections. Each Fund's investment objective is
fundamental, meaning that it cannot be changed without the approval of
shareholders of that Fund. Of course, there can be no assurance that any Fund
will achieve its investment objective.
MONEY MARKET FUNDS
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 Prime Money Market Fund, 1784 U.S.
Treasury Money Market Fund and 1784 Institutional U.S. Treasury Money Market
Fund is to preserve principal value and maintain a high degree of liquidity
while providing current income.
<PAGE>
The Tax-Free Money Market Fund invests primarily in Municipal Securities.
Municipal Securities are debt securities issued by the states, territories and
possessions of the United States (including the District of Columbia) and their
political subdivisions, agencies and instrumentalities that pay interest that
is exempt from federal income tax, including the alternative minimum tax.
Municipal Securities also may be issued by other qualifying issuers and include
bonds, notes and commercial paper. Under normal circumstances at least 80% of
the Fund's net assets is invested in Municipal Securities. The Fund may also
invest in taxable money market instruments, such as short-term U.S. government
obligations, bank obligations (including certificates of deposit, bankers'
acceptances and fixed time obligations), commercial paper and other short-term
debt obligations and repurchase agreements. Under normal circumstances not more
than 20% of the Fund's assets is invested in taxable instruments.
The Prime Money Market Fund invests primarily in high quality money
market instruments. These instruments include short-term U.S. government
obligations, corporate bonds, bank obligations (including certificates of
deposit, bankers' acceptances and fixed time obligations), commercial paper and
other short-term debt obligations and repurchase agreements.
The U.S. Treasury Money Market Fund and Institutional U.S. Treasury Money
Market Fund invest primarily in U.S. Treasury obligations, including bills,
notes and bonds, and repurchase agreements secured by U.S. Treasury
obligations. Under normal circumstances at least 65% of these Funds' assets is
invested in these securities. U.S. Treasury obligations are supported by the
"full faith and credit" of the United States. Under normal circumstances these
Funds invest the rest of their assets in obligations of U.S. government
agencies or instrumentalities and repurchase agreements secured by these
obligations. Subject to applicable law, the Institutional Treasury Fund also
invests in other mutual funds that hold only U.S. government obligations and
repurchase agreements secured by these obligations. Some obligations of U.S.
government agencies and instrumentalities are supported by the "full faith and
credit" of the United States, others by the right of the issuer to borrow from
the U.S. Treasury and others only by the credit of the agency or
instrumentality. ALTHOUGH THE FUNDS INVEST IN U.S. GOVERNMENT OBLIGATIONS, AN
INVESTMENT IN THE FUNDS IS NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT.
Each Fund employs specific investment policies and procedures designed to
maintain a constant net asset value of $1.00 per share. There can be no
assurance, however, that a constant net asset value will be maintained on a
continuing basis.
The Funds comply with industry regulations applicable to money market
funds. These regulations require that each Fund's investments mature or be
deemed to mature within 397 days from the date of acquisition, that the average
maturity of each Fund's investments (on a dollar-weighted basis) be 90 days or
less, and that all of the Funds' investments be in U.S. dollar-denominated high
quality securities which have been determined by the Adviser to present minimal
credit risks. Investments in high quality, short-term instruments may, in many
circumstances, result in a lower yield than would be available from investments
in instruments with a lower quality or a longer term.
TAX-EXEMPT FUNDS
The investment objective of the 1784 Tax-Exempt Medium-Term Income Fund
is current income, exempt from federal income tax, consistent with preservation
of capital.
<PAGE>
The investment objective of the 1784 Massachusetts Tax-Exempt Income Fund
is current income, exempt from both federal and Massachusetts personal income
tax, consistent with 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 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.
The investment objective of the 1784 Florida Tax-Exempt Income Fund is
current income exempt from federal income tax through Fund shares which are
exempt from Florida intangible personal property tax. Preservation of capital
is a secondary objective.
The Tax-Exempt Medium-Term Income Fund invests primarily in Municipal
Securities. Municipal Securities are debt securities issued by the states,
territories and possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies and instrumentalities that
pay interest that is exempt from federal income tax, including the alternative
minimum tax. Municipal Securities also may be issued by other qualifying
issuers and include bonds, notes and commercial paper. The Fund may invest in
"general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer, and in "revenue" bonds, which are payable only from
the revenues generated by a specific project or from another specific revenue
source. Under normal circumstances at least 80% of the Fund's net assets is
invested in Municipal Securities.
The Fund also may invest in debt securities that pay interest that is not
exempt from federal income tax or is subject to the alternative minimum tax,
such as U.S. government obligations, corporate bonds, bank obligations,
commercial paper and repurchase agreements. Under normal circumstances not more
than 20% of the Fund's assets is invested in taxable instruments.
The Fund invests in investment grade securities. While investment grade
securities may be high quality, securities in the lowest categories of
investment grade and securities of comparable quality may have speculative
characteristics. In adverse economic or other circumstances, issuers of these
securities are more likely to have difficulty making principal and interest
payments than issuers of higher grade obligations.
The Fund's average weighted maturity is expected to be from three to ten
years under normal circumstances.
The Massachusetts Tax-Exempt Income Fund, Rhode Island Tax-Exempt Income
Fund, Connecticut Tax-Exempt Income Fund and Florida Tax-Exempt Income Fund
invest primarily in State Municipal Securities. State Municipal Securities are
Municipal Securities that pay interest that is exempt from that state's
personal income tax or, in Florida, Municipal Securities that are not subject
to Florida's intangible personal property tax. Each Fund also may invest in
Municipal Securities that pay interest that is not exempt from state income
tax. Under normal circumstances at least 80% of each Fund's net assets is
invested in Municipal Securities and at least 65% of each Fund's assets is
invested in State Municipal Securities. See Appendix A for information on
taxable equivalent yields.
<PAGE>
Each Fund also may invest in debt securities that pay interest that is
not exempt from federal or state income tax. Under normal circumstances not
more than 20% of each Fund's assets is invested in these securities.
Like the Tax-Exempt Medium-Term Income Fund, these Funds invest in
investment grade securities. Some of these securities may have speculative
characteristics, and in adverse economic or other circumstances, issuers of
these securities are more likely to have difficulty making principal and
interest payments than issuers of higher grade obligations.
Each Fund's average weighted maturity is expected to be from five to ten
years under normal circumstances.
These Funds are non-diversified, meaning that they may invest a
relatively high percentage of their assets in the obligations of a limited
number of issuers. As a result, each Fund may be more susceptible to any single
economic, political or regulatory occurrence. Each Fund is particularly
susceptible to events affecting issuers in its particular state. See "Risk
Considerations" for more information.
BOND FUNDS
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 and 1784
Income Fund is to maximize current income. Preservation of capital is a
secondary objective for both of these Funds.
The U.S. Government Medium-Term Income Fund invests primarily in U.S.
government obligations and repurchase agreements secured by U.S. government
obligations. U.S. government obligations are obligations issued or guaranteed
as to principal and interest by the U.S. government or one of its agencies or
instrumentalities. Some obligations of U.S. government agencies and
instrumentalities are supported by the "full faith and credit" of the United
States, others by the right of the issuer to borrow from the U.S. Treasury and
others only by the credit of the agency or instrumentality. Under normal
circumstances at least 65% of the Fund's assets is invested in U.S. government
obligations and repurchase agreements secured by U.S. government obligations.
The Fund invests in direct obligations of the U.S. government and in
obligations, such as mortgage-backed securities, backed by mortgage
pass-through certificates issued or guaranteed by the U.S. government or its
agencies. ALTHOUGH THE FUND INVESTS IN U.S. GOVERNMENT OBLIGATIONS, AN
INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
The Fund's average weighted maturity is expected to be from three to ten
years under normal circumstances.
<PAGE>
The 1784 Short-Term Income Fund and 1784 Income Fund invest primarily in
debt securities, such as bonds, debentures, notes, mortgage- and asset-backed
securities and municipal securities. Under normal circumstances at least 80% of
each Fund's assets is invested in these securities. Each Fund may invest up to
30% of its assets in securities of non-U.S. issuers, including issuers in
developing countries.
The Funds generally invest in securities of medium to high credit
quality. Under normal circumstances the Funds expect to invest at least 65% of
their assets in securities rated A or better by Standard & Poor's or Moody's or
of comparable quality as determined by the Adviser. These ratings are described
in the Statement of Additional Information. Investments in higher quality
instruments may result in a lower yield than would be available from
investments in lower quality instruments.
The Short-Term Income Fund's average weighted maturity is expected to be
not more than three years under normal circumstances. Short-term debt
securities generally fluctuate less in price, and have lower yields, than
longer-term securities of comparable quality.
The Income Fund's average weighted maturity is expected to be from seven
to thirty years under normal circumstances. While longer-term securities tend
to have higher yields than short-term securities, they are subject to greater
price fluctuations as a result of interest rate changes and other factors.
STOCK FUNDS
The investment objective of the 1784 Asset Allocation Fund is to achieve
a favorable total rate of return through current income and capital
appreciation consistent with preservation of capital, derived from investing in
fixed income and equity securities.
The investment objective of the 1784 Growth and Income Fund is long-term
growth of capital with a secondary objective of income.
The investment objective of the 1784 Growth Fund is capital appreciation.
Dividend income, if any, is incidental to this objective.
The investment objective of the 1784 International Equity Fund is
long-term growth of capital. Dividend income, if any, is incidental to this
objective.
The Asset Allocation Fund allocates its assets between equity securities
and debt securities. Under normal circumstances 30% to 70% of the Fund's assets
are invested in equity securities, 30% to 60% are invested in intermediate and
long-term debt securities and 0% to 40% are invested in short-term debt
securities or money market instruments. Equity securities include common stock,
warrants to purchase common stock, debt securities convertible into common
stock, convertible and non-convertible preferred stock and depositary receipts.
The Adviser determines the mix of investments between equity and debt
securities based on current economic and market conditions and underlying
securities values.
The Fund's equity securities generally are securities of issuers with
market capitalizations of at least $250 million that the Adviser believes are
financially sound, have a track record of growth in earnings and dividends and
offer the prospect for above-average growth, including growth in dividends
(referred to as Established Companies). The Fund's debt securities include
investment grade corporate debt securities, debt obligations issued or
guaranteed as to the payment of principal and interest by the U.S. government
or by non-U.S. governments and mortgage-backed and asset-backed securities
rated A or better by Standard & Poor's or Moody's or of comparable quality as
determined by the Adviser. These ratings are described in the Statement of
Additional Information. The Fund's money market investments include short-term
U.S. government and corporate obligations, commercial paper, bank obligations
and repurchase agreements.
<PAGE>
The Growth and Income Fund invests primarily in common stock (including
depositary receipts) of U.S. and non-U.S. issuers. Under normal circumstances
at least 65% of the Fund's assets is invested in these securities.
The Fund emphasizes equity securities of Established Companies. The Fund
also may invest in other securities that provide an opportunity for
appreciation or income, such as convertible and non-convertible debt
securities, preferred stock, warrants and money market instruments.
The Growth Fund invests primarily in common stock (including depositary
receipts) and securities convertible into common stock of U.S. and non-U.S.
issuers. Under normal circumstances at lest 65% of the Fund's assets is
invested in these securities. The Fund emphasizes securities of issuers that
the Adviser believes have above-average growth potential, including securities
of smaller, lesser-known companies. The Fund may also pursue growth by
investing in companies with established products that are developing new
product lines, new management methods or new distribution channels, 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 earnings,
cash flow or gross sales. While some of the Fund's investments may pay
dividends, receipt of current income is not a consideration in selecting
investments.
The Fund may also invest in non-convertible debt securities, preferred
stocks and money market instruments. Under normal circumstances not more than
35% of the Fund's assets is invested in these securities.
The International Equity Fund invests primarily in equity securities of
non-U.S. issuers. Under normal circumstances at least 65% of the Fund's assets
is invested in securities of issuers organized in at least three countries
other than the United States. Equity securities include common stock, preferred
stock, securities convertible into common stock, trust or limited partnership
interests, rights and warrants to acquire equity securities and depositary
receipts or other similar securities representing common stock of foreign
issuers. The Fund may invest in securities of issuers in developing countries.
The Fund emphasizes equity securities of issuers with market
capitalizations of at least $100 million that the Fund's Advisers believe are
financially sound, have a track record of growth in earnings and dividends and
have above-average growth potential. While some of the Fund's investments may
pay dividends, receipt of current income is not a consideration in selecting
investments.
ADDITIONAL INVESTMENT POLICIES
This section describes additional investment policies of the Funds. See
"Risk Considerations" for more information.
<PAGE>
NON-U.S. SECURITIES. Each Fund may invest a portion of its assets in
non-U.S. securities. The International Equity Fund will invest most of its
assets in non-U.S. securities. Investing in non-U.S. securities involves risks
in addition to those of investing in U.S. securities. These risks are
heightened for investments in securities of issuers in developing countries.
See "Risk Considerations."
TEMPORARY INVESTMENTS. During periods of unusual economic or market
conditions or for temporary defensive purposes or liquidity, each Fund may
invest without limit in cash and in U.S. dollar-denominated high quality money
market and short-term instruments. These investments may result in a lower
yield than would be available from investments with a lower quality or longer
term.
OTHER PERMITTED INVESTMENTS. For more information regarding the Funds'
permitted investments and investment practices, see Appendix B. The Funds will
not necessarily invest or engage in each of the investments and investment
practices in Appendix B but reserve the right to do so.
OTHER INVESTMENT COMPANIES. Each of the 1784 Prime Money Market Fund, the
Florida Tax-Exempt Income Fund, the Growth Fund and the International Equity
Fund may invest substantially all of its assets in a mutual fund having the
same investment objective and policies as that particular Fund.
INVESTMENT RESTRICTIONS. The Statement of Additional Information contains
a list of specific investment restrictions which govern the investment policies
of the Funds, including a limitation that each Fund may borrow money from banks
in an amount not to exceed 331/3% of the Fund's total assets for extraordinary
or emergency purposes (e.g., to meet redemption requests). Shareholder approval
is required to change each Fund's investment objective. Generally, the Funds'
investment policies may be changed without shareholder approval. If a
percentage or rating restriction (other than a restriction as to borrowing) is
adhered to at the time an investment is made, a later change in percentage or
rating resulting from changes in a Fund's securities will not be a violation of
policy.
PORTFOLIO TURNOVER. Securities of a Fund will be sold whenever the
Adviser or Advisers believe it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular
security may have been held. The turnover rates for each Fund are included in
the Financial Highlights for that Fund. The amount of brokerage commissions and
realization of taxable capital gains will tend to increase as the level of
portfolio activity increases. The annual turnover rate for the Florida
Tax-Exempt Income Fund is not expected to exceed 100%.
BROKERAGE TRANSACTIONS. The primary consideration in placing each Fund's
securities transactions with broker-dealers for execution is to obtain and
maintain the availability of execution at the most favorable prices and in the
most effective manner possible. The Funds may execute brokerage or other agency
transactions through an investment adviser or distributor of the Funds. The
distributor will be paid for these transactions.
RISK CONSIDERATIONS
The risks of investing in each Fund vary depending upon the nature of the
securities held, and the investment practices employed, on its behalf. Certain
of these risks are described in this section.
<PAGE>
CHANGES IN NET ASSET VALUE. Each Tax-Exempt, Bond and Stock Fund's net
asset value will fluctuate based on changes in the values of its underlying
portfolio securities. This means that an investor's shares may be worth more or
less at redemption than at the time of purchase. (The Money Market Funds employ
procedures to maintain a stable net asset value of $1.00 per share; however,
there can be no assurance that a stable net asset value will be maintained.)
Equity securities fluctuate in response to general market and economic
conditions and other factors, including actual and anticipated earnings,
changes in management, political developments and the potential for takeovers
and acquisitions. The value of debt securities, including Municipal Securities,
generally goes down when interest rates go up, and up when interest rates go
down. Changes in interest rates will generally cause larger changes in the
prices of longer-term securities than in the prices of shorter-term securities.
Prices of debt securities also fluctuate based on changes in the actual and
perceived creditworthiness of issuers. The prices of lower rated securities
often fluctuate more than those of higher rated securities.
CREDIT RISK OF DEBT SECURITIES. It is possible that some issuers will not
make payments on debt securities held by a Fund. Investors should be aware that
securities offering above-average yields may involve above-average risks.
Securities rated in the lowest categories of investment grade (that is, BBB or
Baa by Standard & Poor's or Moody's) and equivalent securities may have
speculative characteristics. In adverse economic or other circumstances,
issuers of these securities are more likely to have difficulty making principal
and interest payments than issuers of higher grade obligations.
NON-U.S. SECURITIES. Investments in non-U.S. securities involve risks
relating to political, social and economic developments abroad, as well as
risks resulting from the differences between the regulations to which U.S. and
non-U.S. issuers and markets are subject. These risks may include
expropriation, confiscatory taxation, withholding taxes on dividends and
interest, limitations on the use or transfer of portfolio assets and political
or social instability. Enforcing legal rights may be difficult, costly and slow
in non-U.S. countries, and there may be special problems enforcing claims
against non-U.S. governments. In addition, non-U.S. companies may not be
subject to accounting standards or governmental supervision comparable to U.S.
companies, and there may be less public information about their operations.
Non-U.S. markets may be less liquid and more volatile than U.S. markets, and
may offer less protection to investors such as the Funds. Prices at which a
Fund may acquire securities may be affected by trading by persons with material
non-public information and by securities transactions by brokers in
anticipation of transactions by the Fund.
Because non-U.S. securities often trade in currencies other than the U.S.
dollar, changes in currency exchange rates will affect a Fund's net asset
value, the value of dividends and interest earned and gains and losses realized
on the sale of securities. In addition, some non-U.S. currency values may be
volatile and there is the possibility of governmental controls on currency
exchanges or governmental intervention in currency markets.
Equity securities traded in certain foreign countries may trade at
price-earnings multiples higher than those of comparable companies trading on
securities markets in the United States. These multiples may not be
sustainable. Rapid increases in money supply in certain countries may result in
speculative investment in equity securities which may contribute to volatility
of trading markets.
<PAGE>
The costs attributable to non-U.S. investing, such as the costs of
maintaining custody of securities in non-U.S. countries, frequently are higher
than those involved in U.S. investing. As a result, the operating expense
ratios of the Funds may be higher than those of investment companies investing
exclusively in U.S. securities.
The International Equity Fund, the Short-Term Income Fund and the Income
Fund may invest in issuers located in developing countries, which are generally
defined as countries in the initial stages of their industrialization cycles
with low per capita income. All of the risks of investing in non-U.S.
securities are heightened by investing in developing countries. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of developed countries with more mature economies;
these markets often have provided higher rates of return, and greater risks, to
investors.
SMALLER COMPANIES. Investors in the Stock Funds, particularly the Growth
Fund, should be aware that the securities of companies with small market
capitalizations may have more risks than the securities of other companies.
Smaller companies may be more susceptible to market downturns or setbacks
because they may have limited product lines, markets, distribution channels,
and financial and management resources. There is often less publicly available
information about smaller companies than about more established companies. As a
result, the prices of securities issued by smaller companies may be volatile.
Shares of the Stock Funds, particularly the Growth Fund, may fluctuate in value
more than shares of an equity fund with more investments in larger, more
established companies.
"REVENUE" OBLIGATIONS. Each Tax-Exempt and Bond Fund may invest in
Municipal Obligations that are payable only from the revenues generated from a
specific project or from another specific revenue source. Projects may suffer
construction delays, increased costs or reduced revenues as a result of
political, regulatory, economic and other factors. As a result projects may not
generate sufficient revenues to pay principal and interest on Municipal
Securities held by a Fund.
NON-DIVERSIFIED FUNDS. Each state Tax-Exempt Fund is a non-diversified
mutual fund. This means that it is not subject to any statutory restrictions
under the Investment Company Act of 1940 limiting the investment of its assets
in one or relatively few issuers (although certain diversification requirements
are imposed by the Internal Revenue Code). Since each of these Funds may invest
a relatively high percentage of its assets in the obligations of a limited
number of issuers, the value of shares of these Funds may be more susceptible
to any single economic, political or regulatory occurrence. Each of these Funds
also may invest 25% or more of its assets in securities the issuers of which
are located in the same state or the interest on which is paid from revenues of
similar type projects or that are otherwise related in such a way that a single
economic, business or political development or change affecting one of the
securities would also affect other securities. Investors should consider the
greater risk inherent in these policies when compared with more diversified
mutual funds.
The Statement of Additional Information describes recent economic events
in Massachusetts, Rhode Island, Connecticut and Florida. Each state Fund is
particularly susceptible to events affecting issuers in its state.
<PAGE>
INVESTMENT PRACTICES. Certain of the investment practices employed for the
Funds may entail certain risks. These risks are in addition to the risks
described above and are described in Appendix B.
DIVIDENDS AND DISTRIBUTIONS
MONEY MARKET FUNDS
Substantially all of each Money Market Fund's net income from dividends
and interest is declared as a dividend daily to shareholders of record. Shares
begin accruing dividends on the date of purchase, and accrue dividends up to
and including the day prior to redemption. Dividends are paid MONTHLY on the
first business day of each month.
TAX-EXEMPT FUNDS AND BOND FUNDS
Substantially all of each Tax-Exempt Fund's and each Bond Fund's net
income from dividends and interest is declared as a dividend daily to
shareholders of record. Shares begin accruing dividends on the day following
the date of purchase, and accrue dividends through and including the day of
redemption. Dividends are paid MONTHLY on or about the last business day of
each month.
STOCK FUNDS
Substantially all of each Stock Fund's net income from dividends and
interest is paid to its shareholders of record as follows:
For the Asset Allocation Fund and the Growth and Income Fund,
quarterly on or about the last day of MARCH, JUNE, SEPTEMBER and DECEMBER.
For the Growth Fund, semi-annually on or about the last day of JUNE
and DECEMBER.
For the International Equity Fund, annually on or about the last day
of DECEMBER.
ALL FUNDS
Each Fund's net realized short-term and long-term capital gains, if any,
will be distributed to the Fund's shareholders at least annually, in December.
Each Fund may also make additional distributions to its shareholders to the
extent necessary to avoid the application of the 4% non-deductible excise tax
on certain undistributed income and net capital gains of mutual funds.
Distributions are paid in additional shares issued at net asset value
unless the shareholder elects to receive payment in cash.
MANAGEMENT
TRUSTEES AND OFFICERS. Each Fund is supervised by the Board of Trustees
of 1784 Funds. More information on the Trustees and Fund officers may be found
under "Management" in the Statement of Additional Information.
<PAGE>
INVESTMENT ADVISER. Bank of Boston is the investment adviser of each
Fund, and subject to policies set by the Trustees, makes investment decisions.
Bank of Boston is the successor to a bank chartered in 1784 and offers a wide
range of banking and investment services to customers throughout the world.
Bank of Boston has been providing asset management services since 1890. The
Private Bank Division of Bank of Boston is the investment management group
within Bank of Boston that advises the Funds. As of December 31, 1995, The
Private Bank was responsible for the investment management of approximately $16
billion of individual, institutional, endowment and corporate assets, including
$2.5 billion in assets of the Funds, in money market, equity, and fixed income
securities. The Private Bank has earned national recognition and respect as
investment managers. Bank of Boston is a wholly-owned subsidiary of Bank of
Boston Corporation; its legal name is The First National Bank of Boston and its
address is 100 Federal Street, Boston, Massachusetts 02110.
Kleinwort Benson Investment Management Americas Inc. serves as investment
adviser to the International Equity Fund with Bank of Boston. Kleinwort
furnishes an investment program in conjunction with Bank of Boston's analysis
of market developments in South America. Investment decisions are joint.
Kleinwort, 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. Since it commenced operations in 1980, Kleinwort
has managed investment accounts, primarily for institutions in North America,
comprised of equity, fixed income and balanced portfolios. Kleinwort and its
affiliates manage approximately $22.3 billion of assets.
The following individuals at Bank of Boston (and for the International
Equity Fund, Kleinwort) are responsible for the daily management of the
Tax-Exempt, Bond and Stock Funds:
TAX-EXEMPT FUNDS
1784 TAX-EXEMPT
MEDIUM-TERM
INCOME FUND David H. Thompson, Director of Fund Management, has
been the manager of the Fund since June 1993
(commencement of its operations) and a co-manager of
the 1784 Rhode Island Tax-Exempt Income Fund and
the 1784 Connecticut Tax-Exempt Income Fund since
September 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.
<PAGE>
1784 MASSACHUSETTS
TAX-EXEMPT
INCOME FUND Susan A. Sanderson, Senior Fund Manager, has been the
manager of the Fund since June 1993 (commencement of
its operations). Ms. Sanderson, who has more than
15 years of experience in investment management and
securities trading, has been a Fund Manager at Bank
of Boston since 1991.
1784 RHODE ISLAND
TAX-EXEMPT
INCOME FUND and
1784 CONNECTICUT
TAX-EXEMPT
INCOME FUND David H. Thompson, Director of Fund Management, and
James L. Bosland, Senior Fund Manager, have been
co-managers of the 1784 Rhode Island Tax-Exempt Income
Fund and the Connecticut Tax-Exempt Income Fund
since July 1994 (commencement of these Funds'
operations). Mr. Thompson's investment experience is
described above. Mr. Bosland, who has more that seven
years of experience in investment management and
research analysis, has been a Fund Manager and Senior
Fund Manager at Bank of Boston since 1989.
1784 FLORIDA
TAX-EXEMPT
INCOME FUND David H. Thompson, Director of Fund Management, and
Susan A. Sanderson, Senior Fund Manager, have been
co-managers of the Fund since commencement of its
operations. Their investment experience is described
above.
BOND FUNDS
1784 U.S. GOVERNMENT
MEDIUM-TERM
INCOME FUND and
1784 INCOME 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 1994 (commencement
of its operations). Mr. Ablin, who has more than nine
years of investment experience, has been a Senior
Fund Manager at Bank of Boston since 1990. 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 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.
<PAGE>
1784 SHORT-TERM
INCOME FUND Mary K. Werler has been the manager of the Fund since
July 1994 (commencement of its operations).
Ms. Werler, who has more than nine 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.
STOCK FUNDS
1784 ASSET ALLOCATION
FUND Ronald J. Clausen, Senior Fund Manager, and Jack A.
Ablin, Senior Fund Manager, have been the co-managers
of the Fund since June 1993 (commencement of its
operations). 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's investment
experience is described above.
1784 GROWTH AND
INCOME FUND Eugene D. Takach, Fund Manager, and Theodore E. Ober,
Fund Manager, have been the co-managers of the Fund
since June 1993 (commencement of its operations).
Mr. Takach, who has more than 30 years of experience
in nvestment 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 an Assistant Fund Manager at Bank of Boston
from 1989 to 1992, and has been a Fund Manager since
1992.
1784 GROWTH FUND Eugene D. Takach, Fund Manager, and Theodore E. Ober,
Fund Manager, have been the co-managers of the Fund
since March 1996 (commencement of its operations).
Their investment experience is described above.
1784 INTERNATIONAL
EQUITY FUND Kenton J. Ide, Director of Investments for The
Private Bank at Bank of Boston, and Juliet Cohn,
senior portfolio manager at Kleinwort, have been
managers of the Fund since January 1995(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. Ms. Cohn,
who has more than twelve years experience in
investment management, has been with Kleinwort
since 1987.
<PAGE>
Management's discussion of Fund performance is included in the Annual
Report, which may be obtained without charge by calling 1-800-252-1784.
Advisory Fees. Bank of Boston is entitled to receive investment advisory
fees, which are accrued daily and payable monthly, of 0.40% of each Money
Market Fund's average daily net assets (0.20% for the Institutional U.S.
Treasury Money Market Fund), 0.74% of each Tax-Exempt and each Bond Fund's
average daily net assets (0.50% for the Short-Term Income Fund) and 0.74% of
each Stock Fund's average daily net assets (other than the International Equity
Fund).
For the International Equity Fund, Bank of Boston and Kleinwort each are
entitled to receive an investment advisory fee of 0.50% of the Fund's average
net assets, for a total of 1.00% of the Fund's average daily net assets. This
fee is higher than the fee paid by most investment companies in general.
Bank of Boston has agreed to waive its investment advisory fees to the
extent necessary to limit the total operating expenses of each Fund to a
specified level. Bank of Boston also may contribute to the Funds from time to
time to help them maintain competitive expense ratios. These arrangements are
voluntary and may be terminated at any time.
The following chart shows the investment advisory fees paid by each Fund
for the fiscal year ended May 31, 1996. The Prime Money Market Fund and the
Florida Tax-Exempt Income Fund are newly organized and had no operations during
that fiscal year.
Advisory fees paid
(expressed as a
percentage of
average net assets)
Tax-Free Money Market Fund .34%
U.S. Treasury Money Market Fund .40
Institutional U.S. Treasury Money Market Fund .13
Tax-Exempt Medium-Term Income Fund .60
Massachusetts Tax-Exempt Income Fund .60
Rhode Island Tax-Exempt Income Fund .60
Connecticut Tax-Exempt Income Fund .60
U.S. Government Medium-Term Income Fund .60
Short-Term Income Fund .47
Income Fund .60
Asset Allocation Fund .74
Growth and Income Fund .74
Growth Fund .00
International Equity Fund .76
Banking Relationships. Bank of Boston and its affiliates may have banking
relationships with the issuers of securities purchased for the Funds. These
relationships may include outstanding loans to issuers which may be repaid in
whole or in part with the proceeds of securities purchased for the Funds. Bank
of Boston has informed the Funds 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 any of its affiliates.
<PAGE>
Bank Regulatory Matters. The Glass-Steagall Act prohibits certain
financial institutions, such as Bank of Boston, from underwriting securities of
open-end investment companies, such as the Funds. Bank of Boston believes that
its investment advisory services are not underwriting and are consistent with
the Glass-Steagall Act and other relevant federal and state laws. 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. Changes in either federal or state statutes or regulations, or
in their interpretations, could prevent Bank of Boston from continuing to
perform these services. If that were to happen, the Funds would seek
alternative means for obtaining these services.
ADMINISTRATOR. SEI Fund Resources provides administrative services to the
Funds, including regulatory reporting, office facilities and equipment and
personnel. For these services SEI receives a fee, which is calculated daily and
paid monthly, at an annual rate of 0.15% of the first $300 million of the
Funds' combined average daily net assets, 0.12% of the second $300 million and
0.10% of combined average daily net assets in excess of $600 million. SEI has
agreed to waive portions of its fee from time to time.
SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT. Boston Financial Data
Services, 2 Heritage Drive, North Quincy, Massachusetts 02171, is the Funds'
dividend disbursing agent and shareholder servicing agent. State Street Bank
and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, is the
transfer agent.
DISTRIBUTION ARRANGEMENTS. SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087, is the distributor of shares of
each Fund. Under a Distribution Plan which has been adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940, each Fund (other than the Money
Market Funds) may pay monthly fees at an annual rate of up to 0.25% of the
Fund's average daily net assets. These fees may be used by the Distributor to
compensate itself for its services or for advertising, marketing or other
promotional activities. The Distribution Plan and related Distribution
Agreement obligate the Funds to pay fees to the Distributor as compensation for
its services, not as reimbursement for specific expenses incurred. The
Distributor has agreed to waive its fee. This waiver is voluntary and may be
terminated at any time.
From time to time the Distributor may provide incentive compensation to
its own employees and employees of banks (including Bank of Boston),
broker-dealers and investment counselors in connection with the sale of shares
of the Funds. Promotional incentives may be cash or other compensation,
including merchandise, airline vouchers, trips and vacation packages, will be
offered uniformly to all program participants and will be predicated upon the
amount of shares of the Funds sold by the participant.
CUSTODIAN. Bank of Boston is the Funds' custodian. Fund securities may be
held by a sub-custodian bank approved by the Trustees. Bank of Boston also
provides fund accounting services and calculates the Funds' net asset value.
SHAREHOLDER SERVICES
This section describes how to do business with the Funds and shareholder
services that are available.
<PAGE>
HOW TO REACH THE FUNDS
By telephone 1-800-252-1784
Call for account or Fund information
Monday through Friday 8 a.m. to 5
p.m. (Eastern time).
By regular mail 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
By overnight courier 1784 Funds
c/o Boston Financial Data Systems
2 Heritage Drive
North Quincy, MA 02171
TYPES OF ACCOUNTS
If you are investing in the Funds for the first time, you will need to
establish an account. You may establish the following types of accounts by
completing the account application included with this Prospectus. If there is
no application accompanying this Prospectus, call 1-800-252-1784.
o INDIVIDUAL OR JOINT OWNERSHIP. Individual accounts are
owned by one person. Joint accounts have two or more
owners.
o GIFT OR TRANSFER TO MINOR (UGMA OR UTMA). A UGMA/UTMA account is a custodial
account managed for the benefit of a minor. To open a UGMA or UTMA account,
you must include the minor's social security number on the application.
o TRUST. A trust can open an account. The name of each trustee, the name
of the trust and the date of the trust agreement must be included on the
application.
o BUSINESS ACCOUNTS. Corporations and partnerships may also open an
account. The application must be signed by an authorized officer of the
corporation or a general partner of the partnership.
o RETIREMENT. If you are eligible, you may set up your account under a
tax-sheltered retirement plan, such as an Individual Retirement Account or
401(k) plan. Bank of Boston offers a number of retirement plans through
which Fund shares may be purchased. Call 1-800-252-1784 for more
information.
HOW TO OPEN AN ACCOUNT
Complete and sign the appropriate account application. Please be sure to
provide your social security or taxpayer identification number on the
application. Make your check payable to the Fund in which you are investing.
Send all items to one of the following addresses:
By regular mail 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
<PAGE>
By overnight courier 1784 Funds
c/o Boston Financial Data Services
2 Heritage Drive
North Quincy, MA 02171
You may also purchase shares through certain financial institutions,
including Bank of Boston. These institutions may have their own procedures for
purchases and redemptions, and may charge fees. Contact your financial
institution for more information.
HOW TO PURCHASE SHARES
Shares of the Funds are sold on a continuous basis and may be purchased
from the Distributor or a broker-dealer or financial institution that has an
agreement with the Distributor. Purchases may be made Monday through Friday,
except on certain holidays.
Each Fund's share price, called net asset value, is calculated every
business day. Each Fund's shares are sold without a sales charge. Shares are
purchased at net asset value the next time it is calculated after your
investment is received and accepted by the Distributor. Net asset value is
normally calculated at 4 p.m. Eastern time (3 p.m. for the Institutional U.S.
Treasury Money Market Fund and 12 noon for the other Money Market Funds). For
the Institutional U.S. Treasury Money Market Fund, the Distributor must receive
federal funds by the close of business on the day your order is received and
accepted. For the other Money Market Funds your investment is considered
received when your check is converted into federal funds. This normally happens
within two business days.
On days when the financial markets close early, such as the day after
Thanksgiving and Christmas Eve, purchase orders for the Institutional U.S.
Treasury Money Market Fund must be received by 12 noon.
New Purchases. If you are new to the Funds, complete and sign an account
application and mail it along with your check. To establish the telephone
purchase option on your new account, complete the "Telephone Purchase of
Shares" section on the application and attach a "voided" check or deposit slip
from your bank account.
If you are investing through a tax-sheltered retirement plan for the first
time, you will need a special application. Retirement investing also involves
its own investment procedures. Call 1-800-252-1784 for more information.
Additional Purchases. If you already have money invested in a Fund, you
can invest additional money in that Fund in the following ways:
By mail. Complete the remittance slip attached at the bottom of your
confirmation statement. If you are making a purchase into a retirement
account, please indicate whether the purchase is a rollover or a current
or prior year contribution. Send your check and remittance slip or
written instructions to one of the addresses listed previously.
By telephone. This service allows you to purchase additional shares
quickly and conveniently through an electronic transfer of money. When
you make an additional purchase by telephone, the Funds will
automatically debit your predesignated bank account for the desired
amount. If you have not established the telephone purchase option, call
1-800-252-1784 to request the appropriate form.
<PAGE>
By wire. Purchases may also be made by wiring money from your bank
account to your Fund account. Call 1-800-252-1784 to receive wiring
instructions.
Automatic investment programs. Automatic investing is an easy way to
add to your account systematically. The Funds offer automatic investment
plans to help you achieve your financial goals as simply and conveniently
as possible. Minimum purchase amounts apply. Call 1-800-252-1784 for
information.
Paying for shares. Please note the following:
o Purchases may be made by check, wire transfer and
automated clearing house transactions.
o All purchases must be made in U.S. dollars.
o Checks must be drawn on U.S. banks.
o If a check does not clear your bank, the Funds reserve the right to
cancel the purchase.
o If the Funds are unable to debit your predesignated bank account on the
day of purchase, they may make additional attempts or cancel the
purchase.
If your purchase is canceled, you will be responsible for any losses or
fees imposed by your bank and losses that may be incurred as a result of any
decline in the value of the canceled purchase. The Funds have the authority to
redeem shares in your account(s) to cover any losses due to fluctuations in
share price. The Funds reserve the right to reject any specific purchase
request.
Minimum investments. The following minimums apply, unless they are waived
by the Distributor.
To open an account $1,000.00*
For tax-sheltered
retirement plans 250.00
To add to an account 250.00**
Through automatic
investment plans 50.00
Minimum account balance 1,000.00
For tax-sheltered
retirement plans 250.00
<PAGE>
* $100,000 for the Institutional U.S. Treasury Money Market
Fund
** $5,000 for the Institutional U.S. Treasury Money Market
Fund
HOW TO SELL SHARES
On any business day, you may redeem all or a portion of your shares. If
the shares being redeemed were purchased by check, telephone or through an
automatic investment program, the Funds may delay the mailing of your
redemption check for up to 15 days after purchase to allow the purchase to
clear.
Your transaction will be processed at net asset value the next time it is
calculated after your redemption request in good order is received. A
redemption is treated as a sale for tax purposes, and could result in taxable
gain or loss in a non-tax-sheltered account.
By mail. To redeem all or part of your shares by mail, your request should
be sent in writing to one of the addresses listed on page __ and must include
the following information:
o the name of the Fund(s),
o the account number(s),
o the amount of money or number of shares being redeemed,
o the name(s) on the account,
o the signature(s) of all registered account owners,
and
o your daytime telephone number.
Signature requirements vary based on the type of account you have:
o Individual, Joint Tenants, Tenants in Common: Written instructions
must be signed by each shareholder, exactly as the names appear in the
account registration.
o UGMA or UTMA: Written instructions must be signed by the custodian in
his/her capacity as it appears in the account registration.
o Sole Proprietor, General Partner: Written instructions must be signed
by an authorized individual in his/her capacity as it appears in the
account registration.
o Corporation, Association: Written instructions must be signed by the
person(s) authorized to act on the account. In addition, a certified
copy of the corporate resolution, authorizing the signer to act, must
accompany the request.
o Trust: Written instructions must be signed by the trustee(s). If the
name of the current trustee(s) does not appear in the account
registration, a certificate of incumbency dated within 60 days must
also be submitted.
o Retirement: Written instructions must be signed by the account owner.
Call 1-800-252-1784 for more information.
By telephone. If you selected this option on your account application, you
may redeem up to $25,000 daily from your account by calling 1-800-252-1784 by
4:00 p.m. Eastern Time. You may not close your account by telephone.
Systematic Withdrawal Plan. Under this plan you may redeem a specific
dollar amount from your account on a regular basis. For more information or to
sign up for this service, please call 1-800-252-1784.
<PAGE>
Payment of redemption proceeds. Payments may be made by check or wire
transfer.
By Check Redemption proceeds will be sent to the shareholder(s) of
record at the address of record within seven days after receipt of a
valid redemption request.
By Wire If you are authorized for the wire redemption service, your
redemption proceeds will be wired directly into your designated bank
account normally on the next business day after receipt of your
redemption request. There is no limitation on redemptions by wire;
however, there is a $12 fee for each wire and your bank may charge
an additional fee to receive the wire. If you would like to
establish this option on an existing account, please call
1-800-252-1784 to sign up for this service. Wire redemptions are
not available for retirement accounts.
Signature guarantees. In addition to the signature requirements, a
signature guarantee is required in any of the following circumstances:
o The redemption exceeds $25,000.
o You would like the check made payable to anyone other than the
shareholder(s) of record.
o You would like the check mailed to an address other than the address of
record.
There may be other circumstances when you are asked to provide a signature
guarantee. A signature guarantee assures that a signature is genuine and
protects shareholders from unauthorized account transfers. Banks, savings and
loan associations, trust companies, credit unions, broker-dealers and member
firms of a national securities exchange may guarantee signatures. Call your
financial institution to see if it has this capability.
SHAREHOLDER SERVICES AND POLICIES
Exchanges. On any business day you may exchange all or a portion of your
shares into any other available Fund. To make exchanges, please follow the
procedures for redemptions. Exchanges are processed at the net asset value next
calculated after an exchange request in good order is received and approved.
Please read the prospectus for the Fund into which you are exchanging. The
Funds reserve the right to reject any exchange request or to modify or
terminate the exchange privilege at any time. An exchange is the sale of shares
of one Fund and purchase of shares of another, and could result in taxable gain
or loss in a non-tax-sheltered account.
Redemption proceeds. The Funds intend to pay redemption proceeds in cash,
but reserve the right to pay in kind by delivery of investment securities equal
to the redemption price. In these cases, you might incur brokerage costs in
converting the securities to cash. The right of any shareholder to receive
payment of redemption proceeds may be suspended, or payment may be postponed,
in certain circumstances. These circumstances include any period the New York
Stock Exchange is closed (other than weekends or holidays) or trading on the
Exchange is restricted, any period when an emergency exists and any time the
Securities and Exchange Commission permits mutual funds to postpone payments
for the protection of investors.
<PAGE>
Taxpayer identification number. On the account application or other
appropriate form, you will be asked to certify that your social security or
taxpayer identification number is correct and that you are not subject to
backup withholding for failing to report income to the IRS. If you are subject
to the 31% backup withholding or you did not certify your taxpayer
identification, the IRS requires the Funds to withhold 31% of any dividends and
redemption or exchange proceeds.
Share certificates. Share certificates are not issued.
Involuntary redemptions. If your account balance falls below the minimum
as a result of a redemption or exchange, you will be given 60 days to
re-establish the minimum balance. If you do not, your account may be closed and
the proceeds sent to you.
Telephone transactions. You may initiate many transactions by telephone.
The Funds and their agents will not be responsible for any losses resulting
from unauthorized transactions when procedures designed to verify the identity
of the caller are followed. It may be difficult to reach the Funds by telephone
during periods of unusual market activity. If you are unable to reach a
representative by telephone, please consider sending written instructions.
Address changes. To change the address on your account, call
1-800-252-1784 or send a written request signed by all account owners. Include
the name of your Fund(s), the account numbers(s), the name(s) on the account
and both the old and new addresses.
Registration changes. To change the name on an account, the shares are
generally transferred to a new account. In some cases, legal documentation may
be required. For more information, call 1-800-252-1784. If your shares are held
of record by a financial institution, contact that financial institution for
ownership changes.
Statements and reports. The Funds will send you a confirmation statement
after every transaction that affects your account balance or your account
registration. If you are enrolled in an automatic investment program and invest
on a monthly basis, you will receive quarterly confirmations. Information
regarding the tax status of income dividends and capital gains distributions
will be mailed to shareholders early each year.
Financial reports for the Funds, which include a list of the Funds'
portfolio holdings, will be mailed semiannually to all shareholders.
Checkwriting. Checkwriting privileges are available for certain Money
Market Funds and the Short-Term Income Fund. Call 1-800-252-1784 for more
information. You may not use a check to close your account.
TAXES
This discussion of taxes is for general information only. Investors should
consult their own tax advisers about their particular situations.
Each Fund intends to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies so that it will not be liable for
any federal income or excise taxes. Each Fund may pay withholding or other
taxes to foreign governments during the year, however, and these taxes will
reduce those Funds' dividends.
<PAGE>
With certain exceptions, Fund dividends and capital gains distributions
are subject to federal income tax and may also be subject to state and local
taxes. Distributions from interest on U.S. government obligations may be exempt
from state and local taxes. The Funds expect that distributions from interest
on Municipal Securities and State Municipal Securities will be exempt from
federal income tax and certain state and local taxes. Dividends and
distributions are treated in the same manner for federal tax purposes whether
they are paid in cash or as additional shares. Generally, distributions from a
Fund's net investment income and short-term capital gains will be taxed as
ordinary income. A portion of certain Funds' distributions from net investment
income may be eligible for the dividends-received deduction available to
corporations. Distributions of long-term net capital gains will be taxed as
such regardless of how long the shares of a Fund have been held.
For the Tax-Exempt, Bond and Stock Funds, Fund distributions will reduce
the distributing Fund's net asset value per share. Shareholders who buy shares
just before a Fund makes a distribution may pay the full price for the shares
and then effectively receive a portion of the purchase price back as a taxable
distribution.
Early each year, each Fund will notify its shareholders of the amount and
tax status of distributions paid to shareholders for the preceding year.
Investors should consult their own tax advisers regarding the status of their
accounts under state and local laws.
GENERAL INFORMATION
NET ASSET VALUE. Net asset value per share for each Tax-Exempt, Bond and
Stock Fund is calculated each business day at the close of regular trading on
the New York Stock Exchange, normally 4 p.m. Eastern time. Net asset value per
share for the Institutional U.S. Treasury Money Market Fund is calculated each
business day at 3 p.m. (12 noon on days when the financial markets close
early). Net asset value per share for the other Money Market Funds is
calculated each business day at 12 noon.
All purchases, redemptions and exchanges will be processed at net asset
value the next time it is calculated after a request is received and approved
by the Distributor. In order to receive that day's price, an order must be
received by 4 p.m. Eastern time (3 p.m. for the Instituional U.S. Treasury
Money Market Fund unless the financial markets close early and 12 noon for the
other Money Market Funds). Net asset value per share is calculated by dividing
the total value of a Fund's securities and other assets, less liabilities, by
the total number of shares outstanding. Securities are valued at market value
or, if a market quotation is not readily available, at their fair value
determined in good faith under procedures established by and under the
supervision of the Trustees. Money market instruments maturing within 60 days
are valued at amortized cost, which approximates market value.
ORGANIZATION. Each Fund is a series of 1784 Funds. 1784 Funds is a
Massachusetts business trust which was organized on February 5, 1993; it also
is an open-end management investment company registered under the Investment
Company Act of 1940. 1784 Funds currently has sixteen active series.
<PAGE>
Each Fund (other than the state Tax-Exempt Funds) is a diversified mutual
fund. Under the 1940 Act, a diversified mutual fund must manage at least 75% of
its total assets so that no more than 5% of those assets are invested in any
one company at the time of investment. See "Risk Considerations" for
information about non-diversified mutual funds.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the trust's
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the trust itself was unable to meet its
obligations.
VOTING AND OTHER RIGHTS. 1784 Funds may issue an unlimited number of
shares, may create new series of shares and may divide shares in each series
into classes. Each share of each Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All shares of
each series of 1784 Funds have equal voting rights except that, in matters
affecting only a particular Fund or class, only shares of that particular Fund
or class are entitled to vote.
The U.S. Treasury Money Market Fund currently offers three classes of
shares. Class A shares are described in this Prospectus. Class C and Class D
shares are available solely in conjunction with certain cash management
products offered by Bank of Boston. Class C and Class D shares may have
different expenses, which may affect performance. Call 1-800-252-1784 for more
information.
Each Fund's activities are supervised by 1784 Funds' Board of Trustees.
because 1784 Funds is a Massachusetts business trust, the Funds are not
required to hold annual shareholder meetings. Shareholder approval will usually
be sought only for changes in certain investment restrictions and for the
election of Trustees under certain circumstances. Trustees may be removed by
shareholders under certain circumstances. Each share of each Fund is entitled
to participate equally in dividends and other distributions and the proceeds of
any liquidation of that Fund, subject to any differing expenses borne by
different classes of the Fund.
PERFORMANCE INFORMATION. Fund performance may be quoted in advertising,
shareholder reports and other communications in terms of yield, effective yield
and total rate of return. All performance information is historical and is not
intended to indicate future performance. Yields and total rates of return
fluctuate in response to market conditions and other factors, and the value of
a Fund's shares when redeemed may be more or less than their original cost.
Each Fund may provide annualized "yield" and "effective yield" quotations.
The "yield" of a Fund refers to the income generated by an investment in the
Fund over a 7-day or 30-day or one-month period (which period is stated in any
such advertisement or communication). This income is then annualized; that is,
the amount of income generated by the investment over that period is assumed to
be generated each week or month over a one-year period and is shown as a
percentage of the maximum public offering price on the last day of that period.
The "effective yield" is calculated similarly, but when annualized the income
earned by the investment during that 7-day, 30-day or one-month period is
assumed to be reinvested. The effective yield is slightly higher than the yield
because of the compounding effect of this assumed reinvestment. A "yield"
quotation, unlike a total rate of return quotation, does not reflect changes in
net asset value.
<PAGE>
Each Fund may provide period and average annualized "total rates of
return." The "total rate of return" refers to the change in the value of an
investment in the Fund over a stated period and reflects any change in net
asset value per share and is compounded to include the value of any shares
purchased with any dividends or capital gains declared during such period.
Period total rates of return may be "annualized." An "annualized" total rate of
return assumes that the period total rate of return is generated over a
one-year period.
Certain Funds may also advertise a "tax-equivalent yield." 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 Fund's yield, assuming certain tax brackets for a
shareholder.
9Of course, any fees charged by a financial institution to a shareholder
will reduce that shareholder's net return on investment. See the Statement of
Additional Information for more information concerning the calculation of
performance for the Funds.
EXPENSES. In addition to amounts payable to its service providers and
under the Distribution Plan, each Fund is responsible for its own expenses,
including, among other things, the costs of securities transactions, the
compensation of Trustees that are not affiliated with Bank of Boston,
government fees, taxes, accounting and legal fees, expenses of communicating
with shareholders, interest expense and insurance premiums.
The following table shows each Fund's expenses for the fiscal year ended
May 31, 1996, expressed as a percentage of average net assets. The Prime Money
Market Fund and the Florida Tax-Exempt Income Fund are newly organized and had
no operations during that fiscal year.
Expenses
Tax-Free Money Market Fund .54%
U.S. Treasury Money Market Fund .64
Institutional U.S. Treasury Money Market Fund .32
Tax-Exempt Medium-Term Income Fund .79
Massachusetts Tax-Exempt Income Fund .80
Rhode Island Tax-Exempt Income Fund .77
Connecticut Tax-Exempt Income Fund .75
U.S. Government Medium-Term Income Fund .80
Short-Term Income Fund .63
Income Fund .80
Asset Allocation Fund 1.25
Growth and Income Fund .94
Growth Fund .20
International Equity Fund 1.13
COUNSEL AND INDEPENDENT AUDITORS. Bingham, Dana & Gould LLP, Boston,
Massachusetts, is counsel for each Fund. Coopers & Lybrand L.L.P., Boston,
Massachusetts, serves as independent auditor for each Fund.
-------------------------------
The Statement of Additional Information dated the date of this Prospectus
contains more detailed information about the Funds, including information
relating to (i) investment policies and restrictions, (ii) the Trustees,
officers and investment advisers, (iii) securities transactions, (iv) the
Funds' shares, including rights and liabilities of shareholders, (v) the method
used to calculate performance information and (vi) the determination of net
asset value.
<PAGE>
No person has been authorized to give any information or make any
representations not contained in this Prospectus or the Statement of Additional
Information in connection with the offering made by this Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Funds or their distributor. This Prospectus does
not constitute an offering by the Funds or their distributor in any
jurisdiction in which such offering may not lawfully be made.
<PAGE>
APPENDIX A
TAXABLE EQUIVALENT YIELDS
These tables show the yield investors need to achieve from a taxable
investment to equal the yield from a tax-exempt investment. These tables do not
predict the yield of any Fund.
To be filed by amendment.
<PAGE>
APPENDIX B
PERMITTED INVESTMENTS
AND INVESTMENT PRACTICES
This Appendix describes certain investments and investment practices. Any
limits on which Funds may invest or the amount of Fund assets that may be
invested are noted.
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" for more information. Each
Money Market Fund limits its investments in STRIPS to 20% of its total assets.
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).
Receipts - Receipts are 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. 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.
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
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 react more to interest rate changes
than non-zero coupon securities with similar maturity and credit qualities.
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 Funds have established certain minimum credit quality
standards for bank obligations in which they 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.
<PAGE>
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.
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.
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.
Money Market Funds - A money market fund is a mutual fund that limits its
investments to high quality money market instruments with a weighted average
maturity of 90 days or less. Consistent with applicable regulations the Funds
may not invest more than certain percentages of their assets in other mutual
funds. Investing in other mutual funds causes shareholders to bear not only
Fund expenses, but also expenses of the underlying mutual funds.
Variable and Floating Rate Instruments - Certain obligations 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. These 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 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 where a person
buys a security and simultaneously commits to sell 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. 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. Pursuant
to an exemptive order from the SEC, the Funds may enter into repurchase
agreements on a pooled basis.
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.
<PAGE>
Mortgage-Backed Securities - The Funds may purchase mortgage-backed securities
issued or guaranteed as to payment of principal and interest by the U.S.
government or one of its agencies and backed by the full faith and credit of
the U.S. government, including direct pass-through certificates of GNMA, as
well as mortgage-backed securities for which principal and interest payments
are backed by the credit of particular agencies of the U.S. government.
Mortgage-backed securities are generally backed or collateralized by a pool of
mortgages. These securities are sometimes called collateralized mortgage
obligations or CMOs.
Even if the U.S. government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment because the underlying mortgages are refinanced to
take advantage of the lower rates. The prices of mortgage-backed securities may
not increase as much as prices of other debt obligations when interest rates
decline, and mortgage-backed securities may not be an effective means of
locking in a particular interest rate. In addition, any premium paid for a
mortgage-backed security may be lost when it is prepaid.
Forward Commitments or Purchases on a When-Issued Basis Forward commitments or
purchases of securities on a when-issued basis are transactions where the price
of the securities is fixed at the time of commitment and the delivery and
payment ordinarily takes 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 buyer before settlement. The securities are subject to
market fluctuation due to changes in market interest rates; the securities are
also subject to fluctuation in value pending settlement based upon public
perception of the creditworthiness of the issuer of these securities. Each Fund
may invest up to 25% of its assets in forward commitments or commitments to
purchase securities on a when-issued basis.
Securities Rated Baa or BBB - The Funds may purchase securities rated Baa
by Moody's or BBB by Standard & Poor's, which may have poor protection of
payment of principal and interest. See "Risk Considerations."
Asset-Backed Securities - The Funds may invest in corporate asset-backed
securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card or automobile
loan receivables, representing the obligations of a number of different
parties. Corporate asset-backed securities present certain risks. For instance,
in the case of credit card receivables, these securities may not have the
benefit of any security interest in the related collateral.
Municipal Securities - Municipal securities include debt obligations issued by
or on behalf of public authorities to obtain funds to be used for various
public facilities, for refunding outstanding obligations and for general
operating expenses. Municipal securities also include debt obligations issued
to obtain funds for lending to other public institutions and facilities, and
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 general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes and construction loan notes. Municipal bonds include 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. 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 financed with the proceeds of
these bonds as security for such payment.
<PAGE>
Municipal securities also include participations in municipal leases.
These are undivided interests in a portion 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. Many leases include
"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.
Standby Commitments - A security purchased subject to a standby commitment may
be sold at a fixed price prior to maturity and may be sold at any time at
market rates. A premium may be paid for a standby commitment and will have the
effect of reducing the yield otherwise payable on the underlying security.
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.
Mortgage "Dollar Roll" Transactions - Mortgage "dollar roll" transactions
involve sale by a Fund of mortgage-backed securities for delivery in the future
(generally within 30 days),when the Fund 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.
Loan Participations - Loan participations are interests in loans which are
administered by the lending bank or agent for a syndicate of lending banks, and
sold by the lending bank or syndicate member. The Funds 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 Funds 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
defaults, a 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 the borrower. Under the terms of a
loan participation the purchasing Fund may be regarded as a creditor of the
intermediary bank, so that the Fund may also be subject to the risk that the
issuing bank may become insolvent.
<PAGE>
Guaranteed Investment Contracts (GIC) - A GIC is a contract between an
insurance company and, generally, an institutional investor that guarantees the
investor a specified interest rate for a specific period and the return of the
investor's principal. Each Fund will not invest more than 20% of its total
assets in GICs.
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 investments 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. The value of convertible securities is also
affected by prevailing interest rates, the credit quality of the issuer, and
any call provisions. Convertible securities include both debt obligations and
preferred stock.
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. 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.
Investments in securities of foreign issuers (including ADRs, EDRs and CDRs)
are subject to special risks. See "Risk Considerations."
Foreign Currency Transactions - Currency exchange transactions may protect
against uncertainty in the level of future exchange rates in connection with
hedging and other non-speculative strategies involving specific settlement
transactions. Currency exchange transactions may be conducted either on a spot
(i.e., cash) basis at the rate prevailing in the currency exchange market, or
through 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 generally arising in connection with the purchase or
sales of particular portfolio securities.
The Funds will use currency exchange transactions only for bona fide
hedging purposes and other non-speculative strategies involving specified
settlement transactions.
Warrants - 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. Each 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.
<PAGE>
Securities Lending - Consistent with applicable regulatory requirements and in
order to generate additional income, each Fund may lend securities to
broker-dealers and other institutional borrowers. Loans must be callable at any
time and continuously secured by collateral (cash or U.S. government
securities) in an amount not less than the market value, determined daily, of
the securities loaned. It is intended that the value of securities loaned by a
Fund would not exceed 331/3% of the Fund's total assets. In the event of the
bankruptcy of the other party to a securities loan, a Fund could experience
delays in recovering either the securities lent or cash. To the extent that, in
the meantime, the value of the securities lent has increased or the value of
the securities purchased has decreased, the Fund could experience a loss. The
voting rights of such securities may pass to the borrower; however, the lending
Fund will seek to call loans, to vote proxies, or otherwise to obtain rights to
vote or consent if a material event affecting the investment is to occur.
Restricted or Illiquid Securities - Securities that may not be sold freely to
the public absent registration or securities for which there is no readily
available market are referred to as restricted or illiquid securities,
respectively. Each Fund may invest up to 15% (10% for each Money Market Fund)
of its net assets in illiquid securities, including restricted securities that
are illiquid. 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.
Options - The Funds may engage in writing call options from time to time. 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 for hedging purposes or, in
the case of the Stock Funds, 1784 Short-Term Income Fund and 1784 Income Fund,
in order to generate additional income. Such options must be listed on a
national securities exchange. 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.
There are risks associated with options transactions, including that 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; there may be an imperfect correlation between
the movement in prices of securities held by a Fund and price movements of the
related options; there may not be a liquid secondary market for options; and
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 - Futures contracts provide for the future sale
by one party and purchase by another party of a specified amount of a specified
security at a specified future time and at a specified price. An option on a
futures contract gives the purchaser the right, in exchange for a premium, to
assume a position in a futures contract at a specified exercise price during
the term of the option. The Funds may enter into futures contracts and options
on futures contracts provided that the sum of a 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. The Fund
will enter into only those futures contracts which are traded on national
futures exchanges.
<PAGE>
The Funds 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. See "Options."
The Funds may purchase and sell interest rate futures contracts and
options on interest rate futures contracts, stock index futures contracts and
options on stock index futures contracts; and currency futures contracts and
options on currency futures contracts.
Other Investment Companies - Subject to applicable statutory and regulatory
limitations, assets of each Fund may be invested in shares of other investment
companies and foreign investment trusts. Each Fund may invest up to 5% of its
assets in closed-end investment companies which primarily hold securities of
non-U.S. issuers.
Currency Swaps - Currency swaps involve the exchange of rights to make or
receive payments in specified currencies. 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 that it would have
been if this investment technique were not used.
<PAGE>
Statement of
Additional Information
__________, 1996
1784 Fundsregistered trademark
Money Market Funds:
1784 Tax-Free Money Market Fund
1784 Prime Money Market Fund
1784 U.S. Treasury Money Market Fund
1784 Institutional U.S. Treasury Money Market Fund
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
1784 Florida Tax-Exempt Income Fund
Bond Funds:
1784 U.S. Government Medium-Term Income Fund
1784 Short-Term Income Fund
1784 Income Fund
Stock Funds:
1784 Asset Allocation Fund
1784 Growth and Income Fund
1784 Growth Fund
1784 International Equity Fund
This Statement of Additional Information provides information regarding
the activities and operations of the no-load mutual funds listed above, and
should be read in conjunction with the Funds' Prospectuses dated ___________,
1996. You may obtain a Prospectus without charge by calling 1-800-252-1784.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY A CURRENT
PROSPECTUS.
<PAGE>
CONTENTS
Page
1. The Trust
2. Investment Objectives and Policies
3. Permitted Investments and Investment Practices
4. Investment Restrictions
5. Management
6. Fund Transactions; Trading Practices and Brokerage
7. Performance Information
8. Determination of Net Asset Value
9. Purchase and Redemption of Shares
10. Systematic Withdrawal Plan
11. Taxes
12. Servicemarks
13. Description of Shares
14. Trustee and Shareholder Liability
15. Financial Information
APPENDIX A -- CERTAIN INFORMATION CONCERNING MASSACHUSETTS, RHODE ISLAND,
CONNECTICUT AND FLORIDA
APPENDIX B -- DESCRIPTION OF SECURITIES RATINGS
<PAGE>
1. THE TRUST
1784 FUNDSregistered trademark (the "Trust") is an open-end management
investment company established under Massachusetts law as a Massachusetts
business trust on February 5, 1993. The Trust's Declaration of Trust permits
the Trust to offer separate portfolios, or funds, of shares of beneficial
interest and different classes of shares of each fund. Each share in a fund
represents an equal proportionate interest in that fund. See "Description of
Shares."
This Statement of Additional Information relates to the following funds
of the Trust (the "Funds"):
Money Market Funds:
1784 Tax-Free Money Market Fund
1784 Prime Money Market Fund
1784 U.S. Treasury Money Market Fund
1784 Institutional U.S. Treasury Money Market Fund
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
1784 Florida Tax-Exempt Income Fund
Bond Funds:
1784 U.S. Government Medium-Term Income Fund
1784 Short-Term Income Fund
1784 Income Fund
Stock Funds:
1784 Asset Allocation Fund
1784 Growth and Income Fund
1784 Growth Fund
1784 International Equity Fund
The First National Bank of Boston ("Bank of Boston") is the investment
adviser of each Fund. Kleinwort Benson Investment Management Americas, Inc. is
the investment adviser of the International Equity Fund with Bank of Boston
(Bank of Boston and Kleinwort Benson are each referred to as an "Adviser"). SEI
Financial Services Company is the distributor of shares of each Fund.
References in this Statement of Additional Information to the
Prospectuses are to the Funds' Prospectuses dated ______, 1996.
As required by law, each of the Trust, Bank of Boston and the Trust's
administrator and distributor have adopted codes of ethics concerning certain
activities of officers, trustees or directors and employees. Copies of these
codes of ethics have been filed with the Securities and Exchange Commission.
<PAGE>
2. INVESTMENT OBJECTIVES AND POLICIES
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 Prime Money Market Fund, 1784 U.S.
Treasury Money Market Fund and 1784 Institutional U.S. Treasury Money Market
Fund is to preserve principal value and maintain a high degree of liquidity
while providing current income.
The investment objective of the 1784 Tax-Exempt Medium-Term Income Fund
is current income, exempt from federal income tax, 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
tax, consistent with 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 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.
The investment objective of the 1784 Florida Tax-Exempt Income Fund is
current income exempt from federal income tax through Fund shares which are
exempt from Florida intangible personal property tax. Preservation of capital
is a secondary 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 and 1784
Income Fund is to maximize current income. Preservation of capital is a
secondary objective for each of these Funds.
The investment objective of the 1784 Asset Allocation Fund is to achieve
a favorable total rate of return through current income and capital
appreciation consistent with preservation of capital, derived from investing in
fixed income and equity securities.
The investment objective of the 1784 Growth and Income Fund is long-term
growth of capital with a secondary objective of income.
The investment objective of the 1784 Growth Fund is capital appreciation.
Dividend income, if any, is incidental to this objective.
The investment objective of the 1784 International Equity Fund is
long-term growth of capital. Dividend income, if any, is incidental to this
objective.
There can be no assurance that any Fund will achieve its investment
objective. Each Fund's investment objective may be changed only with the
consent of the holders of a majority of that Fund's outstanding shares.
<PAGE>
The investment policies, permitted investments and investment techniques
of each of the Funds are described in the Prospectus by which shares of that
Fund are offered. The information herein supplements the information contained
in the Prospectus.
Each Tax-Exempt Fund has a fundamental policy of investing 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"). A
Tax-Exempt Fund may comply with this policy (or with any other policy of such
Fund as to investing in securities the interest on which is exempt from
taxation in a particular state or which are not subject to intangible personal
property taxes of any state) by investing in a partnership, trust, regulated
investment company or other entity which invests in such Municipal Securities,
in which case the applicable Fund's investment in such entity shall be deemed
an investment in the underlying Municipal Securities in the same proportion as
such entity's investment in such Municipal Securities bears to its net assets.
Appendix A contains information concerning Massachusetts, Rhode Island,
Connecticut and Florida. Each of the Massachusetts, Rhode Island, Connecticut
and Florida Tax-Exempt Income Funds is particularly susceptible to events
affecting issuers in its state.
Appendix B describes the ratings assigned to securities by certain
securities rating organizations.
3. PERMITTED INVESTMENTS AND INVESTMENT PRACTICES
VARIABLE AMOUNT MASTER DEMAND NOTES
Each Fund (other than the 1784 Institutional U.S. Treasury Money Market
Fund and the 1784 U.S. Treasury Money Market Fund) may invest in variable
amount master demand notes which may or may not be backed by bank letters of
credit. These notes permit the investment of fluctuating amounts at varying
market rates of interest pursuant to direct arrangements between the Trust, as
lender, on behalf of a Fund and the borrower. Such notes provide that the
interest rate on the amount outstanding varies on a daily, weekly or monthly
basis depending upon a stated short-term interest rate index. Both the lender
and the borrower have the right to reduce the amount of outstanding
indebtedness at any time. There is no secondary market for the notes. It is not
generally contemplated that such instruments will be traded.
GNMA SECURITIES
Each Fund may invest in securities issued by the Government National
Mortgage Association ("GNMA"), a wholly-owned U.S. Government corporation which
guarantees the timely payment of principal and interest. The market value and
interest yield of these instruments can vary due to market interest rate
fluctuations and early prepayments of underlying mortgages. These securities
represent ownership in a pool of federally insured mortgage loans. GNMA
certificates consist of underlying mortgages with a maximum maturity of 30
years. However, due to scheduled and unscheduled principal payments, GNMA
certificates have a shorter average maturity and, therefore, less principal
volatility than a comparable 30-year bond. Since prepayment rates vary widely,
it is not possible to predict accurately the average maturity of a particular
GNMA pool. The scheduled monthly interest and principal payments relating to
mortgages in the pool will be "passed through" to investors. GNMA securities
<PAGE>
differ from conventional bonds in that principal is paid back to the
certificate holders over the life of the loan rather than at maturity. As a
result, there will be monthly scheduled payments of principal and interest. In
addition, there may be unscheduled principal payments representing prepayments
on the underlying mortgages. Although GNMA certificates may offer yields higher
than those available from other types of U.S. Government securities, GNMA
certificates may be less effective than other types of securities as a means of
"locking in" attractive long-term rates because of the prepayment feature. For
instance, when interest rates decline, the value of a GNMA certificate likely
will not rise as much as comparable debt securities due to the prepayment
feature. In addition, these prepayments can cause the price of a GNMA
certificate originally purchased at a premium to decline in price to its par
value, which may result in a loss.
MORTGAGE-BACKED SECURITIES
Each of the Funds (other than the Money Market Funds) may invest in
mortgage-backed securities which are rated in one of the three top categories
by Standard and Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Fitch Investors Service, Inc. ("Fitch"), or, if not rated by
S&P, Moody's or Fitch, of comparable quality as determined by the Adviser or
Advisers to the Fund. Two principal types of mortgage-backed securities are
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs"). CMOs are securities collateralized by
mortgages, mortgage pass-through certificates, mortgage pay-through bonds
(bonds representing an interest in a pool of mortgages where the cash flow
generated from the mortgage collateral pool is dedicated to bond repayment),
and mortgage-backed bonds (general obligations of the issuers payable out of
the issuers' general funds and additionally secured by a first lien on a pool
of single family detached properties). Many CMOs are issued with a number of
classes or series which have different maturities and are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-through certificates to be prepaid prior
to their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-through certificates issued or guaranteed
by U.S. Government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that
they issue multiple classes of securities.
ASSET-BACKED SECURITIES
In addition to mortgage-backed securities, each of the Funds (other than
the 1784 Institutional U.S. Treasury Money Market Fund and the 1784 U.S.
Treasury Money Market Fund) may invest in asset-backed securities including
company receivables, truck and auto loans, leases, and credit card receivables.
These issues may be traded over-the-counter and typically have a short to
intermediate maturity structure depending on the paydown characteristics of the
underlying financial assets which are passed through to the security holder.
<PAGE>
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
The 1784 Short-Term Income Fund and 1784 Income Fund may enter into
mortgage "dollar roll" transactions pursuant to which a Fund sells
mortgage-backed securities for delivery in the future and simultaneously
contracts to repurchase substantially similar securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the mortgage-backed securities. The Fund is compensated for the lost interest
by the difference between the current sales price and the lower price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. The Fund may also be
compensated by receipt of a commitment fee.
STRIPS
Each of the Funds may invest in Separately Traded Interest and Principal
Securities ("STRIPS"), which are component parts of U.S. Treasury Securities
traded through the Federal Reserve Book-Entry System. The Adviser or Advisers
to a Fund will purchase only those STRIPS that it determines or they determine
are liquid or, if illiquid, do not violate such Fund's investment policy
concerning investments in illiquid securities. Consistent with Rule 2a-7, Bank
of Boston, as the Adviser to the Money Market Funds, will purchase for Money
Market Funds only those STRIPS that have a remaining maturity of 397 days or
less. No Money Market Fund may invest more than 20% of its total assets in
STRIPS. While there is no limitation on the percentage of any other Fund's
assets that may be comprised of STRIPS, the Adviser or Advisers to each Fund
will monitor the level of such holdings to avoid the risk of impairing
shareholders' redemption rights.
REPURCHASE AGREEMENTS
Each of the Funds may invest in repurchase agreements collateralized by
securities in which that Fund may otherwise invest. Repurchase agreements are
agreements by which a Fund obtains a security and simultaneously commits to
return the security to the seller (a primary securities dealer recognized by
the Federal Reserve Bank of New York or a national member bank as defined in
Section 3(d)(1) of the Federal Deposit Insurance Act, as amended) at an agreed
upon price (including principal and interest) on an agreed upon date within a
number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or maturity of the underlying
security. A repurchase agreement involves the obligation of the seller to pay
the agreed upon price, which obligation is in effect secured by the value of
the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes
of its investment limitations. The repurchase agreements entered into by the
Funds will provide that the underlying security at all times shall have a value
at least equal to 100% of the resale price stated in the agreement; the Adviser
or Advisers to each Fund will monitor compliance with this requirement. Under
all repurchase agreements entered into by any Fund, the Custodian or its agent
must take possession of the underlying collateral. However, if the seller under
a repurchase agreement defaults, the Fund investing in that repurchase
agreement could realize a loss on the sale of the underlying security to the
extent that the proceeds of the sale (including accrued interest) are less than
the resale price provided in the repurchase agreement (including interest). In
addition, even though the Bankruptcy Code provides protection for most
repurchase agreements, if the seller should be involved in bankruptcy or
insolvency proceedings, a Fund may face delays and incur costs in selling the
<PAGE>
underlying security or may suffer a loss of principal and interest if the Fund
is treated as an unsecured creditor of the seller and is required to return the
underlying security to the seller's estate as a voidable preference.
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. Each of the Funds (other than the 1784 U.S. Treasury Money Market
Fund) may invest in money market funds, but not more than 5% of its assets in
any one money market fund or more than 10% of its assets in other investment
companies, including money market funds. When a Fund invests in a money market
fund, a shareholder bears not only his or her proportionate share of the Fund's
expenses, but also indirectly his or her share of the expenses of the money
market fund, including management fees.
TAX-EXEMPT SECURITIES
MUNICIPAL NOTES AND BONDS
The 1784 Short-Term Income Fund, 1784 Income Fund and each of the
Tax-Exempt Funds may invest in municipal notes, which include but are not
limited to general obligation notes, tax anticipation notes (notes sold to
finance working capital needs of the issuer in anticipation of receiving taxes
on a future date), revenue anticipation notes (notes sold to provide needed
cash prior to receipt of expected non-tax revenues from a specific source),
bond anticipation notes, certificates of indebtedness, demand notes and
construction loan notes. A Fund's investment in any of the notes described
above will be limited to those obligations which are rated (i) MIG-2 or VMIG-2
or better at the time of investment by Moody's, (ii) SP-2 or better at the time
of investment by S&P, or (iii) F-2 or better at the time of investment by
Fitch, or which, if not rated by Moody's, S&P or Fitch, are of at least
comparable quality, as determined by the Adviser to the Fund. Municipal bonds,
in which these same Funds may invest, must be rated BBB or better by S&P or
Fitch or Baa or better by Moody's at the time of investment or, if not rated by
Moody's, S&P or Fitch, must be determined by the Adviser to the Funds to have
essentially the same characteristics and quality as bonds having the above
ratings. Bonds rated BBB by S&P or Fitch or Baa by Moody's may have speculative
characteristics. The Adviser to these Funds may purchase industrial development
and pollution control bonds for these Funds if the interest paid thereon is
exempt from federal income tax. These bonds are issued by or on behalf of
public authorities to raise money to finance various privately-operated
facilities for business and manufacturing, housing, sports, and pollution
control. These bonds may also be used to finance public facilities such as
airports, mass transit systems, ports, and parking. The payment of the
principal and interest on such bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property so financed as security for such payment.
Municipal securities also include participations in municipal leases.
These are undivided interests in a portion of an obligation in the form of a
lease or installment purchase issued by a state or local government to acquire
equipment or facilities. Municipal leases frequently have special risks not
normally associated with general obligation bonds or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations are deemed to be inapplicable because of
<PAGE>
the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by
the appropriate legislative body on a yearly or other periodic basis. Although
the obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In light of these concerns, the Trust
has adopted and follows procedures for determining whether municipal lease
securities purchased by a Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures require
that a number of factors be used in evaluating the liquidity of a municipal
lease security, including the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number
of other potential purchasers, the willingness of dealers to undertake to make
a market in the security, the nature of the marketplace in which the security
trades, the credit quality of the security, and other factors which the Adviser
to the Fund may deem relevant.
TAX-EXEMPT COMMERCIAL PAPER in which a Tax-Exempt Fund may invest will be
limited to investments in obligations which are rated at least A-2 by S&P,
Prime-2 by Moody's, or F-2 by Fitch, at the time of investment or which are of
comparable quality as determined by the Adviser to the Fund.
Each of the Tax-Exempt Funds may invest in FLOATING RATE NOTES.
Investments in such floating rate instruments will normally involve industrial
development or revenue (now known as "private activity") bonds which provide
that the rate of interest is set as a specific percentage of a designated base
rate (such as the prime rate) at a major commercial bank, and that a Fund can
demand payment of the obligation at all times or at stipulated dates on short
notice (not to exceed 30 days) at par plus accrued interest. For purposes of
determining the maturity of these obligations, the Fund may use the longer of
(a) the period required before the Fund is entitled to prepayment under such
obligations or (b) the period remaining until the next interest rate adjustment
date. Such obligations are frequently secured by letters of credit or other
credit support arrangements provided by banks. The quality of the underlying
credit or of the bank, as the case may be, must in the Fund Adviser's opinion
be equivalent to the long-term bond or commercial paper ratings on securities
in which the Fund may invest. The Adviser to the Fund will monitor the earning
power, cash flow and liquidity ratios of the issuers of floating rate
instruments and the ability of an issuer of a demand instrument to pay
principal and interest on demand. The Adviser to the Fund may also purchase
other types of tax-exempt instruments for these Funds as long as they are of a
quality equivalent to the bonds or commercial paper in which these Funds may
invest.
STANDBY COMMITMENTS
Funds investing in municipal securities may acquire such securities
subject to a "standby commitment." The Adviser or, if applicable, each of the
Advisers, to these Funds has the authority to purchase for these Funds
securities at a price which would result in a yield to maturity lower than that
generally offered by the seller at the time of purchase when they can
simultaneously acquire the right to sell the securities back to the seller, the
issuer, or a third party (the "writer") at an agreed-upon price at any time
during a stated period or on a certain date. Such a right is generally denoted
as a "standby commitment" or a "put." The purpose of engaging in transactions
involving puts is to maintain flexibility and liquidity to permit the Fund to
meet redemptions and remain as fully invested as possible in municipal
securities. The Funds reserve their right to engage in put transactions. The
right to put the securities depends on the writer's ability to pay for the
securities at the time the put is exercised. Each Fund would limit its put
transactions to institutions which the Adviser or, if applicable, each Adviser,
to such Fund believes present minimum credit risks. Each Adviser would use its
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best efforts initially to determine and to continue to monitor the financial
strength of the sellers of the options by evaluating their financial statements
and such other information as is available in the marketplace. It may, however,
be difficult to monitor the financial strength of the writers because adequate
current financial information may not be available. In the event that any
writer is unable to honor a put for financial reasons, the Fund would be a
general creditor (i.e., on a parity with all other unsecured creditors) of the
writer. Furthermore, particular provisions of the contract between the Fund and
the writer may excuse the writer from repurchasing the securities; for example,
a change in the published rating of the underlying municipal securities or any
similar event that has an adverse effect on the issuer's credit or a provision
in the contract that the put will not be exercised except in certain special
cases, for example, to maintain fund liquidity. The Fund could, however, at any
time sell the underlying security in the open market or wait until the security
matures, at which time it should realize the full par value of the security.
Municipal securities purchased subject to a put may be sold to third
persons at any time, even though the put is outstanding, but the put itself,
unless it is an integral part of the security as originally issued, may not be
marketable or otherwise assignable. Therefore, the put would have value only to
the Fund. Sale of the securities to third parties or lapse of time with the put
unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, the Fund could seek to negotiate terms for the
extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to the Fund, the Fund could, of course, sell the security. The
maturity of the underlying security will generally be different from that of
the put. There will be no limit to the percentage of Fund securities that a
Fund may purchase subject to puts but the amount paid directly or indirectly
for puts which are not integral parts of a security as originally issued held
in a Fund will not exceed 1/2 of 1% of the value of the total assets of such
Fund calculated immediately after any such put is acquired.
For the purpose of determining the "maturity" of securities purchased
subject to an option to put, and for the purpose of determining the
dollar-weighted average maturity of a Fund including such securities,
"maturity" will be considered to be the first date on which the Fund has the
right to demand payment from the writer of the put although the final maturity
of the security is later than such date.
OPTIONS
Each of the Stock Funds, the 1784 Short-Term Income Fund and the 1784
Income Fund may, for hedging purposes and in order to generate additional
income, write call options on a covered basis. Each of the Tax-Exempt Funds and
the 1784 U.S. Government Medium-Term Income Fund, may, for hedging purposes
only, write call options on a covered basis, and will not engage in option
writing strategies for speculative purposes.
A Fund may write covered call options from time to time on its assets as
determined by the Adviser or Advisers to such Fund to be appropriate in seeking
to achieve such Fund's investment objective, provided that the aggregate value
of such options may not exceed 10% of such Fund's net assets as of the time
such Fund enters into such options.
The purchaser of a call option has the right to buy, and the writer (in
this case a Fund) of a call option has the obligation to sell, an underlying
security at a specified exercise price during a specified option period. The
advantage to a Fund of writing covered calls is that the Fund receives a
premium for writing the call, which is additional income. However, if the
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security rises in value and the call is exercised, the Fund may not participate
fully in the market appreciation of the security.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker/dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction.
A closing purchase transaction is one in which a Fund, when obligated as
a writer of an option, terminates its obligation by purchasing an option of the
same series as the option previously written. A closing purchase transaction
cannot be effected with respect to an option once the Fund writing the option
has received an exercise notice for such option. Closing purchase transactions
will ordinarily be effected to realize a profit on an outstanding call option,
to prevent an underlying security from being called, to permit the sale of the
underlying security or to enable a Fund to write another call option on the
underlying security with either a different exercise price or different
expiration date or both. The Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the net amount of the original
premium received on the call option is more or less than the cost of effecting
the closing purchase transaction. Any loss incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
sale of a different call option on the same underlying security. Such a loss
may also be wholly or partially offset by unrealized appreciation in the market
value of the underlying security. Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part by a decline in the
market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-term
capital gain in the amount of the premium on the option, less the commission
paid. Such a gain, however, may be offset by depreciation in the market value
of the underlying security during the option period. If a call option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security equal to the difference between (a) the cost of the underlying
security and (b) the proceeds of the sale of the security, plus the amount of
the premium on the option, less the commission paid.
The market value of a call option generally reflects the market price of
the underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
Each Fund will write call options only on a covered basis, which means
that the Fund will own the underlying security subject to a call option at all
times during the option period. Unless a closing purchase transaction is
effected, the Fund would be required to continue to hold a security which it
might otherwise wish to sell, or deliver a security it would want to hold.
Options written by a Fund will normally have expiration dates between one and
nine months from the date written. The exercise price of a call option may be
below, equal to or above the current market value of the underlying security at
the time the option is written.
A Fund may also purchase put and call options. Put options are purchased
to hedge against a decline in the value of securities held in the Fund's
portfolio. If such a decline occurs, the put options will permit the Fund to
sell the securities underlying such options at the exercise price, or to close
out the options at a profit. The premium paid for a put option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise of the option, and, unless the price of the underlying security rises
or declines sufficiently, the option may expire worthless to the Fund. In
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addition, in the event that the price of the security in connection with which
an option was purchased moves in a direction favorable to the Fund, the
benefits realized by the Fund as a result of such favorable movement will be
reduced by the amount of the premium paid for the option and related
transaction costs.
OPTIONS ON STOCK INDICES
The Stock Funds may engage in options on stock indices. A stock index
assigns relative values to the common stocks included in the index, and the
index fluctuates with changes in the market values of the underlying common
stocks. The Funds will not engage in transactions in options on stock indices
for speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the option
markets. The aggregate premium paid on all options on stock indices will not
exceed 5% of a Fund's total assets.
Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or
make delivery of the underlying stock at a specified price. A stock index
option gives the holder the right to receive a cash "exercise settlement
amount" equal to (i) the amount by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by
(ii) a fixed "index multiplier." Receipt of this cash amount will depend upon
the closing level of the stock index upon which the option is based being
greater than (in the case of a call) or less than (in the case of a put) the
exercise price of the option. The amount of cash received will be equal to such
difference between the closing price of the index and exercise price of the
option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the option premium received, to make
delivery of this amount. Gain or loss to a Fund on transactions in stock index
options will depend on price movements in the stock market generally (or in a
particular industry or segment of the market) rather than price movements of
individual securities.
As with stock options, a Fund may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
A stock index fluctuates with changes in the market values of the stock
included in the index. Some stock index options are based on a broad market
index such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index, or a narrower market index such as the Standard & Poor's 100.
Indices are also based on an industry or market segment such as the AMEX Oil
and Gas Index or the Computer and Business Equipment Index. Options on stock
indices are currently traded on the following exchanges, among others: The
Chicago Board Options Exchange, New York Stock Exchange and American Stock
Exchange.
A Fund's ability to hedge effectively all or a portion of its securities
through transactions in options on stock indices depends on the degree to which
price movements in the underlying index correlate with price movements in the
securities held by the Fund. Since the Fund will not duplicate all of the
components of an index, the correlation will not be exact. Consequently, the
Fund bears the risk that the prices of the securities being hedged will not
move in the same amount as the hedging instrument. It is also possible that
there may be a negative correlation between the index or other securities
underlying the hedging instrument and the hedged securities which would result
in a loss on both such securities and the hedging instrument.
<PAGE>
Positions in stock index options may be closed out only on an exchange
which provides a secondary market. There can be no assurance that a liquid
secondary market will exist for any particular stock index option. Thus, it may
not be possible to close such an option. The inability to close options
positions could have an adverse impact on a Fund's ability to effectively hedge
its securities. The Fund will enter into an option position only if there
appears to the Adviser or the Advisers of such Fund, at the time of investment,
to be a liquid secondary market for such options.
FUTURES CONTRACTS
Subject to applicable laws, each of the Funds may enter into bond and
interest rate futures contracts. The Funds intend to use futures contracts only
for bona fide hedging purposes. Futures contracts provide for the future sale
by one party and purchase by another party of a specified amount of a specified
security at a specified future time and at a specified price. A "sale" of a
futures contract entails a contractual obligation to deliver the underlying
securities called for by the contract, and a "purchase" of a futures contract
entails a contractual obligation to acquire such securities, in each case in
accordance with the terms of the contract. Futures contracts must be executed
through a futures commission merchant, or brokerage firm, which is a member of
an appropriate exchange designated as a "contract market" by the Commodity
Futures Trading Commission ("CFTC").
When a Fund purchases or sells a futures contract, the Trust must
allocate assets of that Fund as an initial deposit on the contract. The initial
deposit may be as low as approximately 5% of the value of the contract. The
futures contract is marked to market daily thereafter and the Fund may be
required to pay or entitled to receive additional "variation margin", based on
decrease or increase in the value of the futures contract.
Futures contracts call for the actual delivery or acquisition of
securities, or in the case of futures contracts based on indices, the making or
acceptance of a cash settlement at a specified future time; however, the
contractual obligation is usually fulfilled before the date specified in the
contract by closing out the futures contract position through the purchase or
sale, on a commodities exchange, of an identical futures contract. Positions in
futures contracts may be closed out only if a liquid secondary market for such
contract is available, and there can be no assurance that such a liquid
secondary market will exist for any particular futures contract.
A Fund's ability to hedge effectively through transactions in futures
contracts depends on, among other factors, its Adviser's or Advisers', as
applicable, judgment as to the expected price movements in the securities
underlying the futures contracts. In addition, it is possible in some
circumstances that a Fund would have to sell securities from its portfolio to
meet "variation margin" requirements at a time when it may be disadvantageous
to do so.
OPTIONS ON FUTURES CONTRACTS
The Funds may also, subject to any applicable laws, purchase and write
options on futures contracts for hedging purposes only. The holder of a call
option on a futures contract has the right to purchase the futures contract,
and the holder of a put option on a futures contract has the right to sell the
futures contract, in either case at a fixed exercise price up to a stated
expiration date or, in the case of certain options, on a stated date. Options
on futures contracts, like futures contracts, are traded on contract markets.
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The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities deliverable on exercise of the
futures contract. A Fund will receive an option premium when it writes the
call, and, if the price of the futures contract at expiration of the option is
below the option exercise price, the Fund will retain the full amount of this
option premium, which provides a partial hedge against any decline that may
have occurred in the Fund's portfolio holdings. Similarly, the writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the securities deliverable upon exercise of the futures contract. If
a Fund writes an option on a futures contract and that option is exercised, the
Fund may incur a loss, which loss will be reduced by the amount of the option
premium received, less related transaction costs. A Fund's ability to hedge
effectively through transactions in options on futures contracts depends on,
among other factors, the degree of correlation between changes in the value of
securities held by the Fund and changes in the value of its futures positions.
This correlation cannot be expected to be exact, and the Fund bears a risk that
the value of the futures contract being hedged will not move in the same
amount, or even in the same direction, as the hedging instrument. Thus it may
be possible for a Fund to incur a loss on both the hedging instrument and the
futures contract being hedged.
The ability of a Fund to engage in options and futures strategies depends
also upon the availability of a liquid market for such instruments; there can
be no assurance that such a liquid market will exist for such instruments.
FOREIGN SECURITIES
Certain of the Funds may invest in certain obligations or securities of
foreign issuers. The 1784 International Equity Fund intends to invest a
substantial portion of its assets in securities and obligations of foreign
issuers. Permissible investments may consist of obligations of foreign branches
of U.S. banks and of foreign banks, including certificates of deposit and time
deposits (including Eurodollar time deposits).
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, the value of securities
denominated in foreign currencies and of dividends and interest paid with
respect to such securities, will fluctuate based on the relative strength of
the U.S. dollar. In addition, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing and financial
reporting requirements comparable to those applicable to domestic issuers.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitation on the removal of funds or other assets of a
Fund, political or financial instability or diplomatic and other developments
which would affect such investments. Further, economies of particular countries
or areas of the world may differ favorably or unfavorably from the economy of
the U.S.
It is anticipated that in most cases the best available market for
foreign securities would be on exchanges or in over-the-counter markets located
outside the U.S. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the U.S., and
securities of some foreign issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of comparable
U.S. companies. Foreign security trading practices, including those involving
securities settlement where a Fund's assets may be released prior to receipt of
payment, may expose a Fund to increased risk in the event of a failed trade or
the insolvency of a foreign broker-dealer. In addition, foreign brokerage
<PAGE>
commissions are generally higher than commissions on securities traded in the
U.S. and may be non-negotiable. In general, there is less overall governmental
supervision and regulation of foreign securities exchanges, brokers and listed
companies than in the U.S.
The current policy of the 1784 International Equity Fund is not to invest
more than 10% of its assets in investment companies and investment trusts which
primarily hold foreign securities except that the Fund may invest all of its
investable assets in a Qualifying Portfolio (as defined below). Investments in
such entities may entail the risk that the market value of such investments may
be substantially less than their net asset value and that there would be
duplication of investment management and other fees and expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of foreign issuers provide an alternative method for a
Fund to make foreign investments. These securities are not denominated in the
same currency as the securities into which they may be converted. Generally,
ADRs, in registered form, are designed for use in U.S. securities markets and
EDRs and GDRs, in bearer form, are designed for use in European and global
securities markets. ADRs are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying securities. EDRs and GDRs are
European and global receipts evidencing a similar arrangement.
A Fund may invest in foreign securities that impose restrictions on
transfer within the United States or to United States persons. Although
securities subject to such transfer restrictions may be marketable abroad, they
may be less liquid than foreign securities of the same class that are not
subject to such restrictions.
Foreign issuers of securities or obligations are often subject to
accounting treatment and engage in business practices different from those
respecting domestic issuers of similar securities or obligations. Foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S. banks.
The Stock Funds, 1784 Income Fund and 1784 Short-Term Income Fund may
invest in securities issued by entities based in developing countries
throughout the world. All of the risks of investing in securities of foreign
issuers are heightened for securities of issuers in developing countries. Such
investments may also entail higher custodial fees and sales commissions than
domestic investments.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Since investments in foreign companies usually involve currencies of
foreign countries, the value of the assets of a Fund with investments in
foreign companies as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations. Although such Fund's assets are valued daily in terms of U.S.
dollars, the Fund does not intend to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. A Fund may conduct its foreign currency
exchange transactions on a spot basis or for settlement on a future date (i.e.,
a "forward foreign currency" contract or "forward" contract). A Fund may
convert currency on a spot basis from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the
difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
<PAGE>
to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer. The Funds do not currently
intend to speculate in foreign currency exchange rates or forward contracts.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no fees or
commissions are charged at any stage for trades.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of U.S. dollars, of the amount of foreign currency
involved in the underlying security transaction, a Fund will be able to protect
itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during
the period between the date the security is purchased or sold and the date on
which payment is made or received.
When the Adviser or each of the Advisers to a Fund believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract to sell,
for a fixed amount of U.S. dollars, the amount of foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency. The precise matching of the forward contract amounts and
the value of the securities involved is not generally possible since the future
value of such securities in foreign currencies changes as a consequence of
market movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of a
short-term hedging strategy is highly uncertain. A Fund does not enter into
such forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's securities or other
assets denominated in the applicable currency. Under normal circumstances,
consideration of the prospect for currency parities is incorporated in the
longer term investment decisions made with regard to overall diversification
strategies. However, each Adviser to such Funds believes that it is important
to have the flexibility to enter into such forward contracts when it determines
that the best interests of such Funds will be served.
A Fund generally does not enter into a forward contract with a term
greater than one year. At the maturity of a forward contract, the Fund either
sells the security and makes delivery of the foreign currency, or it retains
the security and terminates its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency.
If a Fund retains the security and engages in an offsetting transaction,
the Fund incurs a gain or loss (as described below) to the extent that there
has been movement in forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline during the period
between the date the Fund enters into a forward contract for the sale of the
foreign currency and the date it enters into an offsetting contract for the
purchase of foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of the currency
<PAGE>
it has agreed to purchase. Should forward prices increase, the Fund will suffer
a loss to the extent that the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell.
It is impossible to forecast with precision the market value of Fund
securities at the expiration of the contract. Accordingly, it may be necessary
for the Fund to purchase additional foreign currency for the Fund on the spot
market (and cause the Fund to bear the expense of such purchase) if the market
value of the security is less than the amount of foreign currency the Fund is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
security if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver.
The Funds' dealings in foreign currency contracts are limited to the
transactions described above. Of course, no Fund is required to enter into such
transactions with regard to the Fund's foreign currency-denominated securities
and will not do so unless deemed appropriate by the Adviser or Advisers to such
Fund. It should also be realized that this method of protecting the value of a
Fund's securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities.
Additionally, although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain which might result should the value of such currency increase.
WHEN-ISSUED SECURITIES
Each Fund may invest in securities on a when-issued basis, in which case
delivery and payment normally take place beyond conventional settlement time
after the date of commitment to purchase. The Funds will make commitments to
purchase obligations on a when-issued basis only with the intention of actually
acquiring the securities, but may sell them before the settlement date. The
when-issued securities are subject to market fluctuation, and no interest
accrues on the security to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery.
While awaiting delivery of securities purchased on a when-issued basis, a
Fund will establish a segregated account consisting of cash, short-term money
market instruments or high quality debt securities (for the 1784 Institutional
U.S. Treasury Money Market Fund and 1784 U.S. Treasury Money Market Fund, cash
and U.S. Government securities) equal to the amount of the commitments to
purchase securities on such basis. If the value of these assets declines, the
Fund will place additional assets of the type described in the preceding
sentence in the account on a daily basis so that the value of the assets in the
account is equal to the amount of such commitments.
RESTRICTED SECURITIES
Restricted securities are securities that may not be sold to the public
without registration under the Securities Act of 1933 (the "1933 Act") absent
an exemption from registration. Each Stock Fund and each Bond Fund may invest
up to 20% of its total assets in restricted securities provided it is
determined by the Adviser or Advisers to that Fund that at the time of
investment such securities are not illiquid (generally, an illiquid security is
one that cannot be disposed of within seven days in the ordinary course of
business at its full value), based on guidelines which are the responsibility
<PAGE>
of and are periodically reviewed by the Board of Trustees. Under these
guidelines, the Adviser or Advisers will consider the frequency of trades and
quotes for the security, the number of dealers in, and potential purchasers
for, the securities, dealer undertakings to make a market in the security, and
the nature of the security and of the marketplace trades. In purchasing such
restricted securities, the intention of the Adviser or Advisers is to rely upon
the exemption from registration provided by Rule 144A promulgated under the
1933 Act. Restricted securities not determined to be liquid may be purchased
subject to each Fund's limitation on all illiquid securities (15% of net assets
for each Stock, Bond and Tax-Exempt Fund and 10% for each Money Market Fund).
SECURITIES LENDING
Each Fund may lend securities pursuant to agreements requiring that the
loans be continuously secured by cash, securities of the U.S. government or its
agencies, or any combination of cash and such securities, as collateral equal
to 100% of the market value at all times of the securities lent. Such loans
will not be made if, as a result, the aggregate amount of all outstanding
securities loans for the Fund exceed one-third of a Fund's total assets. A Fund
will continue to receive interest on the securities lent while simultaneously
earning interest on the investment of the cash collateral in U.S. government
securities. However, a Fund will normally pay lending fees to such
broker-dealers and related expenses from the interest earned on invested
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser or Advisers to a Fund to
be of good standing and when, in the judgment of the Adviser or Advisers, the
consideration which can be earned currently from such securities loans
justifies the attendant risk. Any loan may be terminated by either party upon
reasonable notice to the other party. A Fund may use the Distributor or a
broker/dealer affiliate of an Adviser as a broker in these transactions.
OTHER INVESTMENTS
The Funds (other than the 1784 Institutional U.S. Treasury Money Market
Fund and the 1784 U.S. Treasury Money Market Fund) are not prohibited from
investing in obligations of banks which are clients of SEI Corporation ("SEI").
However, the purchase of shares of the Funds by such banks or by their
customers will not be a consideration in determining which bank obligations the
Funds will purchase.
4. INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
The following are fundamental policies of each of the Funds and may not
be changed with respect to any Fund without approval by holders of a majority
of the outstanding voting securities of that Fund, which as used in this
Statement of Additional Information means the vote of the lesser of (i) 67% or
more of the outstanding voting securities of the Fund present at a meeting at
which the holders of more than 50% of the outstanding voting securities of the
Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding voting securities of the Fund. The term "voting securities" as used
in this paragraph has the same meaning as in the Investment Company Act of
1940, as amended (the "1940 Act").
1. A Fund may not 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. This limitation does not apply to investments in obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities and,
for each of the Money Market Funds, to investments in obligations issued
by domestic banks, foreign branches of domestic banks and U.S. branches of
foreign banks, to the extent that a Fund may under the 1940 Act, reserve
freedom of action to concentrate its investments in such securities, and
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 sentence. This limitation also does not apply to an
investment of all of the investable assets of each of the 1784 Prime Money
1784 Market Fund, 1784 International Equity Fund, 1784 Growth Fund and
1784 Florida Tax-Exempt Income Fund in a diversified, open-end management
investment company having the same investment objective and policies and
substantially the ame investment restrictions as those applicable to such
Fund (in each case, a "Qualifying Portfolio"). For purposes of this
limitation, (i) utility companies will be divided according to their
services; for example, gas, gas transmission, electric and telephone will
each be considered a separate industry; (ii) financial service companies
will be classified according to the end users of their services; for
example, automobile finance, bank finance and diversified finance will
each be considered a separate industry; (iii) supranational entities will
be considered to be a separate industry; and (iv) loan participations are
considered to be issued by both the issuing bank and the underlying
corporate borrower.
2. A Fund may not make loans, except that a Fund may (a) purchase or hold
debt instruments in accordance with its investment objective and
policies; (b) enter into repurchase agreements; and (c) engage in
securities lending as described in the Prospectuses and in this Statement
of Additional Information.
3. A Fund may not acquire more than 10% of the voting securities of any one
issuer (except securities issued or guaranteed by the United States, its
agencies or instrumentalities and repurchase agreements involving such
securities) or invest more than 5% of the total assets of the Fund in the
securities of an issuer (except securities issued or guaranteed by the
United States, its agencies or instrumentalities and repurchase agreements
involving such securities); provided, that (a) the foregoing limitation
shall not apply to the 1784 Massachusetts Tax-Exempt Income Fund, 1784
Connecticut Tax-Exempt Income Fund, 1784 Rhode Island Tax-Exempt Income
Fund or 1784 Florida Tax-Exempt Income Fund; (b) the foregoing limitation
shall not apply to 25% of the total assets of each of the Stock Funds,
Bond Funds, 1784 Tax-Exempt Medium-Term Income Fund, 1784 Tax-Free Money
Market Fund or 1784 Prime Money Market Fund; and (c) the foregoing
limitation does not apply to an investment of all of the investable assets
of the 1784 Prime Money Market Fund, 1784 International Equity Fund, 1784
Growth Fund or 1784 Florida Tax-Exempt Income Fund in a Qualifying
Portfolio.
4. A Fund may not invest in companies for the purpose of exercising control.
5. A Fund may not borrow, except that a Fund may borrow money from banks and
may enter into reverse repurchase agreements, in either case in an amount
not to exceed 33-1/3% of that Fund's total assets and then only as a
temporary measure for extraordinary or emergency purposes (which may
include the need to meet shareholder redemption requests). This borrowing
provision is included solely to facilitate the orderly sale of Fund
<PAGE>
securities to accommodate heavy redemption requests if they should occur
and is not for investment purposes. A Fund will not purchase any
securities for its portfolio at any time at which its borrowings equal or
exceed 5% of its total assets (taken at market value), and any interest
paid on such borrowings will reduce income.
6. In the case of the 1784 Asset Allocation Fund, 1784 Growth and Income
Fund, Money Market Funds (other than the 1784 Prime Money Market Fund),
1784 U.S. Government Medium-Term Income Fund,1784 Tax-Exempt Medium-Term
Income Fund and 1784 Massachusetts Tax-Exempt Income Fund, pledge,
mortgage or hypothecate assets except to secure temporary borrowings
permitted by (5) above in aggregate amounts not to exceed 10% of total
assets taken at current value at the time of the incurrence of such loan,
except as permitted with respect to securities ending.
7. A Fund may not purchase or sell real estate, including real estate limited
partnership interests, commodities and commodities contracts, but
excluding interests in a pool of securities that are secured by interests
in real estate. However, subject to its permitted investments, any Fund
may invest in companies which invest in real estate commodities or
commodities contracts. Each of the Funds may invest in futures contracts
and options thereon to the extent described in the Prospectuses and
elsewhere in this Statement of Additional Information.
8. A Fund may not make short sales of securities, maintain a short position
or purchase securities on margin, except that the Trust may obtain
short-term credits as necessary for the clearance of security
transactions.
9. A Fund may not act as an underwriter of securities of other issuers,
except as it may be deemed an underwriter under federal securities laws
in selling a security held by the Fund.
10. A Fund may not purchase securities of other investment companies except
as permitted by the 1940 Act and the rules and regulations thereunder.
Under these rules and regulations, each of the Funds is prohibited from
acquiring the securities of other investment companies if, as a result of
such acquisition, (a) such Fund owns more than 3% of the total voting
stock of the company; (b) securities issued by any one investment company
represent more than 5% of the total assets of such Fund; or (c) securities
(other than treasury stock) issued by all investment companies represent
more than 10% of the total assets of such Fund, provided, that with
respect to the 1784 Prime Money Market Fund, 1784 International Equity
Fund, 1784 Growth Fund and 1784 Florida Tax-Exempt Income Fund, the
limitations do not apply to an investment of all of the investable assets
of such Fund in a Qualifying Portfolio. These investment companies
typically incur fees that are separate from those fees incurred directly
by a Fund. A Fund's purchase of such investment company securities
results in the layering of expenses, such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees.
It is the position of the Securities and Exchange Commission's Staff that
certain non-governmental issuers of CMOs and REMICs constitute investment
companies pursuant to the 1940 Act and either (a) investments in such
instruments are subject to the limitations set forth above or (b) the
issuers of such instruments have received orders from the Securities and
Exchange Commission exempting such instruments from the definition of
investment company.
<PAGE>
11. A Fund may not issue senior securities (as defined in the 1940 Act)
except in connection with permitted borrowings as described above or as
permitted by rule, regulation or order of the Securities and Exchange
Commission.
12. A Fund may not write or purchase puts, calls, or other options or
combinations thereof, except that each Fund may write covered call options
with respect to any or all of the securities it holds, subject to any
limitations described in the Prospectuses or elsewhere in this Statement
of Additional Information and each Fund may purchase and sell other
options as described in the Prospectuses.
NON-FUNDAMENTAL POLICIES
The following policies are not fundamental and may be changed with
respect to any Fund without approval by the shareholders of that Fund:
No Fund may invest in warrants, except that (i) each of the Stock Funds
may invest in warrants in an amount not exceeding 5% of the Fund's net assets
as valued at the lower of cost or market value; included in these amounts, but
not to exceed 2% of the Fund's net assets, may be warrants not listed on the
New York Stock Exchange or American Stock Exchange; and (ii) the 1784
Short-Term Income Fund and 1784 Income Fund may each invest in warrants in an
amount not exceeding 2% of its net assets; this limitation does not apply to
warrants acquired in units or attached to securities. Such warrants may not be
listed on the New York Stock Exchange or American Stock Exchange.
No Fund may invest in illiquid securities in an amount exceeding, in the
aggregate, 15% of that Fund's net assets (10% for Money Market Funds), provided
that this limitation does not apply to an investment of all of the investable
assets of the 1784 Prime Money Market Fund, 1784 International Equity Fund,
1784 Growth Fund or 1784 Florida Tax-Exempt Income Fund in a Qualifying
Portfolio. The foregoing limitation does not apply to restricted securities,
including those issued pursuant to Rule 144A under the 1933 Act, if it is
determined by or under procedures established by the Board of Trustees of the
Trust that, based on trading markets for the specific restricted security in
question, such security is not illiquid.
No Fund may purchase or retain securities of an issuer if, to the
knowledge of the Trust, an officer, trustee, partner or director of the Trust
or any investment adviser of the Trust owns beneficially more than 1/2 of 1% of
the shares or securities of such issuer and all such officers, trustees,
partners and directors owning more than 1/2 of 1% of such shares or securities
together own more than 5% of such shares or securities.
No Fund may invest in interests in oil, gas or other mineral exploration
or development programs. No Fund may invest in oil, gas or mineral leases.
No Fund may purchase securities of any company which has (with
predecessors) a record of less than 3 years continuing operations if as a
result more than 5% of total assets (taken at fair market value) of the Fund
would be invested in such securities, except that the foregoing limitation
shall not apply to (a) obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; (b) municipal securities which are rated by
at least one nationally-recognized bond rating service; or (c) an investment of
all of the investable assets of the 1784 International Equity Fund, 1784 Growth
Fund or 1784 Florida Tax-Exempt Income Fund in a Qualifying Portfolio.
<PAGE>
The foregoing percentages will apply at the time of the purchase of a
security and shall not be considered violated unless an excess occurs or exists
immediately after and as a result of a purchase of such security.
6. MANAGEMENT
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees
under the laws of the Commonwealth of Massachusetts. The Trustees and executive
officers of the Trust and their principal occupations for the last five years
are set forth below. Their titles may have varied during the period. An
asterisk indicates a Trustee who may be deemed to be an "interested person" (as
defined in the 1940 Act) of the Trust.
DAVID H. CARTER - Trustee - 224 Polpis Road, Nantucket, Massachusetts
02554 (date of birth March 21, 1933). Trustee, St. James Portfolios, since
June, 1994; Main Board Director, Touche Remnant & Co. (investment advisor),
1982-1988; Managing Director, Bearbull (UK) Ltd., London (investment advisor),
1988-January 1993.
TARRANT CUTLER - Trustee - 5 Masconomo Street, Manchester, Massachusetts
01944 (date of birth June 12, 1926). Senior Executive Vice President,
Massachusetts Financial Services Company, retired in 1991.
KENNETH A. FROOT - Trustee - Harvard University Graduate School of Business,
Boston, Massachusetts 02163 (date of birth July 5, 1957). Thomas Henry
Carroll-Ford Visiting Professor of Business Administration, Harvard University
Graduate School of Business, since 1991; Associate Professor of Management with
Tenure, Sloan School of Management, Massachusetts Institute of Technology,
1991-May 1992; Ford International Development Chair, Sloan School, 1987-1990;
Research Associate, National Bureau of Economic Research, 1990-present.
KATHRYN F. MUNCIL - Trustee - c/o Fort William Henry Corporation, Canada
Street, Lake George, New York 12845 (date of birth November 30, 1958). Chief
Financial Officer, Fort William Henry Corporation, since 1993; Treasurer,
Spaulding Investment Company (property management) 1985-1993.
*ROBERT A. NESHER - Trustee, President & Chief Executive Officer- 680 East
Swedesford Road, Wayne, Pennsylvania 19087 (date of birth August 17, 1946).
Retired since 1994. Director and Executive Vice President of SEI 1986 to July,
1994. Director and Executive Vice President of the Administrator and
Distributor 1981 to July, 1994.
MARC H. CAHN - Vice President and Assistant Secretary - 680 East
Swedesford Road, Wayne, Pennsylvania 19087 (date of birth June 19, 1957). Vice
President and Assistant Secretary of SEI Corporation since May, 1996. Associate
General Counsel, Barclays Bank PLC (May 1995-May 1996). ERISA counsel, First
Fidelity Bancorporation (1994-1995). Associate, Morgan, Lewis & Bockius
(1989-1994).
TODD CIPPERMAN - Vice President and Assistant Secretary - 680 East Swedesford
Road, Wayne, Pennsylvania 19087 (date of birth February 14, 1966). Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1995. Associate, Dewey Ballantine (law firm)(1994-1995). Associate,
Winston & Strawn (law firm) (1991-1994).
<PAGE>
ROGER P. JOSEPH - Secretary - 150 Federal Street, Boston, Massachusetts 02110
(date of birth October 3, 1951). Partner, Bingham, Dana & Gould LLP, counsel to
the Trust, since 1983.
DAVID G. LEE - Senior Vice President & Assistant Secretary - 680 East
Swedesford Road, Wayne, Pennsylvania 19087 (date of birth April 16, 1952).
Senior Vice President of the Administrator and the Distributor since 1993. Vice
President of the Administrator and the Distributor from 1991 to 1993. President
of GW Sierra Trust Funds before 1991.
JOSEPH M. LYDON - Vice President, Assistant Secretary - 680 East
Swedesford Road, Wayne, Pennsylvania 19087 (date of birth September 27, 1959).
Director of Business Administration of Fund Resources, SEI Corporation since
1995. Vice President of Dreman Value Management and President of Dreman
Financial Services, Inc. prior to 1995.
STEPHEN G. MEYER - Controller - 680 East Swedesford Road, Wayne,
Pennsylvania 19087. Vice President and Controller, Chief Accounting Officer of
SEI since 1992 (date of birth July 12, 1965). Senior Associate, Coopers &
Lybrand L.L.P. from 1990 to 1992. Internal Audit, Vanguard Group of Investments
prior to 1990.
BARBARA A. NUGENT - Vice President and Assistant Secretary - 680 East
Swedesford Road, Wayne, Pennsylvania 19087 (date of birth June 18, 1956). Vice
President and Secretary of SEI Corporation since April 1996. Associate Drinker,
Biddle & Reath (law firm) (1994-1996). Assistant Vice President/Administration
of Delaware Service Company, Inc. (1992-1993). Assistant Vice
President-Operations Delaware Service Company, Inc. (1988-1992).
SANDRA K. ORLOW - Vice President, Assistant Secretary - 680 East Swedesford
Road, Wayne, Pennsylvania 19087 (date of birth October 18, 1953). Vice
President and Assistant Secretary of the Administrator and Distributor since
1983.
KEVIN P. ROBINS - Vice President & Assistant Secretary - 680 East Swedesford
Road, Wayne, Pennsylvania 19087 (date of birth April 15, 1961). Senior Vice
President of SEI, the Administrator and the Distributor since 1994. Vice
President of SEI, the Administrator and the Distributor from 1991 to 1994. Vice
President of SEI, the Administrator and the Distributor from 1992 to 1994.
Associate, Morgan, Lewis & Bockius (law firm) prior to 1992.
CARMEN V. ROMEO - Treasurer, Assistant Secretary - 680 East Swedesford Road,
Wayne, Pennsylvania 19087 (date of birth December 30, 1943). Director,
Executive Vice President, Chief Financial Officer and Treasurer of SEI.
Director and Treasurer of the Administrator and Distributor since 1981.
KATHRYN L. STANTON - Vice President, Assistant Secretary - 680 East Swedesford
Road, Wayne, Pennsylvania 19087 (date of birth November 18, 1958). Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1994. Associate, Morgan, Lewis & Bockius (law firm) 1989-1994.
The following table sets forth certain information regarding the compensation
of the Trust's Trustees for the fiscal year ended May 31, 1996. The Officers of
the Trust receive no compensation from the Trust for serving in such capacity.
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
- -------------------------------------------------------------------------------------------------
Pension or Total
Retirement Estimated Compensation
Aggregate Benefits Accrued Annual Benefits from the Trust
Compensation as Part of Fund Upon and the Funds
Name of Trustee from the Trust Expenses Retirement Paid to Trustee
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
David H. Carter $29,000 $ 0 $ 0 $29,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Tarrant Cutler $29,000 0 0 $29,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Kenneth A. Froot $29,000 0 0 $29,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Kathryn F. Muncil $29,000 0 0 $29,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Robert A. Nesher 0 0 0 0
- -------------------------------------------------------------------------------------------------
</TABLE>
The Trustees and officers of the Trust own, in the aggregate, less than
1% of the outstanding shares of the Trust. The Trust pays the fees for
unaffiliated Trustees. Compensation of officers and Trustees of the Trust who
are employed by the Administrator is paid by the Administrator.
As of July 10, 1996, National Financial Services Corp., 200 Liberty
Street, New York, NY 10281, owned of record the following percentages of the
outstanding shares of the following Funds:
1784 U.S. Treasury Money Market Fund -- 27.57%
1784 Institutional U.S. Treasury Money Market Fund -- 5.42%
1784 Short-Term Income Fund -- 14.09%
1784 Massachusetts Tax-Exempt Income Fund -- 9.04%
1784 Asset Allocation Fund -- 18.43%
1784 Growth and Income Fund -- 5.95%
As of July 10, 1996, Middlefield Memorial School -- Building Project,
135A Pickett Lane, Durham, CT 06422, owned of record 6.03% of the outstanding
shares of the 1784 U.S. Treasury Money Market Fund.
As of July 10, 1996, The First National Bank of Boston, 100 Federal
Street, Boston, Massachusetts 02110, and its affiliates, owned of record the
following percentages of the outstanding shares of the following Funds:
1784 Tax-Free Money Market Fund -- 84.05%
1784 Institutional U.S. Treasury Money Market Fund -- 45.87%
1784 Tax-Exempt Medium-Term Income Fund -- 89.54%
1784 Massachusetts Tax-Exempt Income Fund -- 65.18%
1784 Rhode Island Tax-Exempt Income Fund -- 90.94%
1784 Connecticut Tax-Exempt Income Fund -- 83.27%
1784 U.S. Government Medium-Term Income Fund -- 82.81%
1784 Short-Term Income Fund -- 63.53%
1784 Income Fund -- 94.34%
1784 Asset Allocation Fund -- 19.72%
1784 Growth & Income Fund -- 71.85%
1784 Growth Fund -- 91.82%
1784 International Equity Fund -- 95.33%
<PAGE>
The Trust believes that The First National Bank of Boston possessed, on behalf
of its underlying accounts, voting or investment power with respect to a
majority of such shares.
THE ADVISERS
The Trust has entered into separate advisory agreements (each, an
"Advisory Agreement") with Bank of Boston and, for the 1784 International
Equity Fund, with Kleinwort Benson Investment Management Americas Inc.
("Kleinwort Benson"). The Advisory Agreement with Bank of Boston for the Funds
other than the 1784 International Equity Fund is dated as of June 1, 1993 and
the Advisory Agreement with Bank of Boston for the 1784 International Equity
Fund is dated as of November 28, 1994. The Advisory Agreement with Kleinwort
Benson for the 1784 International Equity Fund is dated as of October 27, 1995.
Bank of Boston and Kleinwort Benson are referred to in this Statement of
Additional Information, collectively, as the "Advisers" and each, individually,
as an "Adviser." The Prospectuses contain a description of the fees payable to
the Advisers for services rendered to the Funds under the applicable Advisory
Agreements.
For the fiscal years ended May 31, 1994, 1995 and 1996, the Trust paid the
following fees (after fee waivers) on behalf of the Funds:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Bank of Bank of
Boston Bank of Boston Boston
Fund Investment Investment Investment
Advisory Fees Advisory Fees Advisory Fees
1994 1995 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1784 Tax-Free Money Market Fund $0 $ 1,471,000 $1,996,000
1784 Prime Money Market Fund N/A N/A N/A
1784 U.S. Treasury Money Market Fund $0 $ 69,000 276,000
1784 Institutional U.S. Treasury Money $0 $ 85,000 651,000
Market Fund
1784 Tax-Exempt Medium-Term Income $0 $ 602,000 1,116,000
Fund
1784 Massachusetts Tax-Exempt Fund $0 $ 363,000 548,000
1784 Rhode Island Tax-Exempt Income Fund N/A $ 77,000 208,000
1784 Connecticut Tax-Exempt Income Fund N/A $ 138,000 418,000
1784 Florida Tax-Exempt Income Fund N/A N/A N/A
1784 U.S. Government Medium-Term $0 $ 679,000 906,000
Income Fund
1784 Short-Term Income Fund N/A $ 86,000 348,000
1784 Income Fund N/A $ 521,000 1,257,000
1784 Asset Allocation Fund $0 $ 23,000 90,000
1784 Growth and Income Fund $12,000 $ 1,393,000 1,997,000
1784 Growth Fund N/A N/A 0
1784 International Equity Fund N/A $ 0 636,000
- -----------------------------------------------------------------------------------------------
Total $12,000 $ 5,707,000 $10,447,000
- -----------------------------------------------------------------------------------------------
</TABLE>
The foregoing table does not reflect contributions to the Funds made by
Bank of Boston in order to assist the Funds in maintaining competitive expense
ratios.
For the fiscal year ended May 31, 1995, the Trust paid $199,000 to
Kleinwort Benson under the Advisory Agreement to which Kleinwort Benson is a
<PAGE>
party, with respect to the 1784 International Equity Fund. For the fiscal year
ended May 31, 1996, the Trust paid $1,222,419 to Kleinwort Benson under the
same Advisory Agreement.
The continuance of each Advisory Agreement, after the first two years,
must be specifically approved at least annually (i) by the vote of the
Trustees, and (ii) by the vote of a majority of the Trustees who are neither
parties to the Advisory Agreement nor "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval. Each Advisory Agreement will terminate automatically in the event of
its assignment, and is terminable at any time without penalty by the Trustees
of the Trust or with respect to any Fund, by a majority of the outstanding
shares of that Fund, on not less than 30 nor more than 60 days' written notice
to the applicable Adviser, or by the applicable Adviser on 90 days' written
notice to the Trust.
Each Advisory Agreement provides that neither the Adviser nor its
personnel shall be liable (1) for any error of judgment or mistake of law; (2)
for any loss arising out of any investment; or (3) for any act or omission in
the execution of security transactions for the Trust or any Fund, except that
the Adviser and its personnel shall not be protected against any liability to
the Trust, any Fund or its Shareholders by reason of willful misfeasance, bad
faith or gross negligence on its or their part in the performance of its or
their duties or from reckless disregard of its or their obligations or duties
thereunder.
THE ADMINISTRATOR
The Trust and SEI Fund Resources (the "Administrator") are parties to an
administration agreement (the "Administration Agreement"). The Administration
Agreement provides that the Administrator shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the matters to which the Administration Agreement relates, except a loss
that results from willful misfeasance, bad faith or gross negligence on the
part of the Administrator in the performance of its duties or from reckless
disregard by it of its duties and obligations under the Administration
Agreement. The Administration Agreement expires by its terms in May, 1998.
SEI Fund Resources is a Delaware business trust whose sole beneficiary is
SEI Financial Management Corporation. SEI Financial Management Corporation, a
wholly owned subsidiary of SEI Corporation ("SEI"), was organized as a Delaware
corporation in 1969 and has its principal business offices at 680 East
Swedesford Road, Wayne, PA 19087. Alfred P. West, Jr., Carmen V. Romeo, and
Henry H. Greer constitute the Board of Directors of the Administrator. Mr. West
is the Chairman of the Board and Chief Executive Officer of the Administrator.
Mr. West serves as the Chairman of the Board of Directors, and Chief Executive
Officer of SEI. SEI and its subsidiaries are leading providers of funds
evaluation services, trust accounting systems, and brokerage and information
services to financial institutions, institutional investors and money managers.
The Administrator and its affiliates also serve as administrator to the
following other institutional mutual funds: SEI Daily Income Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI International Trust,
SEI Institutional Managed Trust, Stepstone Funds, The Advisors' Inner Circle
Fund, The Pillar Funds, CUFund, STI Classic Funds, CoreFunds, Inc., First
American Funds, Inc., First American Investment Funds, Inc., Rembrandt
Fundsregistered trademark, The Arbor Fund, Marquis Fundsregistered trademark,
Morgan Grenfell Investment Trust, The PBHG Funds, Inc., Inventor Funds, Inc.,
The Achievement Funds Trust, Bishop Street Funds, CrestFunds, Inc., STI Classic
Variable Trust, ARK Funds, Monitor Funds, FMB Funds, Inc., SEI Asset Allocation
Trust and Turner Funds.
<PAGE>
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned
subsidiary of SEI, and the Trust are parties to a distribution agreement
("Distribution Agreement"), dated as of June 1, 1993 and amended and restated
as of October 27, 1995. The Trust has adopted a distribution plan dated as of
June 1, 1993, with respect to each of the Stock Funds, the Bond Funds and the
Tax-Exempt Funds and separate distribution plans dated as of September 14, 1995
with respect to Class C and Class D shares of the 1784 U.S. Treasury Money
Market Fund. Each of these plans ("Plans") has been adopted pursuant to Rule
12b-1 under the 1940 Act. The Distributor receives no compensation for
distribution of shares of the 1784 Tax-Free Money Market Fund, 1784 Prime Money
Market Fund or 1784 Institutional U.S. Treasury Money Market Fund, or for the
distribution of Class A Shares of the 1784 U.S. Treasury Money Market Fund.
The Distribution Agreement and the Plans provide that the Trust will pay
the Distributor a fee, calculated daily and paid monthly, at an annual rate of
(i) 0.25% of the average daily net assets of each of the Stock Funds, the Bond
Funds and the Tax-Exempt Funds; (ii) 0.25% of the average daily net assets of
the Class C shares of the 1784 U.S. Treasury Money Market Fund; and (iii) 0.75%
of the average daily net assets of the Class D shares of the 1784 U.S. Treasury
Money Market Fund. The Distributor can use these fees to compensate
broker/dealers and service providers (including each Adviser and its
affiliates) which provide administrative and/or distribution services to
holders of these shares or their customers who beneficially own these shares.
No fees have been paid to the Distributor under the Plans or the Distribution
Agreement since the Funds' inception.
The Distribution Agreement is renewable annually and may be terminated by
the Distributor, by the Trustees of the Trust who are not interested persons
and have no financial interest in the Plans or any related agreement
("Qualified Trustees"), or, with respect to any particular Fund or class of
shares, by a majority vote of the outstanding shares of such Fund or such class
of shares, as applicable, for which the Distribution Agreement is in effect
upon not more than 60 days' written notice by either party.
The Trust has adopted each of the Plans in accordance with the provisions
of Rule 12b-1 under the 1940 Act, which regulates circumstances under which an
investment company may, directly or indirectly, bear expenses relating to the
distribution of its shares. Continuance of each of the Plans must be approved
annually by a majority of the Trustees of the Trust and by a majority of the
Qualified Trustees. Continuance of the Plan with respect to each of the Stock
Funds, the Bond Funds, and the Tax-Exempt Funds was approved by the Trustees
on March 12, 1996. Each of the Plans requires that quarterly written reports of
money spent under such Plan and of the purposes of such expenditures be
furnished to and reviewed by the Trustees. Expenditures may include (1) the
cost of prospectuses, reports to Shareholders, sales literature and other
materials for potential investors; (2) advertising; (3) expenses incurred in
connection with the promotion and sale of the Trust's shares, including the
Distributor's expenses for travel, communication, and compensation and benefits
for sales personnel; and (4) any other expenses reasonably incurred in
connection with the distribution and marketing of the shares subject to
approval of a majority of the Qualified Trustees. No Plan may be amended to
materially increase the amount which may be spent under the Plan without
approval by a majority of the outstanding shares of the Funds or the class of
shares which are subject to such Plan. All material amendments of the Plans
require approval by a majority of the Trustees of the Trust and of the
Qualified Trustees.
<PAGE>
6. FUND TRANSACTIONS; TRADING PRACTICES AND BROKERAGE
FUND TRANSACTIONS
None of the Advisers has any obligation to deal with any dealer or group
of dealers in the execution of transactions in Fund securities. Subject to
policies established by the Trustees, each Adviser to a Fund is responsible for
placing the orders to execute transactions for such Fund. In placing orders, it
is the policy of the Trust for each Adviser to seek to obtain the best net
results taking into account such factors as price (including the applicable
dealer spread), the size, type and difficulty of the transaction involved, the
firm's general execution and operational facilities, and the firm's risk in
positioning the securities involved. While each Adviser seeks reasonably
competitive spreads or commissions, the Trust will not necessarily be paying
the lowest spread or commission available.
The money market securities in which the Funds invest are traded
primarily in the over-the-counter market. Bonds and debentures are usually
traded over-the-counter, but may be traded on an exchange. Where possible, each
Adviser will deal directly with the dealers who make a market in the securities
involved except in those circumstances where better prices and execution are
available elsewhere. Such dealers usually are acting as principal for their own
account. On occasion, securities may be purchased directly from the issuer.
Money market securities are generally traded on a net basis and do not normally
involve either brokerage commissions or transfer taxes. The cost of executing
transactions for the Funds will primarily consist of dealer spreads and
underwriting commissions.
TRADING PRACTICES AND BROKERAGE
Specific decisions to purchase or sell securities for a Fund are made by
a portfolio manager who is an employee of Bank of Boston, and who is appointed
and supervised by the senior officers of Bank of Boston, or in the case of the
1784 International Equity Fund, by portfolio managers who are employees of Bank
of Boston or of Kleinwort Benson, and who are appointed and supervised by the
senior officers of Bank of Boston or by senior officers of Kleinwort Benson. A
portfolio manager may serve other clients of either of the Advisers or of an
affiliate of either of the Advisers in a similar capacity.
Each Adviser selects brokers or dealers to execute transactions for the
purchase or sale of securities for the Funds on the basis of the Adviser's
judgment of their professional capability to provide the service. The primary
consideration is to have brokers or dealers execute transactions at the best
price and execution. Best price and execution refers to many factors, including
the price paid or received for a security, the commission charged, the
promptness and reliability of execution, the confidentiality and placement
accorded the order and other factors affecting the overall benefit obtained by
the account on the transaction. Each Adviser's determination of what are
reasonably competitive rates is based upon the professional knowledge of the
Adviser's portfolio managers as to rates paid and charged for similar
transactions throughout the securities industry. In some instances, a Fund pays
a minimal share transaction cost when the transaction presents no difficulty.
Some trades are made on a net basis where a Fund either buys securities
directly from the dealer or sells them to the dealer. In these instances, there
is no direct commission charged but there is a spread (the difference between
the buy and sell price) which is the equivalent of a commission.
Each Adviser may allocate, out of all commission business generated by
the funds and accounts under its management, brokerage business to brokers or
dealers who provide brokerage and research services. These research services
<PAGE>
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software used in security
analyses; and providing fund performance evaluation and technical market
analyses. Such services are used by each Adviser in connection with its
investment decision-making process with respect to one or more portfolios under
its management and may not be used exclusively with respect to the fund or
account generating the brokerage. Not all brokerage and research services are
useful or of value in advising any particular Fund.
As provided in the Securities Exchange Act of 1934 (the "1934 Act"),
higher commissions may be paid to broker/dealers who provide brokerage and
research services than to broker/dealers who do not provide such services if
such higher commissions are deemed reasonable in relation to the value of the
brokerage and research services provided. Although transactions are directed to
broker/dealers who provide such brokerage and research services, the
commissions paid to such broker/dealers are not, in general, expected to be
higher than commissions that would be paid to broker/dealers not providing such
services. Further, in general, any such commissions are reasonable in relation
to the value of the brokerage and research services provided. Unless otherwise
directed by the Trust, a commission higher than one charged elsewhere will not
be paid to a broker/dealer solely because it provided research services to an
Adviser. In addition, fund transactions which generate commissions or their
equivalent are directed to broker/dealers who provide daily fund pricing
services to the Funds. Subject to best price and execution, commissions used
for pricing may or may not be generated by the Funds receiving the pricing
service.
Bank of Boston may place a combined order for two or more Funds (or for a
Fund and another account under Bank of Boston's management) engaged in the
purchase or sale of the same security if, in Bank of Boston's judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in
a manner deemed equitable to each Fund or account. It is believed that the
ability of the Funds to participate in volume transactions is generally
beneficial. Although it is recognized that the joint execution of orders could
adversely affect the price or volume of the security that a particular Fund may
obtain, it is the opinion of Bank of Boston and the Board of Trustees of the
Trust that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, an
Adviser may place orders for a Fund with broker/dealers who have agreed to
defray certain Trust expenses such as custodian fees, and may, at the request
of the Distributor, give consideration to sales of shares of the Trust as a
factor in the selection of brokers and dealers to execute Fund transactions.
It is expected that an Adviser may execute brokerage or other agency
transactions through the Distributor or such Adviser or an affiliate of such
Adviser, for a commission in conformity with the 1940 Act, the 1934 Act, rules
promulgated by the Securities and Exchange Commission and such policies as the
Board of Trustees of the Trust may determine. Under these provisions, the
Distributor or such Adviser or an affiliate of such Adviser is permitted to
receive and retain compensation for effecting transactions for a Fund on an
exchange if a written contract is in effect between the Distributor and the
Trust expressly permitting the Distributor or such Adviser or an affiliate of
such Adviser to receive and retain such compensation. These rules further
<PAGE>
require that commissions paid to the Distributor, such Adviser, or any such
affiliate by the Trust for such exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." In addition, an Adviser may direct commission business to one or more
designated broker/dealers in connection with such broker/dealer's provision of
services to the Trust or the Funds or payment of certain Trust expenses, such
as custody, pricing and professional fees. The Trustees, including those who
are not "interested persons" of the Trust, have adopted procedures for
evaluating the reasonableness of commissions paid to the Distributor and will
review these procedures periodically.
7. PERFORMANCE INFORMATION
CALCULATION OF YIELD
From time to time the Trust advertises the "current yield" and "effective
yield" (also referred to as "effective compound yield") of the Money Market
Funds. Both yield figures are based on historical earnings and are not intended
to indicate future performance. The "current yield" of a Fund refers to the
income generated by an investment in that Fund over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by an investment in the Fund is assumed
to be reinvested. The "effective yield" will be slightly higher than the
"yield" because of the compounding effect of this assumed reinvestment.
The current yield of these Funds will be calculated daily based upon the
seven days ending on the date of calculation ("base period"). The yield is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing shareholder account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net change
by the value of the account at the beginning of the same period to obtain the
base period return and multiplying the result by (365/7). Realized and
unrealized gains and losses are not included in the calculation of the yield.
The effective compound yield of these Funds is determined by computing the
net change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power
equal to 365 divided by 7, and subtracting 1 from the result, according to the
following formula:
Effective Yield = (Base Period Return + 1) (365/7) - 1.
The current and the effective yields reflect the reinvestment of net
income earned daily on fund assets.
The yield of the Money Market Funds fluctuates, and the annualization of a
week's dividend is not a representation by the Trust as to what an investment
<PAGE>
in a Fund will actually yield in the future. Actual yields will depend on such
variables as asset quality, average asset maturity, the type of instruments the
Fund invests in, changes in interest rates on money market instruments, changes
in the expenses of the Fund and other factors.
Yields are one basis upon which investors may compare these Funds with
other money market funds. However, yields of other money market funds and other
investment vehicles may not be comparable because of the factors set forth
above and differences in the methods used in valuing fund instruments.
From time to time the Trust may advertise a 30-day yield for each of the
Stock and Bond Funds. These figures will be based on historical earnings and
are not intended to indicate future performance. The yield of these Funds
refers to the annualized net investment income per share generated by an
investment in the Funds over a specified 30-day period. The yield is calculated
by assuming that the income generated by the investment during that 30-day
period is generated over one year and is shown as a percentage of the
investment. In particular, yield will be calculated according to the following
formula:
Yield = 2 [((a-b)/cd + 1)6 - 1], where
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursement);
c = the current daily number of shares outstanding during the period that
was entitled to receive dividends;
d = the maximum offering price per share on the last day of the period.
The Trust may also advertise a "tax-equivalent yield" for each of the
Tax-Exempt Funds. The "tax-equivalent yield" is calculated by determining the
rate of return that would have to be achieved on a fully-taxable investment to
produce the after-tax equivalent of a Fund's yield, assuming certain tax
brackets for a shareholder. Any tax-equivalent yield quotation of a Fund will
be calculated by adding (a) the portion of that Fund's current yield which is
not tax-exempt and (b) the result obtained by dividing the portion of the
Fund's current yield which is tax-exempt by the difference of one minus a
stated income tax rate.
CALCULATION OF TOTAL RETURN
From time to time the Trust may advertise total return for a Fund. The
total return of a Fund refers to the average compounded rate of return on a
hypothetical investment for designated time periods (including, but not limited
to, the period from which the Fund commenced operations through the specified
date), and assumes that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)n = ERV, where
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value (as of the end of the designated time
period) of a hypothetical $1,000 payment made at the beginning of the
designated time period.
<PAGE>
Set forth below is total rate of return information, assuming that
dividends and capital gains distributions, if any, were reinvested, for the
Tax-Exempt, Bond and Stock Funds for the periods indicated:
REDEEMABLE VALUE OF A
HYPOTHETICAL $1,000
ANNUALIZED TOTAL INVESTMENT AT THE
FUND AND PERIOD RATE OF RETURN END OF THE PERIOD
1784 TAX-EXEMPT
MEDIUM-TERM INCOME
FUND
June 14, 1993
(commencement of __________% $__________
operations) to
May 31, 1996 __________% $__________
One year ended
May 31, 1996
1784 MASSACHUSETTS
TAX-EXEMPT INCOME FUND
June 14, 1993
(commencement of __________% $__________
operations) to
May 31, 1996 __________% $__________
One year ended
May 31, 1996
1784 RHODE ISLAND
TAX-EXEMPT INCOME
FUND
August 1, 1994
(commencement of __________% $__________
operations) to
May 31, 1996 __________% $__________
One year ended
May 31, 1996
<PAGE>
1784 CONNECTICUT
TAX-EXEMPT INCOME
FUND
August 1, 1994
(commencement of __________% $__________
operations) to
May 31, 1996 __________% $__________
One year ended
May 31, 1996
1784 U.S. GOVERNMENT
MEDIUM-TERM INCOME
FUND
June 7, 1993 __________% $__________
(commencement of
operations) to __________% $__________
May 31, 1996
One year ended
May 31, 1996
1784 SHORT-TERM
INCOME FUND
July 1, 1994
(commencement of __________% $__________
operations) to
May 31, 1996 __________% $__________
One year ended
May 31, 1996
1784 INCOME FUND
July 1, 1994
(commencement of
operations) to __________% $__________
May 31, 1996
----------% $----------
One year ended
May 31, 1996
<PAGE>
1784 ASSET
ALLOCATION FUND
June 14, 1993
(commencement of __________% $__________
operations) to
May 31, 1996 __________% $__________
One year ended
May 31, 1996
1784 GROWTH AND
INCOME FUND
June 7, 1993
(commencement of
operations) to __________% $__________
May 31, 1996
----------% $----------
One year ended
May 31, 1996
1784 GROWTH FUND
March 28, 1996
(commencement of
operations) to __________% $__________
May 31, 1996
1784 INTERNATIONAL
EQUITY FUND
January 3, 1995
(commencement of
operations) to __________% $__________
May 31, 1996
----------% $----------
One year ended
May 31, 1996
The annualized yield of each of the Tax-Exempt, Bond and Stock Funds for
the 30-day period ended on May 31, 1996 was as follows: 1784 Tax-Exempt
Medium-Term Income Fund ________%; 1784 Massachusetts Tax-Exempt Income Fund
________%; 1784 Rhode Island Tax-Exempt Income Fund ________%; 1784 Connecticut
Tax-Exempt Income Fund; 1784 U.S. Government Medium-Term Income Fund ________%;
1784 Short-Term Income Fund ________%; 1784 Income Fund ________%; 1784 Asset
Allocation Fund ________%; 1784 Growth and Income Fund ________%; 1784 Growth
Fund ________%; and 1784 International Equity Fund ________%.
The annualized tax-equivalent yield of each of the Tax-Exempt Funds for
the 30-day period ended on May 31, 1996 was as follows: 1784 Tax-Exempt
<PAGE>
Medium-Term Income Fund __%; 1784 Massachusetts Tax-Exempt Income Fund __%;
1784 Rhode Island Tax-Exempt Income Fund __%; and 1784
Connecticut Tax-Exempt Income Fund.
Set forth below is total rate of return information, assuming that
dividends and capital gains distributions, if any, were reinvested, for the
Money Market Funds for the periods indicated:
REDEEMABLE VALUE OF A
HYPOTHETICAL $1,000
FUND AND PERIOD ANNUALIZED TOTAL INVESTMENT AT THE
RATE OF RETURN END OF THE PERIOD
1784 TAX-FREE MONEY
MARKET FUND
June 14, 1993
(commencement of
operations) to __________% $__________
May 31, 1996
----------% $----------
One year ended
May 31, 1996
1784 U.S. TREASURY
MONEY MARKET FUND
June 7, 1993
(commencement of
operations) to __________% $__________
May 31, 1996
----------% $----------
One year ended
May 31, 1996
1784 INSTITUTIONAL
U.S. TREASURY MONEY
MARKET FUND
June 30, 1993
(commencement of __________% $__________
operations) to
May 31, 1996 __________% $__________
One year ended
May 31, 1996
The annualized yield and tax-equivalent yield of the 1784 Tax-Free Money
Market Fund for the seven-day period ended May 31, 1996 were ___% and ___%,
respectively, and the effective compound annualized yield of the 1784 Tax-Free
Money Market Fund for such period was ___%.
<PAGE>
The annualized yield of the 1784 U.S. Treasury Money Market Fund for the
seven-day period ended May 31, 1996 was _________% and the effective compound
annualized yield of the 1784 U.S. Treasury Money Market Fund for such period
was ---------%.
The annualized yield of the 1784 Institutional U.S. Treasury Money Market
Fund for the seven-day period ended May 31, 1996 was _________% and the
effective compound annualized yield of the 1784 Institutional U.S. Treasury
Money Market Fund for such period was _________%.
8. DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Fund (including shares of each
class of the 1784 U.S. Treasury Money Market Fund) is determined on each day on
which both the New York Stock Exchange and the Federal Reserve Bank of Boston
are open ("Business Days"). This determination is made once during each such
day, as of 12:00 noon Eastern Time ("ET") with respect to shares of the 1784
Prime Money Market Fund, 1784 U.S. Treasury Money Market Fund and 1784 Tax-Free
Money Market Fund, as of 3:00 p.m. ET with respect to the 1784 Institutional
U.S. Treasury Money Market Fund (noon when the New York Stock Exchange closes
early), and as of 4:00 p.m. ET with respect to each other Fund. The New York
Stock Exchange is normally closed on the following national holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving, and Christmas. Net asset value per share of each Fund is
calculated by adding the value of securities and other assets of that Fund,
subtracting liabilities and dividing by the number of its outstanding shares.
Net asset value per share of each class of the 1784 U.S. Treasury Money Market
Fund is calculated by adding the value of securities and other assets
attributable to that class, subtracting liabilities attributable to that class
and dividing by the number of outstanding shares of that class.
Securities of the Money Market Funds will be valued by the amortized cost
method, which involves valuing a security at its cost on the date of purchase
and thereafter (absent unusual circumstances) assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the
instrument. While this method provides certainty in valuation, it may result in
periods during which a security's value, as determined by this method, is
higher or lower than the price a Fund would receive if it sold the instrument.
During periods of declining interest rates, the daily yield of these Funds may
tend to be higher than a like computation made by a company with identical
investments utilizing a method of valuation based upon market prices and
estimates of market prices for all of its fund securities. Thus, if the use of
amortized cost by a Fund resulted in a lower aggregate fund value on a
particular day, a prospective investor in that Fund would be able to obtain a
somewhat higher yield than would result from investment in a company utilizing
solely market values, and existing investors in the Fund would experience a
lower yield. The converse would apply in a period of rising interest rates.
The use by the Money Market Funds of amortized cost and the maintenance
by these Funds of a net asset value at $1.00 are permitted by regulations
promulgated by Rule 2a-7 under the 1940 Act, provided that certain conditions
are met. The regulations also require the Trustees to establish procedures
which are reasonably designed to stabilize the net asset value per share at
$1.00 for these Funds. Such procedures include the determination of the extent
of deviation, if any, of these Funds' current net asset value per share
calculated using available market quotations from these Funds' amortized cost
price per share at such intervals as the Trustees deem appropriate and
reasonable in light of market conditions and periodic reviews of the amount of
<PAGE>
the deviation and the methods used to calculate such deviation. In the event
that such deviation exceeds 1/2 of 1%, the Trustees are required to consider
promptly what action, if any, should be initiated, and, if the Trustees believe
that the extent of any deviation may result in material dilution or other
unfair results to shareholders of these Funds, the Trustees are required to
take such corrective action as they deem appropriate to eliminate or reduce
such dilution or unfair results to the extent reasonably practicable. Such
actions may include the sale of fund instruments prior to maturity to realize
capital gains or losses or to shorten average fund maturity; withholding
dividends; redeeming shares in kind; or establishing a net asset value per
share by using available market quotations. In addition, if any of these Funds
incurs a significant loss or liability, the Trustees have the authority to
reduce pro rata the number of shares of that Fund in the account of each
shareholder of such Fund and to offset each such shareholder's pro rata portion
of such loss or liability from that shareholder's accrued but unpaid dividends
or from future dividends of the affected Fund while each other Fund must
annually distribute at least 90% of its investment company taxable income.
In valuing each of the Stock, Bond and Tax-Exempt Funds' assets,
short-term obligations are valued by the amortized cost method. This
constitutes fair value as determined by the Board of Trustees of the Trust. A
security listed on an exchange will be valued at its last sale price on that
exchange, using quotations on the exchange on which the security is traded most
extensively. Lacking any sales, the security will be valued at the mean between
the closing asking price and the closing bid price. Unlisted securities which
are quoted on the National Association of Securities Dealers' National Market
System, for which there have been sales of such securities, will be valued at
the last sale price reported on such system. If there are no such sales, the
value will be the high, or "inside" bid, which is the bid supplied by the NASD
on its NASDAQ Screen for such securities in the over-the-counter market. The
value of such securities quoted on the NASDAQ System, but not listed on the
National Market System, will be the high or "inside" bid. Unlisted securities,
which are not quoted on the NASDAQ System and for which over-the-counter market
quotations are readily available, will be valued at the mean between the
current bid and asked prices for such securities in the over-the-counter
market. Other unlisted securities (and listed securities subject to restriction
on sale) will be valued at their fair value as determined in good faith by the
Board of Trustees of the Trust although the actual calculation may be done by
others. Open futures contracts are valued at the most recent settlement price,
unless such price does not reflect the fair value of the contract, in which
case such positions will be valued by or under the direction of the Board of
Trustees of the Trust.
9. PURCHASE AND REDEMPTION OF SHARES
It is currently the Trust's policy to pay for the redemptions of shares
of the Funds in cash. The Trust retains the right, however, to alter this
policy to provide for redemptions in whole or in part by a distribution in kind
of securities held by the Funds, in lieu of cash. Shareholders may incur
brokerage charges and tax liabilities on the sale of any such securities so
received in payment of redemptions.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the Securities and Exchange Commission by rule or
regulation) as a result of which disposal or valuation of a Fund's securities
is not reasonably practicable, or for such other periods as the Securities and
Exchange Commission has permitted by order. The Trust also reserves the right
<PAGE>
to suspend sales of shares of any Fund for any period during which the New York
Stock Exchange, an Adviser, the Administrator or the Custodian is not open for
business.
Purchase and redemption of shares of the 1784 U.S. Treasury Money Market
Fund by Connecticut municipalities and other Connecticut municipal corporations
and authorities, pursuant to the provisions of Section 7-400 of the Connecticut
General Statutes, as from time-to-time amended ("Con. Gen. Stat. ss. 7-400"),
may be made only through the use of (i) a bank, savings bank or savings and
loan association incorporated under the laws of the State of Connecticut, (ii)
a federally chartered bank, savings bank or savings and loan association having
its principal place of business in the State of Connecticut, or (iii) such
other agent as may be permitted by Conn. Gen. Stat. ss. 7-400.
10. SYSTEMATIC WITHDRAWAL PLAN
A shareholder (other than a shareholder of the 1784 Institutional U.S.
Treasury Money Market Fund and holders of Class C or Class D shares of the 1784
U.S. Treasury Money Market Fund) may direct the shareholder servicing agent to
send him or her regular monthly, quarterly, semi-annual or annual payments, as
designated on the Account Application and based upon the value of his or her
account. Each payment under a Systematic Withdrawal Plan ("SWP") must be at
least $100, except in certain limited circumstances. Such payments are drawn
from the proceeds of the redemption of shares held in the shareholder's account
(which would be a return of principal and, if reflecting a gain, would be
taxable). To the extent that redemptions for such periodic withdrawals exceed
dividend income reinvested in the account, such redemptions will reduce, and
may eventually exhaust, the number of shares in the shareholder's account. All
dividend and capital gain distributions for an account with a SWP will be
reinvested in additional full and fractional shares of the applicable Fund at
the net asset value in effect at the close of business on the record date for
such distributions.
To initiate a SWP, shares having an aggregate value of at least $10,000
must be held on deposit by the shareholder servicing agent. The shareholder, by
written instruction to the shareholder servicing agent, may deposit into the
account additional shares of the applicable Fund, change the payee, or change
the dollar amount of each payment. The shareholder servicing agent may charge
the account for services rendered and expenses incurred beyond those normally
assumed by the applicable Fund with respect to the liquidation of shares.
No charge is currently assessed against the account, but one could be
instituted by the shareholder servicing agent on 60 days' notice in writing to
the shareholder in the event that the applicable Fund ceases to assume the cost
of these services. Any Fund may terminate any SWP for an account if the value
of the account falls below $5,000 as a result of share redemptions (other than
as a result of a SWP) or an exchange of shares of the Fund for shares of
another Fund. Any such plan may be terminated at any time by either the
shareholder or the applicable Fund.
11. TAXES
TAX STATUS OF THE FUNDS
Each of the Funds is organized as a series of a Massachusetts business
trust and is not subject to any Massachusetts income or excise taxes, as long
as it qualifies as a regulated investment company under the Code.
<PAGE>
Each of the Funds is treated as a separate entity for federal income tax
purposes under subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). Each Fund has elected to be treated, and intends to qualify each
year, as a "regulated investment company" under Subchapter M by meeting all
applicable requirements of Subchapter M, including requirements as to the
nature of the Fund's gross income, the amount of Fund distributions (as a
percentage of both the Fund's overall income and, in the case of the Tax-Exempt
Funds, its tax-exempt income), and the composition and holding period of the
Fund's portfolio assets. Because each Fund intends to distribute all of its net
investment income and net realized capital gains to shareholders in accordance
with the timing requirements imposed by the Code, it is not expected that the
Funds will be required to pay any federal income or excise taxes, although a
Fund's foreign-source income may be subject to foreign withholding taxes. If a
Fund should fail to qualify as a "regulated investment company" in any year,
the Fund would incur a regular corporate federal income tax upon its taxable
income and the Fund's distributions would generally be taxable as ordinary
dividend income to its shareholders.
ADDITIONAL INFORMATION RELATING TO FUND INVESTMENTS
Except in the case of the Money Market Funds, the Funds' current dividend
and accounting policies will affect the amount, timing, and character of
distributions to shareholders, and may make an economic return of capital
taxable to shareholders. Any investment by a Fund in zero-coupon bonds,
deferred interest bonds, payment-in-kind bonds, certain stripped securities
including STRIPS, and certain securities purchased at a market discount, will
cause the Fund to recognize income prior to the receipt of cash payments with
respect to those securities. In order to distribute this income and avoid a tax
on the Fund, a Fund may be required to liquidate portfolio securities that it
might otherwise have continued to hold, potentially resulting in additional
taxable gain or loss to the Fund.
An investment by a Fund in residual interests of a CMO that has elected
to be treated as a REMIC can create complex tax problems, especially if the
Fund has state or local governments or other tax-exempt organizations as
shareholders.
Fund transactions in options, futures contracts and forward contracts
will be subject to special tax rules that may affect the amount, timing, and
character of Fund income and distributions to shareholders. For example,
certain positions held by a Fund on the last business day of each taxable year
will be marked to market (treated as if closed out) on that day, and any gain
or loss associated with the positions will be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held by a Fund that
substantially diminish its risk of loss with respect to other positions in its
portfolio may constitute "straddles," and may be subject to special tax rules
that would cause deferral of Fund losses, adjustments in the holding periods of
Fund securities, and conversion of short-term into long-term capital losses.
Certain tax elections exist for straddles that may alter the effects of these
rules. The Funds will limit their activities in options, futures contracts,
forward contracts, swaps, and related transactions to the extent necessary to
meet the requirements of Subchapter M of the Code.
ADDITIONAL INFORMATION RELATING TO FOREIGN INVESTMENTS
Special tax considerations apply with respect to a Fund's foreign
investments. Investment income received by a Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the source. The
Funds (other than the 1784 International Equity Fund) do not expect to be able
to pass through to shareholders foreign tax credits or deductions with respect
<PAGE>
to such foreign taxes. The United States has entered into tax treaties with
many foreign countries that may entitle the Funds to a reduced rate of tax or
an exemption from tax on such income. The Funds intend to qualify for treaty
reduced rates where available. It is not possible, however, to determine a
Fund's effective rate of foreign tax in advance since the amount of the Fund's
assets to be invested within various countries is not known. If the 1784
International Equity Fund holds more than 50% of its assets in foreign stock
and securities at the close of its taxable year, the Fund may elect to pass
through to the Fund's shareholders foreign income taxes paid. If the Fund so
elects, shareholders will be required to treat their pro rata portion of the
foreign income taxes paid by the Fund as part of the amounts distributed to
them by the Fund and thus their portion must be included in their gross income
for federal income tax purposes. Shareholders who itemize deductions would be
allowed to claim a deduction or credit (but not both) on their federal income
tax returns for such amounts, subject to certain limitations. Shareholders who
do not itemize deductions would (subject to such limitations) be able to claim
a credit, but not a deduction. No deduction will be permitted to individuals in
computing their alternative minimum tax liability. If the Fund does not qualify
or elect to pass through to the Fund's shareholders foreign income taxes paid
by it, shareholders will not be able to claim any deduction or credit for any
part of the foreign taxes paid by the Fund.
Foreign exchange gains and losses realized by a Fund will generally be
treated as ordinary income and losses. Use of foreign currencies for
non-hedging purposes may be limited in order to avoid a tax on the applicable
Fund. Occasionally, a Fund may invest in stock of foreign issuers deemed to be
"passive foreign investment companies" for U.S. tax purposes. Any Fund making
such an investment may be liable for U.S. income taxes on certain distributions
and realized capital gains from stock of such issuers.
TAX STATUS OF SHAREHOLDERS
Distributions -- General. The Money Market Funds are not expected to make
any capital gain distributions. Because the Funds, other than the Stock Funds,
do not expect to earn any dividend income, it is expected that none of their
dividends will qualify for the dividends received deduction for corporations. A
portion of the Stock Funds' ordinary income dividends (but none of their
capital gain distributions) is normally eligible for the dividends received
deduction for corporations if the recipient otherwise qualifies for that
deduction with respect to its holding of Fund shares. Availability of the
deduction for particular shareholders is subject to certain limitations, and
deducted amounts may be subject to the alternative minimum tax or result in
certain basis adjustments. Any Fund dividend that is declared in October,
November, or December of a calendar year, that is payable to shareholders of
record in such a month, and that is paid the following January will be treated
as if received by the shareholders on December 31 of the year in which the
dividend is declared. The Trust will notify shareholders regarding the federal
tax status of distributions after the end of each calendar year.
Except in the case of the Money Market Funds, any Fund distribution (or,
in the case of the Bond Funds and Tax-Exempt Funds, any Fund distribution of
net capital gains or net short-term capital gains) will have the effect of
reducing the per share net asset value of shares in the Fund by the amount of
the distribution. Thus, shareholders purchasing shares shortly before the
record date of any such distribution may pay the full price for the shares and
effectively receive a portion of the purchase price back as a taxable
distribution.
Distributions of a Fund that are derived from interest on obligations of
the U.S. Government and certain of its agencies and instrumentalities (but
<PAGE>
generally not from capital gains realized upon the disposition of such
obligations) may be exempt from state and local taxes. The Trust intends to
advise shareholders of the extent, if any, to which their respective
distributions consist of such interest. Shareholders are urged to consult their
tax advisers regarding the possible exclusion of such portion of their
dividends for state and local income tax purposes.
Distributions by Funds Other Than the Tax-Exempt Funds. Shareholders of
Funds other than the Tax-Exempt Funds will have to pay federal income taxes and
may be subject to state or local income taxes on the dividends and capital gain
distributions they receive from those Funds. Dividends from ordinary income and
any distributions from net short-term capital gains are taxable to shareholders
as ordinary income for federal income tax purposes, whether paid in cash or in
additional shares. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), whether paid in
cash or in additional shares, are taxable to shareholders as long-term capital
gains without regard to the length of time the shareholders have held their
shares.
Distributions by the Tax-Exempt Funds. The portion of each Tax-Exempt
Fund's distributions of net investment income that is attributable to interest
from tax-exempt securities will be designated by that Fund as an
"exempt-interest dividend" under the Code and will generally be exempt from
federal income tax in the hands of shareholders so long as at least 50% of the
total value of the Fund's assets consists of tax-exempt securities at the close
of each quarter of the Fund's taxable year. However, distributions of
tax-exempt interest earned from certain securities may be treated as an item of
tax preference for shareholders under the federal alternative minimum tax, and
all exempt-interest dividends may increase a corporate shareholder's
alternative minimum tax. The percentage of income designated as tax-exempt will
be applied uniformly to all distributions by the Fund of net investment income
made during each fiscal year of the Fund and may differ from the percentage of
distributions consisting of tax-exempt interest in any particular month.
Shareholders are required to report exempt-interest dividends received from the
Fund on their federal income tax returns.
Shareholders of the Tax-Exempt Funds will have to pay federal income
taxes and may be subject to state or local income taxes on the non
exempt-interest dividends (including dividends from earnings from taxable
securities and repurchase transactions) and capital gain distributions they
receive from the Funds. That portion of net investment income distributions not
designated as tax-exempt and any distributions from net short-term capital
gains are taxable to shareholders as ordinary income for federal income tax
purposes, whether the distributions are paid in cash or in additional shares.
Distributions of net capital gains, whether paid in cash or in additional
shares, are taxable to shareholders as long-term capital gains without regard
to the length of time the shareholders have held their shares.
The exemption of exempt-interest dividends for federal income tax
purposes does not necessarily result in exemption under the tax laws of any
state or local taxing authority. For a discussion of the state and local tax
consequences of an exempt-interest dividend from any Fund investing in state or
local obligations, see the prospectus.
FOREIGN SHAREHOLDERS
Taxable dividends and certain other payments to persons who are not
citizens or residents of the United States or U.S. entities ("Non-U.S.
Persons") are generally subject to U.S. tax withholding at a rate of 30%,
although the 30% rate may be reduced to the extent provided by an applicable
<PAGE>
tax treaty. The Funds intend to withhold tax payments at the rate of 30% (or
the lower treaty rate) on taxable dividends and other payments to Non-U.S.
Persons that are subject to such withholding. Any amounts over-withheld may be
recovered by such persons by filing a claim for refund with the U.S. Internal
Revenue Service within the time period appropriate to such claims.
Distributions received from the Funds by Non-U.S. Persons also may be subject
to tax under the laws of their own jurisdiction.
ADDITIONAL INFORMATION FOR SHAREHOLDERS OF THE TAX-EXEMPT FUNDS
Interest on indebtedness incurred by shareholders to purchase or carry
shares of a Tax-Exempt Fund will not be deductible for federal income tax
purposes. Exempt-interest dividends are taken into account in calculating the
amount of social security and railroad retirement benefits that may be subject
to federal income tax. Entities or persons who are "substantial users" (or
persons related to "substantial users") of facilities financed by certain
private activity bonds should consult their tax advisors before purchasing
shares of a Tax-Exempt Fund.
DISPOSITION OF SHARES
In general, any gain or loss realized upon a taxable disposition of
shares of a Fund by a shareholder that holds such shares as a capital asset
will be treated as long-term capital gain or loss if the shares have been held
for more than twelve months. Otherwise, it will be treated as short-term
capital gain or loss. In the case of the Tax-Exempt Funds, any loss realized
upon a disposition of shares in a Fund held for six months or less will be
disallowed to the extent of any exempt-interest dividends received with respect
to those shares. In the case of all the Funds, any loss realized upon the
disposition of shares in the Fund held for six months or less will (if not
disallowed as described in the preceding sentence) be treated as a long-term
capital loss to the extent of any distributions of net capital gain made with
respect to those shares. Any loss realized upon a disposition of shares may
also be disallowed under rules relating to wash sales.
BACKUP WITHHOLDING
Each of the Funds is also required in certain circumstances to apply
backup withholding at the rate of 31% on taxable dividends and redemption
proceeds paid to any shareholder (including a Non-U.S. Person) who does not
furnish to the Fund certain information and certifications or who is otherwise
subject to backup withholding. Backup withholding will not, however, be applied
to payments that have been subject to 30% (or lower treaty rate) withholding.
12. SERVICEMARKS
The registered servicemark 1784 FUNDSregistered trademark and the "eagle"
logo are used by permission of Bank of Boston, and in the event that the
Advisory Agreements with Bank of Boston are terminated, the Trust has agreed to
discontinue use of the servicemark and logo.
13. DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of each series and authorizes the division of shares of each series
into classes. Each share of each series represents an equal proportionate
interest in that series, except that due to varying expenses borne by different
classes distributions may be different for different classes. Shareholders of
<PAGE>
each series are entitled, upon liquidation or dissolution, to a pro rata share
in the net assets of that series that are available for distribution to
shareholders, except to the extent of different expenses borne by different
classes as noted above. Shareholders have no preemptive rights. Currently, the
Trust has fifteen series of shares, each of which is a Fund. The 1784 U.S.
Treasury Money Market Fund offers three classes of shares: Class A, Class C and
Class D. The Declaration of Trust provides that the Trustees of the Trust may
create additional series of shares, and may create additional classes of any
one or more series. All consideration received by the Trust for shares of any
series and all assets in which such consideration is invested belong to that
series and are subject to the liabilities related thereto. Share certificates
will not be issued.
Shares of each series of the Trust are entitled to vote separately to
approve advisory agreements or changes in investment policies, but shares of
all series of the Trust vote together in the election or selection of Trustees
and accountants.
The Declaration of Trust may be amended as authorized by vote of
shareholders of the Trust. Matters not affecting all series or classes of
shares shall be voted on only by the shares of the series or classes affected.
Shares of the Trust may be voted in person or by proxy, and any action taken by
shareholders may be taken without a meeting by written consent of a majority of
shareholders entitled to vote on the matter.
14. TRUSTEE AND SHAREHOLDER LIABILITY
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that the Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any
officer, agent, employee, investment adviser or administrator, principal
underwriter or custodian, nor shall any Trustee be responsible for the act or
omission of any other Trustee, and no Trustee shall be liable to the Trust or
any Shareholder. The Declaration of Trust also provides that the Trust will
indemnify its Trustees and officers against liabilities and expenses incurred
in connection with actual or threatened litigation in which they may be
involved because of their offices with the Trust unless it is determined, in
the manner provided in the Declaration of Trust, that they have not acted in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. However, nothing in the Declaration of Trust shall
protect or indemnify a Trustee against any liability for his or her willful
misfeasance, bad faith, gross negligence or reckless disregard of his or her
duties.
SHAREHOLDER LIABILITY
The Trust is a Massachusetts business trust. Under Massachusetts law,
shareholders of such a trust could be held personally liable as partners for
the obligations of the trust. However, even if the Trust were held to be a
partnership, the possibility of the shareholders incurring financial loss for
that reason appears remote because the Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any shareholder held personally liable for the
obligations of the Trust.
15. FINANCIAL INFORMATION
To be filed by amendment.
<PAGE>
APPENDIX A
CERTAIN INFORMATION CONCERNING MASSACHUSETTS, RHODE ISLAND,
CONNECTICUT AND FLORIDA
1. MASSACHUSETTS
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS
IN MASSACHUSETTS MUNICIPAL SECURITIES
The following is a summary of certain information contained in official
statements of certain issuers of Massachusetts Municipal Securities published
prior to July, 1995. The summary does not purport to be a complete description
and is current as of the date of the corresponding official statement.
1993 FISCAL YEAR
The budgeted operating funds of the Commonwealth ended fiscal 1993 with a
surplus of revenues and other sources over expenditures and other uses of $13.1
million and aggregate ending fund balances in the budgeted operating funds of
the Commonwealth of approximately $562.5 million. Budgeted revenues and other
sources for fiscal 1993 totaled approximately $14.710 billion, including tax
revenues of $9.930 billion. Total revenues and other sources increased by
approximately 6.9% from fiscal 1992 to fiscal 1993, while tax revenues
increased by 4.7% for the same period. In July 1992, tax revenues had been
estimated to be approximately $9.685 billion for fiscal 1993. This amount was
subsequently revised during fiscal 1993 to $9.940 billion.
Commonwealth budgeted expenditures and other uses in fiscal 1993 totaled
approximately $14.696 billion, which is $1.280 billion or approximately 9.6%
higher than fiscal 1992 expenditures and other uses. Fiscal 1993 budgeted
expenditures were $23 million lower than the initial July 1992 estimates of
fiscal 1993 budgeted expenditures.
As of June 30, 1993, after payment of all Local Aid and retirement of
short-term debt, the Commonwealth showed a year-end cash position of
approximately $622.2 million, as compared to a projected position of $485.1
million.
1994 FISCAL YEAR
The budgeted operating funds of the Commonwealth ended fiscal 1994 with a
surplus of revenues and other sources over expenditures and other uses of $26.8
million and aggregate ending fund balances in the budgeted operating funds of
the Commonwealth of approximately $589.3 million. Budgeted revenues and other
sources for fiscal 1994 totalled approximately $l5.550 billion, including tax
revenues of $10.607 billion, $87 million below the Department of Revenue's
fiscal 1994 tax revenue estimate of $10.694 billion. Total revenues and other
sources increased by approximately 5.7% from fiscal 1993 to fiscal 1994 while
tax revenues increased by 6.8% for the same period.
Commonwealth budgeted expenditures and other uses in fiscal 1994 totalled
$15.523 billion, which is $826.5 million or approximately 5.6% higher than
fiscal 1993 budgeted expenditures and other uses.
As of June 30, 1994, the Commonwealth showed a year-end cash position of
approximately $757 million, as compared to a projected position of $599
million.
<PAGE>
In June, 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation. This legislation required an
increase in expenditures for education purposes above fiscal 1993 base spending
of $1.288 billion of approximately $175 million in fiscal 1994. The Executive
Office for Administration and Finance expects the annual increases in
expenditures above the fiscal 1993 base spending of $1.288 billion to be
approximately $396 million in fiscal 1995, $625 million in fiscal 1996 and $868
million in fiscal 1997. Additional annual increases are also expected in later
fiscal years. The fiscal 1995 budget as signed by the Governor includes $396
million in appropriations to satisfy this legislation.
1995 FISCAL YEAR
On July 10, 1994, the Governor signed into law the fiscal 1995 budget,
which, together with authorizations contained in the final fiscal 1994
appropriations bill and expected supplemental appropriations relating to
welfare and certain other programs, as described below, currently provides for
approximately $16.482 billion in fiscal 1995 expenditures. The Governor
exercised his authority to veto and reduce individual line items and reduced
total expenditures by approximately $298.2 million and vetoed certain other law
changes contained in the fiscal 1995 budget.
Included in the approximately $298.2 million of vetoes noted above, the
Governor vetoed approximately $296.9 million in appropriations for the
Executive Office of Human Services and the Department of Public Welfare,
representing the estimate, at that time, of four months of funding for the
Commonwealth's public assistance programs. On February 10, 1995, the Governor
signed into law Chapter 5 of the Acts of 1995, which reforms the Commonwealth's
program for Aid to Families with Dependent Children ("AFDC"). The revised
program is scheduled to take effect on July 1, 1995, subject to federal
approval of certain waivers. It reduces AFDC benefits to able-bodied recipients
by 2.75% while allowing them to keep a larger portion of their earned wages,
requires approximately 22,000 able-bodied parents with school-aged children to
work or perform community service for 20 hours per week, and requires
approximately 16,000 recipients who have children between the ages of two and
six to participate in an education or training program or perform community
service. The plan also establishes a pilot program for up to 2,000 participants
that offers tax credits and wage subsidies to employers who hire welfare
recipients. Parents who find employment will be provided with extended medical
benefits and day care benefits for up to one year. The plan mandates paternal
identification, expands funding for anti-fraud initiatives, and requires
parents on AFDC to immunize their children. Parents who are disabled, caring
for a disabled child, have a child under the age of two, or are teenagers
living at home and attending high school, will continue to receive cash
assistance.
Since most provisions of the new law did not take effect until July 1,
1995, the Executive Office for Administration and Finance projects that the
reforms will not materially affect fiscal 1995 public assistance spending. The
fiscal 1995 expenditure estimate of $16.399 billion includes $247.8 million
appropriated in Chapter 5 to fund the Commonwealth's public assistance programs
for the last four months of fiscal 1995. The new law's impact on fiscal 1996
projected spending for public assistance programs is currently being evaluated.
Budgeted revenues and other sources to be collected in fiscal 1995 are
estimated by the Executive Office for Administration and Finance to be
approximately $16.311 billion. This amount includes estimated fiscal 1995 tax
revenues of $11.151 billion, which is approximately $544 million higher than
fiscal 1994 tax revenues of $10.607 billion. In December, 1994, the Governor
<PAGE>
signed into law legislation modifying the capital gains tax by phasing out the
tax for assets held longer than six years and increasing the no-tax status
threshold for personal income tax purposes. The capital gains tax change is not
effective until January 1, 1996 and, therefore, is not expected to affect
fiscal 1995 tax revenues and to have only a minor effect on fiscal 1996 tax
revenues. The no-tax status change is estimated to reduce fiscal 1995 tax
revenues by approximately $5.5 million and fiscal 1996 tax revenues by $13.3
million.
In recent months, the rate of growth in certain tax revenue categories,
including, in particular, the income tax, has slowed. Fiscal 1994 tax revenues
were approximately $87 million below the Department of Revenue's tax revenue
estimate of $10.694 billion. On April 13, 1995, as required by law, the
Secretary for Administration and Finance revised the fiscal 1995 tax revenue
estimate to $11.151 billion, a reduction of approximately $27.5 million from
the most recent official estimate of $11.179 billion. The reduction in fiscal
1995 revenues is expected to be offset by lower spending resulting from
increased reversions (including lower spending in public assistance programs)
and, if necessary utilization of part of the contingency currently included in
the estimated fiscal 1995 financial statement.
The fiscal 1995 budget is based on numerous spending and revenue
estimates, the achievement of which cannot be assured. The House initially
overrode $296.9 million of the Governor's vetoes relating to certain welfare
programs contained in the fiscal 1995 budget as well as certain law changes
which may have a financial impact on the Commonwealth. However, the Senate
failed to override the Governor's veto by the end of the calendar 1994
legislative session. The $16.399 billion of fiscal 1995 expenditures includes a
reserve against certain contingencies currently in the amount of $83.8 million.
On October 7, 1994, the Governor filed a supplemental appropriation
recommendation aggregating approximately $44.5 million; the Legislature failed
to act on this recommendation before the end of the calendar 1994 legislative
session. On January 25, 1995, the Governor filed fiscal 1995 supplemental
appropriation recommendations aggregating approximately $43.6 million.
On April 24, 1995, the Governor filed a fiscal 1995 supplemental
appropriation bill recommending approximately $16.7 million of expenditures
related to collective bargaining and certain other personnel costs. The
legislature has not yet acted upon this recommendation. On May 10, 1995, the
House of Representatives approved two supplemental appropriation bills for
fiscal 1995, which relate, in part, to prior supplemental appropriation
recommendations. One bill authorized fiscal 1995 expenditures of approximately
$65 million, having a net Commonwealth cost of approximately $27 million after
factoring in revenue reimbursements that would result form certain Medicaid
expenditures authorized by the legislation. The other bill authorizes fiscal
1995 expenditures of approximately $9.1 million for certain Department of
Social Services programs. On May 17, 1995, the Senate Ways and Means Committee
approved two supplemental appropriation bills for fiscal 1995. One bill
authorized fiscal 1995 expenditures of approximately $52.4 million (of which
approximately $16.1 million would be continued to fiscal 1996), having a net
Commonwealth cost of approximately $50 million. The full Senate added
approximately $59.5 million in spending authorizations to this amount, having a
net Commonwealth cost of approximately $21.5 million after factoring in federal
reimbursements for certain Medicaid expenditures authorized by the bill. A
second supplemental appropriation bill authorizes approximately $9.2 million
for Department of Social Services programs. Both bills were approved by the
Senate on May 25, 1995. Differences between the House and Senate versions of
the two bills will be reconciled by legislative conference committees. The net
amounts for both the House and Senate bills are included in the $83.8 million
being reserved for fiscal 1995 contingencies by the Executive Office for
Administration and Finance.
<PAGE>
On November 8, 1994, the voters in the statewide general election
approved an initiative petition, which became law on December 8, 1994, that
would slightly increase the portion of gasoline tax revenue credited to the
Highway Fund, one of the Commonwealth's three major budgetary funds, prohibit
the transfer of money from the Highway Fund to other funds for non-highway
purposes and exclude the Highway Fund balance from the computation of the
"consolidated net surplus" for purposes of State finance laws. The initiative
petition also provides that no more than 15% of gasoline tax revenues may be
used for mass transportation purposes, such as expenditures related to the
MBTA. The Executive Office of Administration and Finance currently does not
expect this law to have any materially adverse impact on the fiscal 1995 budget
or on other fiscal matters generally. This law is not a constitutional
amendment and is subject to amendment or repeal by the Legislature, which may
also, notwithstanding the terms of the initiative petition, appropriate moneys
from the Highway Fund in such amounts and for such purposes as it determines,
subject only to a constitutional restriction that such moneys be used for motor
vehicle, highway, or mass transportation purposes.
CASH FLOW
The most recent cash flow projection prepared by the office of the State
Treasurer in May, 1995 estimates the fiscal 1995 year-end cash position to be
approximately $353 million. This projection is based on the fiscal 1995 budget
as originally signed by the Governor and supplemental appropriations enacted to
date. The cash flow projection reflects actual results through April, 1995 and
revenue and spending estimates as of May, 1995. The expenditure forecast
anticipates use of the $83.8 million being reserved for contingencies by the
Executive Office for Administration and Finance. The projection forecasts a
year-end transfer of $65.4 million to the Stabilization Fund (the projected
$353 million year-end balance does not include balances in the Stabilization
Fund). The projection also anticipates advance payments during fiscal 1995 of
$95 million to the Department of Medical Assistance and the Department of
Transitional Assistance for fiscal 1996 activity. On November 22, 1994, the
Commonwealth issued $240 million of general obligation notes to fund payments
to the MBTA for its net cost of service. The notes matured on June 15, 1995
(rather than later in fiscal 1996 as had been assumed in earlier cash flow
projections). The cash flow projection assumes the issuance of additional notes
in June, 1995 to refinance such notes, which is consistent with current plans.
(The original cash flow projection for fiscal 1995 had assumed that such notes
would be paid from available funds and not refinanced.) The cash flow
projection assumes that the Commonwealth will issue no additional long-term
general obligation bonds during fiscal 1995 to finance capital projects beyond
the $825 million issued to date (prior cash flow projections had assumed that
$1.05 billion of such bonds would be issued) and that no short-term operating
borrowings will take place under the commercial paper program during the
remainder of fiscal 1995. As of June 8, 1995, no Commonwealth commercial paper
is outstanding.
The May 26, 1995 cash flow projection also contains monthly forecasts
through the end of fiscal 1996 and estimates that the fiscal 1996 year-end cash
position will be $528.1 million. The fiscal 1996 forecast is based upon the
Governor's budget recommendations filed in January, 1995, including a $45
million contingency reserve, adjusted for the consensus revenue estimate for
fiscal 1996 agreed to by the Governor and the legislature in April, 1995. The
fiscal 1996 cash flow projection anticipates no need for the Commonwealth to
borrow for operating needs under its commercial paper program if capital bond
sales and a transit note sale occur as scheduled (the projection calls for the
issuance of $1.06 billion of capital bonds and $240 million of transit notes
during fiscal 1996).
<PAGE>
The Commonwealth's practice is to use available cash for capital
expenditures pending the issuance of long term bonds and, in the event the
amount of long-term debt is reduced or its issuance delayed due to market
conditions or other circumstances, additional amounts of commercial paper may
be outstanding from time to time. The ending balance included in the cash flow
forecast and the estimated ending balance for the Commonwealth's operating
budget will differ due to timing differences and the effect of certain
non-budget items. In addition, events occurring subsequent to the preparation
of this cash flow projection may cause the actual cash flow of the Commonwealth
to vary from the projected cash flow.
1996 FISCAL YEAR
On January 25, 1995, the Governor submitted his fiscal 1996 budget
recommendations to the Legislature. The proposal calls for budgeted
expenditures of approximately $16.737 billion. After adjusting for
approximately $147.9 million in higher education revenues and expenditures that
the Governor's budget recommendation proposes moving to an off-budget trust
fund for fiscal 1996, as described below, the recommended fiscal 1996 spending
level is approximately $436 million. Proposed budgeted revenues for fiscal 1996
are approximately $16.246 billion. The Governor's fiscal 1996 budget
recommendation proposes several reductions in personal and business taxes,
including an increase of $500 in the dependent allowance and a $500 increase in
the exemption for blind and elderly taxpayers, corporate tax credits for job
training, revisions to the definitions of research and development tax credits
for companies in the defense-industry, and a phasing out of the sales tax on
bulk purchases of telecommunications services. The Executive Office of
Administration and Finance estimates that these tax law changes would result in
reduced tax revenues of approximately $34.6 million in fiscal 1996.
Under the Governor's fiscal 1996 budget recommendations, non-tax revenues
are estimated to total approximately $5.021 billion in fiscal 1996. Major
changes in projected non-tax revenues for fiscal 1996 include a decline in
motor vehicle license and registration fees of approximately $42 million, due
mainly to alternate year licensing patterns and the delayed impact of the
change in 1991 to a five year driver's license renewal period; a decrease of
approximately $17 million in abandoned property revenues, due to a one-time
increase in abandoned property collections in fiscal 1995 resulting from a
change in the Commonwealth's abandoned property laws; and a $40 million
increase due to a proposed initiative to provide incentives to State
departments to optimize non-tax revenues.
The Governor's budget proposal generally maintains current service levels
for most programs but also provides for increased funding to reflect various
factors including inflation, increased medical costs, increased pension costs
and higher debt services expenditures, as well as approximately $228 million
recommended to fully fund the education reform law passed in fiscal 1993. The
proposal also contains recommendations to increase spending in certain priority
areas. The Governor's budget proposal projects savings from reform of the
State's welfare system, higher health insurance contributions from State
employees and other administrative reductions. The recommendation also includes
$45 million allocated for a contingency reserve.
In connection with the fiscal 1996 budget recommendations, the Governor
has also recommended the establishment of an off-budget tuition retention trust
fund for higher education purposes. The revenues in and expenditures from such
fund have previously been counted as Commonwealth budgeted revenues and
expenditures.
<PAGE>
The Governor's fiscal 1996 budget recommendations will now be taken up by
the House Ways and Means Committee as the first step of legislative
consideration of the fiscal 1996 budget.
STATE TAXES
The major components of State taxes are the income tax, which accounts
for 53.6% of total projected tax revenues in fiscal 1994, the sales and use
tax, which accounts for 21.7%, and the business corporations tax, which
accounts for 7.4%. Other tax and excise sources account for the remaining 17.3%
of total tax revenues.
Income Tax. The Commonwealth assesses personal income taxes at flat
rates, according to classes of income, after specified deductions and
exemptions. A rate of 5.95% is applied to income from employment, professions,
trades, business, partnerships, rents, royalties, taxable pensions and
annuities and interest from Massachusetts banks. A rate of 12% is applied to
other interest (although interest on obligations of the United States and of
the Commonwealth and its political subdivisions is exempt) and dividends; and a
rate ranging from 12% on capital gains from the sale of assets held for one
year and less to 0% on capital gains from the sale of certain assets held more
than six years is applied.
Under Chapter 151 of the Acts of 1990 up to 15% of State income tax
revenue is pledged to the payment of debt service on approximately $1.045
billion of outstanding Fiscal Recovery Bonds issued pursuant to Chapter 151.
Partially as a result of income tax rate increases, State income tax
revenues increased from fiscal 1990 to $5.045 billion (excluding $298.3 million
collected pursuant to the 1989 tax legislation). These figures represent an
increase of approximately 13%. State income tax revenues in fiscal 1992 were
$5.337 billion, which represents an increase from fiscal 1991 of approximately
5.8%. Income tax revenues in fiscal 1993 were $5.375 billion, an increase of
approximately 0.7% from fiscal 1992. Income tax revenues for fiscal 1994 were
approximately $5.690 billion, an increase of 5.9% from fiscal 1993. Income tax
revenues for fiscal 1995 are currently expected to be approximately $6.028
billion, an increase of 5.9% from fiscal 1994. As a result of a slowing rate of
growth in certain tax revenue categories, including, in particular, the income
tax, the Secretary of Administration and Finance reduced the total fiscal 1995
tax revenue estimate by $75 million in September, 1994. On January 25, 1995,
based on tax revenue collections through December 31, 1994, the Secretary for
Administration and Finance revised the fiscal 1995 tax revenue estimate to
$11.179 billion, a reduction of approximately $55 million from the September
1994 estimate.
Sales and Use Tax. The Commonwealth imposes a 5% sales tax on retail
sales of certain tangible properties (including retail sales of meals)
transacted in the Commonwealth and corresponding 5% use tax on the storage, use
or other consumption of like tangible properties brought into the Commonwealth.
However, food, clothing, prescribed medicine, materials and produce used in
food production, machinery, materials, tools and fuel used in certain
industries, and property subject to other excises (except for cigarettes) are
exempt from sales taxation. The sales and use tax is also applied to sales of
electricity, gas and steam for certain nonresidential use and to nonresidential
and most residential use of telecommunications services.
<PAGE>
Annual sales and use tax revenues declined from $1.956 billion in fiscal
1990 to $1.909 billion in fiscal 1991. Sales and use tax revenues increased to
$1.979 billion in fiscal 1992 and to $2.124 billion in fiscal 1993 and to
$2.302 billion in fiscal 1994. Sales and use tax are estimated to increase to
$2.454 billion in fiscal 1995.
Business Corporations Tax. Business corporations doing business in the
Commonwealth, other than banks, trust companies, insurance companies,
railroads, public utilities and safe deposit companies, are subject to an
excise that has a property measure and an income measure. The value of
Massachusetts tangible property (not taxed locally) or net worth allocated to
the Commonwealth is taxed at $2.60 per $1,000 of value. The net income
allocated to Massachusetts, which is based on gross income for federal taxes,
is taxed at 9.5%. The minimum tax is $456. Both rates and the minimum tax
include a 14% surtax. Annual revenues from the business corporations tax have
declined significantly in recent years, from the high of $887.1 million in
fiscal 1989 to $612.2 million in fiscal 1991. Business corporation tax revenues
were $643.8 million in fiscal 1992, representing an increase of $31.5 million,
or 5.1%, from fiscal 1991. For fiscal 1992, the excise tax on commercial and
savings banks yielded $60.2 million, representing an increase of approximately
25.2% over fiscal 1991. Due to the settlement by the Department of Revenue of a
case pending before the Appellate Tax Board, the Commonwealth paid a taxpayer
commercial bank $37.0 million, thus reducing revenues from the commercial and
savings bank excise tax in fiscal 1992 from $97.1 million to $60.2 million. For
fiscal 1993, revenues from the business corporations tax increased to $737.4
million, or approximately 14.5% above fiscal 1992 and tax revenues from banks
increased to $152.9 million or 154.4% above fiscal 1992. Fiscal 1994 tax
revenues from corporations and banks were approximately $782.3 million and
199.9 million, respectively, or approximately 6.1% and 30.7% above the
respective fiscal 1993 amounts. Fiscal 1995 tax revenues from corporations and
banks are estimated to be $851.0 million and $225.0 million, respectively.
Other Taxes. Other tax revenues of the Commonwealth are currently
projected to total $1.846 billion in fiscal 1995, a decrease of 0.01% over
fiscal 1994. Other tax revenues are derived by the Commonwealth from motor
fuels excise taxes, cigarette and alcoholic beverage excise taxes, estate and
deed excises and other tax sources. The Commonwealth is authorized to issue
special obligation highway bonds secured by a pledge of all or a portion of the
Highway Fund, including revenues derived from all portion of the motor fuels
excise tax. The Commonwealth issued $103,770,000 of special obligation bonds on
June 24, 1992 secured by a pledge of 2 cents of the 21 cent motor fuel excise
tax imposes on gasoline. The portion of the motor fuel excise tax currently
pledged to the special obligation bonds is estimated to be $168.7 million in
fiscal 1995. The Commonwealth expects to issue up to $300 million of additional
special obligation bonds in fiscal 1994 secured by an additional portion of the
motor fuels excise tax. Additional special obligation bonds may also be issued
in the future secured by all or additional portions of the motor fuels excise
tax.
On November 3, 1992, legislation was enacted by voter initiative petition
which imposed, as of January 1, 1993, a new excise tax of 1.25 cents per
cigarette (25 cents per pack of 20 cigarettes) and 25% of the wholesale price
of smokeless tobacco. Under the legislation, the revenues raised by this excise
tax shall be credited to a new Health Protection Fund and expended, subject to
appropriation by the Legislature, to pay for health programs and education
relating to tobacco use. Total revenues deposited in the Health Protection Fund
in fiscal 1993 and fiscal 1994 were $59.5 million and $116.3 million,
respectively, and are estimated to be $114.3 million in fiscal 1995.
<PAGE>
In addition, in January 1993, the Legislature overrode the Governor's
veto of a 100% increase in the deeds excise tax. The increased revenues from
this excise tax, estimated by the Executive Office for Administration and
Finance to be approximately $15.25 million for fiscal 1993, will be retained by
county governments and applied to certain county costs. The availability of
these revenues will reduce Commonwealth expenditures for county purposes by an
equal amount.
Estate Tax Revisions. The fiscal 1993 budget included legislation which
gradually phases down the current Massachusetts estate tax until it becomes a
"sponge tax" in 1997. The "sponge tax" is based on the maximum amount of the
credit for the State taxes allowed for federal estate tax purposes. The estate
tax is phased out by means of annual increases in the basic exemption from the
current $200,000 level. The exemption was increased to $300,000 for 1993,
$400,000 for 1994, $500,000 for 1995 and is increased to $600,000 for 1996. In
addition, the legislation includes a full marital deduction starting July 1,
1994. Currently, the marital deduction is limited to 50% of the Massachusetts
adjusted gross estate until June 30, 1995. The static fiscal impact of the
phase out of the estate tax was estimated to be $24.8 million in 1994 and is
estimated to be $72.5 million in fiscal 1995.
FEDERAL AND OTHER NON-TAX REVENUES
Revenues from the federal government are received through reimbursements
for the federal share of federally mandated programs such as Medicaid and AFDC.
The amount of federal reimbursements received by the Commonwealth is determined
by the amounts of State expenditures for such programs. Federal reimbursements
increased approximately 11.4% from $1.542 billion in fiscal 1989 to $1.718
billion in fiscal 1990. In fiscal 1991, federal reimbursements increased by
61.7% to $2.777 billion, owing mainly to the $513.0 million reimbursement of
uncompensated care payments. Federal reimbursements in fiscal 1992 decreased by
$383 million to approximately $2.394 billion, reflecting a decrease of $349
million in uncompensated care payments. In fiscal 1993, federal reimbursements
increased to $2.674 billion as a result of increased spending for certain
entitlement programs. In fiscal 1994, federal reimbursement increased to $2.915
billion. Federal reimbursements for fiscal 1995 are estimated to increase to
$3.035 billion.
Departmental and other non-tax revenues are derived from licenses,
registrations and fees generated through cash transactions and reimbursement
and assessments for services. Annual revenues from these sources increased from
$949.1 million in fiscal 1989 to $1.025 billion in fiscal 1991, representing an
annual average increase of approximately 12.8%, decreased 1.5% to $1.187
billion in fiscal 1992, increased 11.8% in fiscal 1993 to $1.327 billion and
decreased 10.5% to $1.188 billion in fiscal 1994. Annual revenues from these
sources are estimated to increase to $1.250 billion in fiscal 1995. The
decrease in 1994 was due to several factors including: the change in fiscal
1993 to biennial car registration at the Registry of Motor Vehicles; one-time
receipt in fiscal 1993 of abandoned property revenues; and the one-time payment
in fiscal 1993 to the Commonwealth of $80 million from the Massachusetts Water
Resources Authority. These revenue declines were partially offset by an
increase in higher education tuition revenues due primarily to shifting higher
education revenues and expenditures from off-budget to on-budget accounts in
fiscal 1994. The expected increase in fiscal 1995 is due to various factors
including primarily: the biennial car registration mentioned above, which is
expected to increase revenue by approximately $20 million in fiscal 1995;
certain abandoned property initiatives that are expected to result in
<PAGE>
approximately $15 million of additional revenues; additional Medicaid
recoveries expected to amount to approximately $24 million and increased child
support collections in the amount of approximately $11 million. The Governor's
fiscal 1996 budget recommendation projects departmental and other non-tax
revenues of $1.099 billion, a decrease of approximately $2 million after
adjusting for approximately $147.9 million in higher education revenue and
spending that the recommendation proposes be moved to an off-budget trust fund.
Interfund transfers and other sources from non-budgeted funds are
estimated to total $897.8 million in fiscal 1995, an increase of 5.1% compared
to fiscal 1994. For the budgeted operating funds, interfund transfers include
transfers of profits from the State Lottery and Arts Lottery Funds and
reimbursements for the budgeted costs of the State Lottery Commission, which
accounted for $568.6 million, $547.6 million, $558.0 million, $583.0 million in
fiscal 1990 through 1994, respectively, and which are expected to account for
$705.2 million in fiscal 1995. The Governor's fiscal 1996 budget recommendation
projects fiscal 1996 interfund transfers of approximately $930.4 million, an
increase of 3.6% as compared to fiscal 1995, which amounts include $729.4
million allocable to the Lottery.
In fiscal 1991, special laws authorized transfers among the General,
Highway and Local Aid Funds to eliminate certain deficit fund balances.
Transfers in respect of such deficits were $234.8 million for fiscal 1991.
Legislation included within the fiscal 1993 budget prohibits, beginning with
fiscal 1992, the transfer of operating funds from the Highway Fund to the
General Fund.
LIMITATIONS ON TAX REVENUES
In Massachusetts efforts to limit and reduce levels of taxation have been
under way for several years. Limits were established on State tax revenues by
legislation enacted on October 25, 1986 and by an initiative petition approved
by the voters on November 4, 1986. The two measures are inconsistent in several
respects.
Chapter 62F, which was added to the General Laws by initiative petition
in November 1986, establishes a State tax revenue growth limit for each fiscal
year equal to the average positive rate of growth in total wages and salaries
in the Commonwealth, as reported by the federal government, during the three
calendar years immediately preceding the end of such fiscal year. Chapter 62F
also requires that allowable State revenues be reduced by the aggregate amount
received by local governmental units from any newly authorized or increased
local option taxes or excises. Any excess in State tax revenue collections for
a given fiscal year over the prescribed limit, as determined by the State
Auditor, is to be applied as a credit against the then current personal income
tax liability of all taxpayers in the Commonwealth in proportion to the
personal income tax liability of all taxpayers in the Commonwealth for the
immediately preceding tax year. Unlike Chapter 29B, as described below, the
initiative petition did not exclude principal and interest payments on
Commonwealth debt obligations from the scope of its tax limit. However, the
preamble contained in Chapter 62F provides that "although not specifically
required by anything contained in this chapter, it is assumed that from
allowable State tax revenues as defined herein the Commonwealth will give
priority attention to the funding of State financial assistance to local
governmental units, obligations under the State governmental pensions systems,
and payment of principal and interest on debt and other obligations of the
Commonwealth."
The legislation enacted in October 1986, which added Chapter 29B to the
General Laws, also established an allowable State revenue growth factor by
<PAGE>
reference to total wages and salaries in the Commonwealth. However, rather than
utilizing a three-year average wage and salary growth rate, as used by Chapter
62F, Chapter 29B utilized an allowable State revenue growth factor equal to
one-third of the positive percentage gain in Massachusetts wages and salaries,
as reported by the federal government, during the three calendar years
immediately preceding the end of a given fiscal year. Additionally, unlike
Chapter 62F, Chapter 29B allows for an increase in maximum State tax revenues
to fund an increase in local aid and excludes from its definition of State tax
revenues (i) income derived from local option taxes and excises, and (ii)
revenues needed to fund debt service costs.
Tax revenues in fiscal 1990 through fiscal 1994 were lower than the limit
set by either Chapter 62F or Chapter 29B. The Executive Office for
Administration and Finance currently estimates that State tax revenues in
fiscal 1995 and 1996 will not reach the limit imposed by either of these
statutes.
In January 1992 the Governor announced his intention to seek an amendment
to the State constitution that would require any Commonwealth tax increase to
receive at least a two-thirds majority vote of each branch of the Legislature.
No action has yet been taken on this proposal.
[To be updated]
2. RHODE ISLAND
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN
RHODE ISLAND MUNICIPAL SECURITIES
The following is a summary of certain information contained in official
statements of certain issuers of Rhode Island Municipal Securities published
prior to July, 1995. The summary does not purport to be a complete description
and is current as of the date of the corresponding official statement.
Rhode Island Municipal Securities may fluctuate in value in response to a
variety of factors, including the economic strength of State and local
governments and the availability of federal funding.
Rhode Island has developed a modern, diversified economy providing
employment for over 470,000 residents in both goods and service industries. In
1993, goods producing industries generated $3.7 billion in earnings and
accounted for 17% of Rhode Island's total personal income. Service industries
in the same year generated $10.1 billion in earnings and accounted for 48
percent of the State's personal income.
Total personal income in Rhode Island increased by 73.2% in nominal terms
between 1984 and 1994. In 1994, the Rhode Island economy generated $22.2
billion in personal income. Rhode Island's per capita income of $22,251 is
ranked 19th among the 50 states and has grown faster than the national average.
In recent years, Rhode Island's employment mix has shifted with an
increasing proportion of employment in service producing sectors at the expense
of goods producing sectors. Between 1984 and 1994, employment in the goods
producing industries declined by 25.6% (135,000 to 100,500) while employment in
service producing industries grew by 18.5% (281,400 to 333,500).
<PAGE>
In 1993, the manufacturing sector contributed $3.0 billion, or 13.9% of
Rhode Island's total personal income. Personal income derived from this sector
increased 28% between 1983 and 1993. Rhode Island is the jewelry capital of the
world, with over 35,000 employed in jewelry manufacturing, distribution and
related services. Hasbro, the world's second largest toy manufacturer, and
G-tech, the world's largest supplier of on-line lottery systems, are
headquartered in Rhode Island. Electronic products manufactured in the State
include connectors, circuit boards, uninterruptable computer power supplies,
and wire and cable assemblies. Metrology equipment, navigation equipment,
medical equipment and supplies, safety goggles, and protective breathing
apparatus are also manufactured in Rhode Island. Rhode Island's skilled crafts
people produce a wide variety of metal and plastic components which are used by
manufacturers throughout the world. Chemical manufacturers located in Rhode
Island produce products such as dyes, biomedical products and aerosol consumer
products.
In 1993, the wholesale and retail trade sector contributed $2.0 billion,
or 10%, of Rhode Island's total personal income, and over 14.8% of the portion
of personal income derived from earnings. Employment in trade increased 7.3%
from 88,600 in 1984 to 95,100 in 1994.
In 1992, the service sector contributed $4.0 billion, or 18.8% of Rhode
Island's total personal income, and over 28.9% of the portion of personal
income derived from earnings. Employment in Rhode Island's service industries
increased 37.8% from 99,200 in 1984, to 136,700 in 1994. Service is the largest
division of the State's economy with health services, business services and
educational services as the most important groups.
Business services, engineering, accounting and research are the fastest
growing sector of Rhode Island's economy, employing over 29,500 in 1994. Rhode
Island companies have developed extensive system engineering and research
facilities to support the Naval Undersea Warfare Center in Newport. Over 2,600
firms not only provide business support services for Rhode Island's diversified
economy, but also export these services throughout the United States and the
world.
Health services is the largest employment group in Rhode Island. There
are 14 general hospitals and two voluntary psychiatric hospitals in Rhode
Island. In addition, there are 110 nursing and personal-care facilities in
Rhode Island.
In 1993, the government sector contributed $2.3 billion, or 10.8% of
Rhode Island's total personal income, and over 16.6% of the portion of personal
income derived from earnings. Government employment in Rhode Island has
increased 7.7% since 1984 from 57,400, to 61,800 in 1994.
The United States Navy maintains a significant presence in Newport, Rhode
Island, where its facilities include: the Naval Education and Training Center;
Naval War College; and the Naval Undersea Warfare Center. These facilities
employ over 7,543 military and civilian personnel, and have an average daily
enrollment of almost 2,022 students. The Naval Undersea Warfare Center, with
its major laboratories in Newport and Middletown, is a prime source of high
technology that provides the Navy with its tactical and strategic edge in
combat systems, surface ship sonar, and undersea ranges. In 1994, the Naval
Undersea Warfare Center employed 3,829 people. Many Rhode Island companies have
developed extensive system engineering and research facilities that provide
support to the center.
In 1994, military personnel, civilian Department of Defense personnel and
private industry defense related employment in Rhode Island was estimated at
<PAGE>
15,887 having declined from a 1987 high of 26,934. Total defense contract
awards to Rhode Island firms have decreased from a high of $555 million in
1990, to $410 million in 1994.
Beginning in 1989, Rhode Island, like other New England states, began to
experience a slowdown in its economy. The State's unemployment rate increased
from 4.1% in 1989 to 6.8% in 1990, to 8.6% in 1991, and again to 8.9% in 1992.
Personal income growth slowed from an annual rate of 9.0% in 1988 to 2.1
percent in 1991. In constant dollars, personal income growth slowed from 4.5.%
to -1.8% for the same years.
The economic slowdown resulted in significant State budget constraints
and opportunities to review the overall fiscal situation. The recession that
engulfed the Rhode Island economy appears to have finally stabilized. After
three years of falling employment, the number of jobs in Rhode Island grew by
0.1% in 1993. Data Resources, Inc. (DRI) forecasters estimate Rhode Island job
growth at an annual rate of 1.4% annually from 1994 to 1998 with personal
income growth rates averaging 5.4%. Real personal income growth is forecast to
average 2.2%.
The national recession has been longest and deepest in the New England
states. Since 1989, 9.6% of all of New England's non-agricultural jobs have
been lost. Rhode Island losses have paralleled those of the rest of the region.
Non-agricultural employment in Rhode Island fell by 8.9% between the 1989 peak
and the low point in 1992.
Rhode Island, Massachusetts, Connecticut and Maine rank among the top 12
states in defense prime contract awards per capita. As a result, federal
defense cutbacks have affected this region disproportionately. The national
recovery did not affect all regions equally. New England is forecast to
continue to lag due to the restructuring of the defense industry and
overbuilding in real estate markets.
The DRI estimators forecast that the national economy is beginning to
slow with a "soft landing" rather than a recession. Consumer spending is
slowing in response to higher interest rates and rising debt burdens. Debt
accumulation appears to have risen to earlier peak levels; the rate of
accumulation growth does not appear sustainable.
The Rhode Island outlook is for continued recovery at a sluggish pace.
Non-farm employment has increased 1% annually over the past three years and is
estimated to remain at 1.2% annual growth through years 2000. Rhode Island
expects to continue to lose manufacturing jobs to foreign competitors, high
regulatory costs, and the end of the Seawolf Program. Services will provide 80%
of the new jobs created through 2000, reflecting growth in business services,
education, health care, and tourism.
Population growth is expected to average 0.4% annually during the fiscal
years 1995 through 2000. Population declined 0.2% annually during the past
three years as a result of a weak job market, motivating out-migration. The
shrinking labor force contributed to the reduction of three points off the
unemployment rate since the spring of 1992. The unemployment rate is forecast
to grow from the currently forecast 6.4% for 1995 to 6.8% in 1996.
The gross State product has rebounded from -3.8% change in 1991 to a high
of 3.1% in 1994; however, that tracked the overall growth rate of the U.S.
economy. Growth rates are expected to drop to 1.7% in 1995 and further to 1.2%
in 1996. Personal income growth also peaked in 1994, at 5.4%. Growth drops to
5.3% in 1995 and 4.3% in 1996 before rebounding in 1997.
<PAGE>
REVENUE ESTIMATES
Current revenue estimates are those adopted by the Revenue Estimating
Conference for fiscal 1995 and fiscal 1996 on May 10, 1995. They are based on
current law. Thus, they do not include the cigarette tax increase, the
retention of an additional one cent of the existing gas tax by the Department
of Transportation as recommended by the Governor, nor do they include extension
of the existing nursing home tax currently under discussion.
The Conference estimated revenues of $1.633 billion for fiscal 1995 and
$l.565 billion for fiscal 1996. These represent 4.7% growth in fiscal 1995 and
- -3.5% in fiscal 1996.
When adjusted for tax law changes, they represent -1.3% in fiscal 1995
and 2.1% for fiscal 1996. Major changes include the nursing home tax, the
hospital license fee, and the public utilities gross earnings tax phase out for
manufacturing energy. The fiscal 1995 decrease is in disproportionate share
Medicaid receipts.
PERSONAL INCOME TAX
The personal income tax estimate for fiscal 1995 of $531.0 million is a
downward revision of $37.0 million. The fiscal 1996 estimate of $550.0 million
is a downward revision of $47.0 million, reflecting fiscal 1995 change as well
as reduction in estimated growth from 5.1% to 3.6% to reflect the revised
economic forecast.
Income tax returns to date have presented a mixed picture to estimators.
Through April, 1995 withholding receipts were 6.4% above the same period in
fiscal 1994. However, estimated payments and final payments were 13.7% and 5.6%
below, respectively. Refunds were 9.3% ahead. It appears possible that over
withholding may be occurring again -- it had been virtually eliminated in 1991
when the IRS re-based the withholding tables.
INSURANCE COMPANY GROSS PREMIUMS TAX
The estimators lowered the estimates by $6.0 million in fiscal 1995 and
$8.0 million in fiscal 1996 based upon payments to date and the March estimated
filings. Companies are required to file 40% of their tax year estimated
liability in March and the remaining 60% in June. The estimate of $35.0 million
and $36.0 million reflects -6.9 percent and 2.9% growth rates for fiscal 1995
and fiscal 1996, respectively.
SALES TAX
The estimates are $454.0 million for fiscal 1995 and $465.0 million for
fiscal 1996. These are downward revisions of: $1.0 million for fiscal 1995,
representing a drop in the growth rate from 8.4% to 8.2%; and $7.0 million in
fiscal 1996, representing a drop in the projected growth from 3.7% to 2.4%.
Review of monthly returns shows decreasing six-month average collections as
shown here:
PERIOD MONTHLY AVERAGE
July - December $39.1
August - January 39.1
September - February 37.9
October - March 36.9
November - April 36.8
<PAGE>
This suggests a slowdown on taxable purchases moving with the economic
slowdown.
LOTTERY
The estimators revised the fiscal 1995 and fiscal 1996 estimates upward
by $10.2 and $7.5 million, respectively. The principal area of growth is in
video games.
OTHER
The estimators increased the disproportionate share component of
departmental sales and services by $12.7 million for fiscal 1995 and $5.7
million for fiscal 1996. This requires corresponding increases from DHS for
matching funds of $5.9 million and $2.6 million, respectively.
Personal income tax receipts showed healthy growth in fiscal 1994,
probably as a result of a large one-time filing equal to approximately two
percent of the growth. The fiscal 1995 drop would be 2% higher on that basis.
The fiscal 1996 estimate reflects the estimators' concern for economic
slowdown.
General business taxes show a drop in fiscal 1995 as a result of the
change in the health care provider assessment rate on mental retardation group
homes in September, 1994 as noted earlier. The drop in fiscal 1996 is the
result of an $8.1 million loss in the health care providers assessment on
nursing homes that expires September 30, 1995 under current law. The Assembly
has discussed extending the tax.
Sales and use taxes are estimated to increase 8.7% in fiscal 1995 and
2.1% in fiscal 1996. The sales tax component is projected to grow 8.2% in
fiscal 1995 and 2.4% in fiscal 1996. Fiscal 1995 showed dramatic growth of 16%
in the first six months (July-December) over the same period for the prior
year, followed by a gradual slowdown. The fiscal 1996 estimate assumes the
slowdown will continue.
Departmental receipts show considerable annual variance, largely as a
result of the one-time hospital license fee (fiscal 1995) and large medicaid
disproportionate share payments (fiscal 1993 and fiscal 1994). The changing
federal medicaid restrictions on these sources are expected to have had run
their course by fiscal 1996.
Finally, lottery games continue to be a major source of revenue increase,
growing from $43.6 million in fiscal 1993, to $51.3 million in fiscal 1994, and
over $70.0 million in fiscal 1995 and fiscal 1996.
COMPARATIVE STATEMENTS OF REVENUES AND EXPENDITURES
The General Fund revenues and expenditures for fiscal 1995 are predicated
on the basis of revised revenue estimates and revised expenditures as projected
by the State Budget Office. Revenues reflect the May Consensus estimates of the
Revenue Estimating Conference, adjusted by the Budget Office for the deficit
resolution plan. Fiscal 1995 revenues are currently estimated by the Budget
Office to be $1,669,633,205, an increase of $36,233,205 over the May conference
and $15,392,088 over the Governor's Budget. The $36.2 million variance is a
result of an estimated decrease in the business corporations tax of $5.3
million due to a liability resulting from a recent court decision and
$41,523,400 of other revenues estimated by the Budget Office. These revenues
are from bond proceeds earnings ($480,376), employee medical insurance
recoveries ($1,305,132), reversal of a medical assistance payable reserve
<PAGE>
($12,420,002), prior year adjustments ($1,319,225), prior year group life
dividends ($775,265), recoveries from the medical assistance program ($3.0
million), recoveries from the Solid Waste Management Corporation ($5,854,523),
excess bond proceeds recoveries ($3,508,877), prior year Public Building
Authority recoveries ($960,000), enhancements from restricted receipt
conversions ($12.0 million) and a decrease in revenues from Lottery advertising
($100,000).
The General Fund revenues and expenditures for fiscal 1996 are based on
expenditures contained in the proposed fiscal 1996 budget submitted by the
Governor in March, 1995. Revenues reflect the May consensus estimates of the
Revenue Estimating Conference. Fiscal 1996 revenues will change as a result of
budget negotiations. Revenue changes under discussion include a hospital
licensing fee of 4.92% of net revenues ($53.7 million), a 5 cent increase in
the cigarette tax ($4.9 million), a decrease of $410,000 due to the elimination
of the motor vehicle walk-in registration fee, a decrease in the gas tax due to
increased dedication to Transportation expenditures ($4.2 million), and a
decrease in sales and services tax due to lost revenues from out-of-State
prisoners ($2.2 million), all of which were proposed by the Governor in March.
These total $51.8 million. Also under discussion are the extension of the
nursing home tax ($8.1 million), additional gambling revenue through change to
the distribution at the Lincoln Dog Racing facility ($2.0 million), recovery of
prior year employee medical insurance ($2.7 million), additional medical
assistance program cost recoveries ($17.0 million), lottery advertising
revenues ($1.0 million), and other sources ($2.0 million).
The Budget Office projects a closing surplus of $4.3 million in fiscal
1995 assuming the components contained in the deficit reduction plan are
accepted. The State must resolve a $42.5 million projected deficit in fiscal
1996. The Governor is in the process of developing a budget deficit resolution
plan for fiscal 1996. In addition to the changes in revenues described above,
expenditure reduction plans for State agencies and departments are currently
under review.
FREE SURPLUS
State law provides that all unexpended or unencumbered balances of
general revenue appropriations, whether regular or special, shall lapse to
General Fund surplus at the end of each fiscal year, provided, however, that
such balances may be reappropriated by the Governor in the ensuing fiscal year
for the same purpose for which the monies were originally appropriated by the
General Assembly. Free surplus is the amount available at the end of any fiscal
year for future appropriation by the General Assembly.
The Governor is in the process of developing a budget deficit resolution
plan to resolve the projected $42.5 million deficit in fiscal 1996. Expenditure
reduction plans for State agencies and departments are currently under review.
State statutes require every city and town to adopt a balanced budget for
each fiscal year. Local governments rely principally upon general real and
tangible personal property taxes and automobile excise taxes for provision of
revenue. The State is required to enact and maintain a balanced budget. In the
event of a budgetary imbalance, the available free surplus will be reduced
and/or additional resources (i.e. taxes, fines, fees, licenses, etc.) will be
required and/or certain of the expenditure controls will be put into effect.
A combination of these measures will be utilized by the State in order to
maintain a balanced budget.
[To be updated]
<PAGE>
3. CONNECTICUT
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN
CONNECTICUT MUNICIPAL SECURITIES
The following is a summary of certain information contained in official
statements of certain issuers of Connecticut Municipal Securities published
prior to October, 1995. The summary does not purport to be a complete
description and is current as of the date of the corresponding official
statement.
Connecticut Municipal Securities may fluctuate in value in response to a
variety of factors, including the economic strength of State and local
governments and the availability of federal funding.
Connecticut's economy is diverse, with manufacturing, services and trade
accounting for approximately 70% of total non-agricultural employment.
Manufacturing employment has been on a downward trend since 1984 while
non-manufacturing employment has risen significantly. Rapid relative growth in
the non-manufacturing sector as compared to the manufacturing sector is a trend
that is in evidence nationwide and reflects the increased importance of the
service industry. From 1970 to 1993, manufacturing employment in the State
declined 33.5%, while non-manufacturing employment rose 63.3%, particularly in
the service, trade and financial categories, resulting in a 27.6% increase in
total growth in non-agricultural establishment employment.
Defense-related business plays an important role in the Connecticut
economy. Economic activity has been affected by the volume of defense contracts
awarded to Connecticut firms. In the past 10 years, Connecticut has ranked from
6th to 12th among all states in total defense contract awards, receiving 2.5%
of all such contracts in 1993. On a per capita basis, defense awards to
Connecticut have traditionally been among the highest in the nation. However,
in recent years the federal government has reduced defense-related spending.
This trend is expected to continue.
The Connecticut General Assembly's annual appropriation acts have usually
authorized current expenditures consistent with the anticipated annual tax and
other revenue sources except in certain years since 1971 when borrowings were
authorized to fund deficits.
In the fiscal years ended June 30, 1985, 1986 and 1987, the operating
surpluses of the State's General Fund were $365.5, $250.1 and $365.2 million,
respectively. For the fiscal year ended June 30, 1988 the operating deficit was
$115,594,656. By statute, this amount was deemed to be appropriated from the
Budget Reserve Fund to fund the deficit.
After the effect of a variety of executive actions and legislative
enactments in the course of the fiscal year which significantly reduced the
projected deficit, the operating deficit for the fiscal year ended June 30,
1989 was $28,019,984. This amount was also deemed to be appropriated from the
Budget Reserve Fund to fund the deficit.
For the fiscal year ended June 30, 1990, the General Fund's operating
deficit was $259,496,841. This was the net deficit after actions taken by the
Governor and the General Assembly which affected both revenues and
expenditures. As required by statute, the State Comptroller transferred the
balance of the Budget Reserve Fund, or $102,254,299, to the General Fund to
<PAGE>
partially fund the operating deficit. This action brought the total deficit
carried forward to fiscal 1990-91 to $157,242,542.
For the fiscal year ended June 30, 1991, the operating deficit, after
miscellaneous surplus adjustments, was $808,468,983. Together with the deficit
carried forward from fiscal 1989-90, the total deficit for the fiscal year
1990-91 was $965,711,525. This total deficit amount was funded by the issuance
of General Obligation Economic Recovery Notes.
The result of the fiscal year ended June 30, 1992 was a General Fund
operating surplus of $110,181,277. The surplus was used to retire $110,100,000
of Economic Recovery Notes.
For the fiscal year ended June 30, 1993, there was a General Fund
operating surplus of $113,490,652. By statute, the unappropriated surplus in
the General Fund is deemed to be appropriated for debt service for the fiscal
year ending June 30, 1994.
For the fiscal year ended June 30, 1994, there was a General Fund
operating surplus of $19,654,737. By statute, the unappropriated surplus in the
General Fund is deemed to be appropriated for debt service for the fiscal year
ending June 30, 1995.
Per statute, the State's fiscal position is reported monthly by the
Comptroller. This report compares revenues already received and expenditures
already made to estimated revenues to be collected and estimated expenditures
to be made during the balance of the year.
The Comptroller's February 1, 1995 letter indicated a General Fund
deficit of $174.1 million. Subsequently, on February 15, 1995, the Governor
released his recommended budget for the upcoming biennium. As part of that
recommendation, the Governor included a plan to substantially reduce this
deficit primarily through legislative action to reinstate State taxes on
hospital patient services effective February 1, 1995, estimated to be $86.7
million from the gross earnings tax and $45.0 million from the sales tax, and
by legislative changes to the tax levied in connection with underground fuel
tanks estimated to produce $13.5 million in revenues to the General Fund. Based
on the assumption such action would be taken, the Comptroller's monthly report
of March 1, 1995, reflects a deficit of $2.6 million. The General Assembly has
not yet adopted the Governor's plan and the Governor is currently exploring
alternative actions including potential legislative changes.
No assurance can be given that subsequent projections will not indicate
changes in the anticipated General Fund result.
The Governor's Recommended Biennial Budget for fiscal 1995-96 anticipates
General Fund expenditures of $8,489.7 million and General Fund revenues of
$8,495.3 million. After deducting $2.6 million for the anticipated
carry-forward deficit from fiscal 1994-95, the estimated surplus for fiscal
1995-96 is $3.0 million. For fiscal 1996-97, the Governor's Recommended Budget
anticipates General Fund expenditures of $8,617.2 million and General Fund
revenue of $8,629.9 million resulting in a projected surplus of $12.7 million.
Per statute, these surpluses will be deposited into the Budget Reserve Fund.
The Governor's Recommended Budget for the biennium remains within the
limits imposed by the statutory expenditure cap. For fiscal 1995-96 and for
fiscal 1996-97, permitted growth in capped expenditures is 3.59% and 3.71%,
respectively. The Recommended Budget is $126.2 million below the expenditure
cap in fiscal 1995-96 and $246.6 million below the expenditure cap in fiscal
1996-97.
<PAGE>
The Governor's Recommended Budget calls for a lower income tax rate of 3%
to be applied to a filer's first portion of taxable income with the remainder
to be taxed at the current rate of 4.5%. This change is retroactive to January
1, 1995 and for joint filers the new 3% rate will apply to the first $12,000 of
taxable income. By January 1, 1997, when the Governor's recommended changes are
fully implemented, for joint filers the new 3% rate will apply to the first
$30,000 of taxable income. After full implementation fully 43% of Connecticut's
taxpayers will pay exclusively at the new 3% rate. In addition, the Governor is
proposing to phase down the Corporation Business Tax beginning January 1, 1997
from 10.5% to 8% by January 1, 1999. These two changes, when combined with
other miscellaneous revenue modifications, are expected to result in a $218
million revenue loss in fiscal 1995-96 and a $343 million revenue loss in
fiscal 1996-97.
In order to achieve a balanced budget, the Governor, after a thorough
review of all State budget programs and functions, has recommended expenditure
reductions from estimated current services of approximately $1,020 million in
fiscal 1995-96 and an additional $632 million in fiscal 1996-97. The Governor's
budget proposes significant changes to the welfare system aimed at promoting
economic self-sufficiency. These include permitting recipients to earn more
before eliminating their benefits, imposing an 18 month time limit for receipt
of benefits, and reducing the AFDC payment levels with no additional benefits
for additional children. In fiscal 1995-96 these changes will reduce AFDC
expenditures by $36 million from fiscal 1994-95 and General Assistance
expenditures by $27 million. Include in the Governor's budget is a
restructuring of the numerous categorical grants to municipalities. The
Education Cost Sharing grant, the State's largest, will be consolidated with
other reduction related grants. Overall, the Governor's budget pares back 95%
of the projected increase in education grants to towns. The Governor's budget
also proposes to cut in half, to $500 million, the amount of bonds annually
authorized by the State to rein in debt service costs.
The Governor's Recommended Budget also calls for the reissuance of a
portion of the fiscal 1995-96 Economic Recovery Fund payment and extending the
payment over three additional years. This change will decrease the fiscal
1995-96 payment from $328.1 million to $91.9 million and increases the fiscal
1996-97 payment form zero to $91.3 million, the fiscal 1997-98 payment from
zero to $87.2 million and the fiscal 1998-99 payment from zero to $86.6
million. This revision will result in a projected additional interest expense
of $28.8 million over the period.
The budget recommended by the Governor for fiscal year 1995-1996
anticipates General Fund expenditures of $8,489,700,000 and General Fund
revenues of $8,495,300,000. For fiscal 1996-1997, the adopted budget
anticipates General Fund expenditures of $8,115,600,000 and General Fund
revenues of $8,629,900,000. No assurance can be given that subsequent
projections will not indicate changes in the anticipated General Fund result.
On November 3, 1992, Connecticut voters approved a constitutional
amendment which requires a balanced budget for each year and imposes a cap on
the growth of expenditures. The statutory spending cap limits the growth of
expenditures to either (1) the average of the annual increase in personal
income in the State for each of the preceding five years, or (2) the increase
in the consumer price index for urban consumers during the preceding
twelve-month period, whichever is greater. Expenditures for the payment of
bonds, notes and other evidences of indebtedness are excluded from the
constitutional and statutory definitions of general budget expenditures.
<PAGE>
By statute, no bonds, notes or other evidences of indebtedness for
borrowed money payable from General Fund tax receipts of the State shall be
authorized by the General Assembly except as shall not cause the aggregate
amount of (1) the total amount of bonds, notes or other evidences of
indebtedness payable from General Fund tax receipts authorized by the General
Assembly but which have not been issued and (2) the total amount of such
indebtedness (excluding short-term and certain other indebtedness) which has
been issued and remains outstanding, to exceed 1.6 times the total estimated
General Fund tax receipts of the State for the fiscal year in which any such
authorization will become effective. As a result, the State had a debt
incurring margin as of March 1, 1995 of $1,716,182,730.54. Potentially, this
law could limit the amount of Connecticut Municipal Obligations available for
purchase by the Fund.
Several tax changes were adopted during the 1993 legislative session, the
net effect of which is not yet clear. Among the most significant changes were
the changes to the Corporation Business Tax based on income. A four year
gradual rate reduction was adopted reducing the tax to 11.25% beginning January
1, 1995; 11% beginning January 1, 1996; 10.5% beginning January 1, 1997 and 10%
beginning January 1, 1998. Additionally, the Corporation Business Tax based on
capital was eliminated for regulated investment companies and real estate
investment trusts. To assist manufacturers, the Gross Receipts Tax on
electricity to those businesses will be phased out over the next four years.
Further, to encourage continuing research and development in Connecticut, a
research and development tax credit was provided for research and development
expenses for income years commencing on or after January 1, 1993.
Several Sales Tax exemptions were added which include, among others,
amusements and recreation, airport valet parking, certain tax preparation
services and car washes. The Personal Income Tax estimated and withholding
payment schedule was changed to conform to the federal timetable. A minimum tax
was established so that Connecticut personal income taxpayers who are subject
to the federal alternative minimum tax will now pay the higher of the State
income tax or 23% of their adjusted federal tentative minimum tax. The tax on
cigarettes was increased by 2 cents per pack effective July 1, 1993 and 3 cents
per pack effective July 1, 1994 and a two dollar excise tax on automobile tires
was enacted.
The State Department of Revenue Services has received claims for refund
of the Corporation Business Tax ("CBT") for the years 1986 through 1993
aggregating more than $87,000,000, attributable to the inclusion in the income
base of the CBT of interest on federal obligations while excluding from the
base interest on certain State obligations. On March 8, 1995, the Connecticut
General Assembly enacted legislation taking by eminent domain the rights of
holders relating to exclusion of interest on any State obligation from the
income base of the CBT, effective for interest accrued on or after January 1,
1992. The State will pay just compensation to holders for the rights taken.
This legislative action is intended to eliminate the basis for such refund
claims for 1992 and later years, aggregating approximately 70% of amounts
claimed. The just compensation payable to holders of State obligations is
expected to aggregate substantially less than the refunds claimed for 1992 and
later years. Public Act Additional legislative action authorizes the issuance
of bonds in the amount of $48 million for the payment of compensation,
interest, administration and refunds.
The State of Connecticut, its officers and employees, are defendants in
numerous lawsuits. The Attorney General's Office has reviewed the status of
pending lawsuits and reports that an adverse decision in any of the cases
listed in the Litigation section of the Connecticut State Official Statement
could materially affect the State of Connecticut's financial position.
<PAGE>
[To be updated]
4. FLORIDA
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN
FLORIDA MUNICIPAL SECURITIES
The following is a summary of certain information contained in official
statements of certain issuers of Florida Municipal Securities published prior
to December 1995. The summary does not purport to be a complete description and
is current as of the date of the
corresponding official statement.
Personal income in Florida has been growing the last several years and
generally has outperformed both the nation as a whole and the Southeast in
particular. From 1985 through 1994, Florida's per capita income rose an average
of 5.2% per year, while the national per capita income increased an average of
5.1%. Real personal income is estimated to increase 4.6% in 1995-96 and
increase 3.8% in 1996-97 while real personal income per capita in Florida is
projected to grow at 2.7% in 1995-96 and 1.9% in 1996-97.
Florida's population growth is one reason why its economy has typically
performed better than the nation as a whole. In 1980, Florida was ranked
seventh among the 50 states with a population of 9.7 million people. Florida
has continued to grow since then and as of April 1, 1994 ranks fourth with an
estimated population of 13.9 million. Since 1984, Florida's average annual rate
of population increase has been approximately 2.3% as compared to an
approximately 1.0% average annual increase for the nation as a whole.
Throughout the 1980s, the unemployment rate in Florida had, generally,
tracked below that of the nation. In recent years, however, as Florida's
economic growth has slowed from its previous highs, the unemployment rate has
tracked above the national average. Florida's unemployment rate is projected to
be 5.6% in 1995 and 5.7% in 1996. The average rate of unemployment for Florida
since 1985 is 6.3%, while the national average is 6.4%.
Until recently, Florida has had a dynamic construction industry, with
single and multi-family housing starts accounting for 8.5% of total U.S.
housing starts in 1994, while Florida's population was 5.3% of the nation's
total population. The reason for such a dynamic construction industry was the
rapid growth of Florida's population. In Florida, single and multi-family
housing starts in 1995-96 are projected to reach a combined level of nearly
113,200 units, while increasing to 115,100 in 1996-97. Total construction
expenditures are forecasted to increase 4.0% in 1995-96 and increase by 5.3% in
1996-97.
Financial operations in Florida are maintained through the use of four
funds types -- the General Revenue Fund, Trust Funds, the Working Capital Fund
and, beginning in fiscal year 1995-96, the Budget Stabilization Fund. In fiscal
year 1994-95, approximately 66% of total direct revenues to these Funds were
derived from Florida State taxes and fees. Federal funds and other special
revenues accounted for the remaining revenues. Major sources of tax revenues to
the General Revenue Fund are the sales and use tax, corporate income tax,
intangible personal property tax and alcoholic beverage tax, which amounted to
67%, 7%, 4%, and 4%, respectively, of total General Revenue Fund receipts
available. State expenditures are categorized for budget and appropriation
purposes by type of fund and spending unit, which are further subdivided by
line item. In fiscal year 1994-95, expenditures from the General Revenue Fund
for education, health and welfare, and public safety amounted to approximately
49%, 32% and 11%, respectively, of the total General Revenue Fund available.
<PAGE>
For fiscal year 1995-96, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available to Florida is $15,286.2
million, a 3.1% increase over 1994-95. With combined General Revenue Fund,
Working Capital Fund and Budget Stabilization Fund appropriations at $14,808.2
million, unencumbered reserves at the end of 1995-96 are estimated at $478.0
million. For fiscal year 1996-97, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available total $15,922.0 million, a
4.2% increase over fiscal year 1995-96.
The sales and use tax is the greatest single source of tax receipts in
Florida. For the fiscal year ended June 30, 1995, receipts from this source
were $10,672 million, an increase of 6.0% from fiscal year 1993-94. The second
largest source of tax receipts is the motor fuel tax. The estimated collections
from this source during the fiscal year ended June 30, 1994 were $1,733.4
million, however these revenues are almost entirely dedicated to trust funds
for specific purposes and are not included in the General Revenue Fund.
Alcoholic beverage tax revenues totalled $437.3 million for the fiscal year
ending June 30, 1995. The receipts of the corporate income tax for the fiscal
year ended June 30, 1995 were $1,063.5 million, an increase of 1.5% from the
previous fiscal year. Gross receipt tax collections for fiscal year 1994-95
totalled $508.4 million, an increase of 10.4% over the previous fiscal year.
Documentary stamp tax collections totalled $695.3 million during fiscal year
1994-95, decreasing 11.4% from the previous fiscal year. The intangible
personal property tax is a tax on stocks, bonds, notes, governmental
leaseholds, certain limited partnership interests and other intangible personal
property. Total collections from intangible personal property taxes were $818.0
million during fiscal year 1994-95, a 2.1% decline from the previous fiscal
year. Severance taxes totalled $61.2 million during fiscal year 1994-95, up
1.1% from the previous fiscal year. In November, 1986, Florida voters approved
a constitutional amendment to allow Florida to operate a lottery. Fiscal year
1994-95 produced ticket sales of $2.19 billion of which education received
approximately $853.2 million.
Pursuant to a constitutional amendment which was ratified by the voters
of Florida on November 8, 1994, the rate of growth in State revenues in a given
fiscal year is limited to no more than the average annual growth rate in
Florida personal income over the previous five years. Revenues collected in
excess of the limitation are to be deposited into the Budget Stabilization Fund
unless two-thirds of the members of both houses of the Florida Legislature vote
to raise the limit. The revenue limit is determined by multiplying the average
annual growth rate in Florida personal income over the previous five year by
the maximum amount of revenue permitted under the cap for the previous year.
For the first year, which is fiscal year 1995-96, the limit is based on actual
revenues from fiscal year 1994-95. State revenues are defined as taxes,
licenses, fees and charges for services imposed by the Florida Legislature on
individuals, businesses or agencies outside of State government. The definition
of State revenues also includes the revenue from the sale of lottery tickets.
Included among the categories of State revenues which are exempt from the
revenue limitation, however, are funds used for debt service on State bonds and
other payments related to debt.
The Florida State Constitution does not permit a state or local personal
income tax. An amendment to the Florida State Constitution by the electors of
Florida is required to impose a personal income tax in Florida.
As of January 1, 1994, property valuations for homestead property are
subject to a growth cap. Growth in the assessed value of property qualifying
for the homestead exemption will be limited to 3% or the change in the Consumer
Price Index, whichever is less. If the property changes ownership or homestead
status, it is to be re-valued at full value on the next tax roll.
<PAGE>
According to the Office of Comptroller, Department of Banking and Finance
of the State of Florida, as of February 15, 1995, Florida maintained a bond
rating of AA from Moody's, a bond rating of AA from S&P and a bond rating of AA
from Fitch on all of its general obligation bonds. Outstanding general
obligation bonds at June 30, 1994 totalled almost $6.1 billion and were issued
to finance capital outlay for educational projects of both local school
districts, community colleges and state universities, environmental protection
and highway construction.
[To be updated]
<PAGE>
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS1/
The ratings of Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Group ("S&P"), and Fitch Investors Service, Inc. ("Fitch")
represent their opinions as to the quality of various debt securities, and are
not absolute standards of quality. Debt securities with the same maturity,
coupon and rating may have different yields, while debt securities of the same
maturity and coupon with different ratings may have the same yield. The ratings
below are as described by the rating agencies. Ratings are generally given to
securities at the time of issuance. While the rating agencies may, from time to
time, revise such ratings, they undertake no obligation to do so.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
FOUR HIGHEST BOND RATINGS
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower then 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 in Aaa
securities.
A Bonds which are rated A possess many favorable investments attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
BAA Bonds which are rated Baa are considered as medium grade obligations,
since 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
greater length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Note: Those bonds in the Aa, A and Baa groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa,
A, A 1 and Baa 1.
<PAGE>
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S
FOUR HIGHEST BOND RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having adequate capacity to pay interest and
repay principal. Whereas it normally exhibits 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.
Plus (+) or minus (-): The ratings from AA to BBB may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF FITCH INVESTORS SERVICES, INC.'S
FOUR HIGHEST BOND RATINGS
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environmental that might affect the
issuer's future financial strength and credit quality.
AAA Bonds 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.
AA Bonds 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+.
A Bonds 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.
BBB Bonds 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 an 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.
<PAGE>
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in AAA category.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TWO HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES
Moody's ratings for state and municipal short-term obligations are
designated Moody's Investment Grade ("MIG"). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements are
critical in short-term ratings, while other factors of major importance in bond
risk, such as long-term secular trends, may be less important over the short
run.
MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S
TWO HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES
An S&P note rating reflects the liquidity factors and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
Amortization schedule -- the larger the final maturity relative to
other maturities, the more likely it will be treated as a note.
Source of payment -- the more dependent the issue is on the market
for its refinancing, the more likely it will be treated as a note.
Note rating symbols are as follows:
SP-1 Strong capacity to pay principal and interest. An issue determined to
posses a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term of the
notes.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S
RATINGS OF TAX-EXEMPT DEMAND BONDS
S&P assigns "dual" ratings to all debt issues that have a put or demand
feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
<PAGE>
example, "AAA/A-1+"). With short-term demand debt, note rating symbols are used
with the commercial paper rating symbols (for example, "SP-1+/A-1+")
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S
THREE HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in timely
manner.
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as
for issues assigned F-1+ and F-1 ratings.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TWO HIGHEST SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually short-term senior debt obligations not having an original
maturity in excess of one year.
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics: (1)
leading market positions in well-established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structure with
moderate reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (5) well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and overage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S
TWO HIGHEST COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
A-1 This description 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.
<PAGE>
A-2 Capacity for timely payment on issues with this description is
satisfactory. However, the relative degree of safety is not a high as for
issues designated A-1.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S
THREE HIGHEST COMMERCIAL PAPER RATINGS
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurances for timely payment, but the margin of safety is not as great as
for issues assigned F-1+ and F-1 ratings.
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT ADVISERS 1784 FUNDSregistered trademark
<S> <C>
The First National Bank of Boston 1784 TAX-FREE MONEY MARKET FUND
100 Federal Street 1784 PRIME MONEY MARKET FUND
Boston, MA 02110 1784 U.S. TREASURY MONEY MARKET FUND
1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
Kleinwort Benson Investment 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
Management Americas Inc. 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
200 Park Avenue 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
New York, New York 10166 1784 FLORIDA TAX-EXEMPT INCOME FUND
1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
1784 SHORT-TERM INCOME FUND
DISTRIBUTOR 1784 INCOME FUND
1784 ASSET ALLOCATION FUND
SEI Financial Services Company 1784 GROWTH AND INCOME FUND
680 East Swedesford Road 1784 GROWTH FUND
Wayne, PA 19087-1658 1784 INTERNATIONAL EQUITY FUND
</TABLE>
ADMINISTRATOR
SEI Fund Resources
680 East Swedesford Road
Wayne, PA 19087-1658
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 STATEMENT OF ADDITIONAL INFORMATION
CUSTODIAN
The First National Bank of Boston
100 Federal Street _____________________, 1996
Boston, MA 02110
- ----------------------------------------------------
The 1784 Fundsregistered trademark:
o are not insured by the FDIC or any other governmental agency;
o are not guaranteed by The First National Bank of Boston or any
of its affiliates;
o are not deposits or obligations of The First National Bank of Boston or
any of its affiliates; and
o involve investment risks, including possible loss of principal. The First
National Bank of Boston serves as investment adviser, custodian and fund
accountant for the 1784 Funds. The 1784 Funds are distributed by SEI Financial
Services Company, a party independent of The First National Bank of Boston and
any of its affiliates. Financial Service Counselors are registered
representatives of an independent broker-dealer or of 1784 Investor Services,
Inc., an affiliate of The First National Bank of Boston.
- --------
1/As described by the rating agencies. Ratings are generally given to
securities at the time of issuance. While the rating agencies may, from time to
time, revise such ratings, they undertake no obligation to do so.
<PAGE>
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS INCLUDED IN PART A:
To be filed by amendment.
FINANCIAL STATEMENTS INCLUDED IN PART B:
To be filed by amendment.
(B) EXHIBITS
*(1) Declaration of Trust of the Registrant
**(2) By-Laws of the Registrant
***,(5)(a) Investment Advisory Agreement between
the Registrant and The
******* First National Bank of Boston
(5)(b) Form of Investment Advisory Agreement between
the Registrant and The First National Bank of
Boston with Schedule reflecting advisory
fees to be paid by the Registrant on behalf of
the 1784 Prime Money Market Fund
*****(5)(c) Investment Advisory Agreement between
the Registrant and The First National Bank of
Boston with respect to the 1784 International
Equity Fund
*****(5)(d) Investment Advisory Agreement between
the Registrant and Kleinwort Benson
Investment Management Americas Inc. with
respect to the 1784 International Equity Fund
******(6) Amended and Restated Distribution Agreement
between the Registrant and SEI Financial
Services Company
***(8) Custodian Agreement
***(9)(a) Administration Agreement between the
Registrant and SEI Financial Management
Corporation
*******(9)(b) Transfer Agency and Service Agreement
between the Registrant and State Street Bank
and Trust Company
***(9)(c) Fund Accounting Agreement between the
Registrant and The First National Bank of
Boston
******(15)(a) Amended and Restated Distribution Plan
of the Registrant
******(15)(b) Distribution Plan (Class C Shares of
1784 U.S. Treasury Money Market Fund) of the
Registrant
<PAGE>
******(15)(c) Distribution Plan (Class D Shares of
1784 U.S. Treasury Money Market Fund) of the
Registrant
19(a) Code of Ethics of the Registrant
19(b) Code of Ethics of The First National Bank of
Boston
19(c) Code of Ethics of the Administrator and
Distributor
****(25) Powers of Attorney of Trustees of Registrant
_____________________
* Incorporated by reference to Registrant's
Statement on Form N1-A filed with the SEC on
February 8, 1993.
**Incorporated by reference to Registrant's
Pre-Effective Amendment No. 2 filed with the SEC on
May 18, 1993.
***Incorporated by reference to Registrant's
Post-Effective Amendment No. 2 filed with the SEC
on January 31, 1994.
****Incorporated by reference to Registrant's
Pre-Effective Amendment No. 2 filed with the SEC on
May 18, 1993 (on signature page).
*****Incorporated by reference to Registrant's
Post-Effective Amendment No. 5 filed with the SEC
on September 28, 1994.
******Incorporated by reference to Registrant's
Post-Effective Amendment No. 8 filed with the SEC
on November 1, 1995.
*******Incorporated by reference to Registrant's
Post-Effective Amendment No. 9 filed with the SEC
on December 15, 1995.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
See the Prospectus and the Statement of Additional
Information regarding the Trust's control relationships.
SEI Fund Resources is a Delaware business trust whose sole
beneficiary is SEI Financial Management Corporation. SEI
Financial Management Corporation is a subsidiary of SEI
Corporation which also controls the distributor of the
Registrant, SEI Financial Services Company, and other
corporations engaged in providing various financial and
record keeping services, primarily to bank trust
departments, pension plan sponsors, and investment managers.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record
Holders
Shares of beneficial interest, without par As of July 10, 1996
value
1784 Tax-Free Money Market Fund 1,516
1784 Prime Money Market Fund 0
1784 U.S. Treasury Money Market Fund (Class A) 3,246
1784 U.S. Treasury Money Market Fund (Class C) 0
1784 U.S. Treasury Money Market Fund (Class D) 0
1784 Institutional U.S. Treasury Money Market Fund 728
1784 Tax-Exempt Medium-Term Income Fund 729
1784 Massachusetts Tax-Exempt Income Fund 1,289
<PAGE>
1784 Rhode Island Tax-Exempt Income Fund 129
1784 Connecticut Tax-Exempt Income Fund 475
1784 Florida Tax-Exempt Income Fund 0
1784 U.S. Government Medium-Term Income Fund 2,028
1784 Short-Term Income Fund 1,291
1784 Income Fund 427
1784 Growth and Income Fund 6,133
1784 Asset Allocation Fund 1,318
1784 Growth Fund 310
1784 International Equity Fund 688
ITEM 27. INDEMNIFICATION
Article VIII of the Agreement and Declaration of Trust
filed as Exhibit 1 to the Registration Statement is
incorporated herein by reference. The Trust participates in
a group liability policy under which the Trust and its
trustees, officers and affiliated persons are insured
against certain liabilities.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The First National Bank of Boston ("Bank of Boston")
and its affiliates offer a wide variety of banking and other
financial services to customers throughout New England, the
United States and internationally. As of December 31, 1995,
Bank of Boston and its affiliates had aggregate gross
interest and non-interest income of $5.4 billion, net income
of $541 million and assets of approximately $47.4 billion,
including customer deposits of $30.9 billion. Bank of
Boston's principal place of business is 100 Federal Street,
Boston, Massachusetts 02110.
Other business, profession, vocation, or employment of
a substantial nature in which each director or principal
officer of Bank of Boston is or has been, at any time during
the last two fiscal years, engaged for his or her own
account or in the capacity of director, officer, employee,
partner or trustee are as follows (each Director of Bank of
Boston is also a director of Bank of Boston Corporation):
Name and Position Connection with and
with Investment Adviser Name of Other Company
Wayne A. Budd, Senior Vice President, NYNEX
Director Governmental & Regulatory
Affairs, Room 1800, 185 Franklin
Street, Boston, MA 02107, since
1996. Senior Partner, Goodwin,
Procter & Hoar, from 1993 to
1996; United States Attorney,
District of Massachusetts from
1989 to 1992; Associate Attorney
General of the United States
Department of Justice from 1992
to 1993.
<PAGE>
William F. Connell, Chairman and Chief Executive
Director Officer of Connell Limited
Partnership, One International
Place, Boston, MA 02109, since
1987. Director of Boston Edison
Company, Arthur D. Little, Inc.,
Harcourt General, Inc. and North
American Mortgage Company.
Gary L. Countryman, Chairman and Chief Executive
Director Officer of Liberty Mutual
Insurance Company, 175 Berkeley
Street, Boston, MA 02117.
President of Liberty Mutual
Insurance Company from 1981 to
1992, Chief Executive Officer
since 1987 and Chairman since
1991; Director of Boston Edison
Company, The Neiman-Marcus
Group, Inc., and Alliance of
American Insurers.
Alice F. Emerson, Senior Fellow, The Andrew W.
Director Mellon Foundation, 140 East 62nd
Street, New York, NY 10021,
since 1991. President Emerita
of Wheaton College; Director of
Eastman Kodak Company, Champion
International Corporation and
AES Corporation.
Charles K. Gifford, Chairman and Chief Executive
Chairman, Chief Executive Officer of Bank of Boston and
Officer and President of Bank of Boston Corporation since
Bank of Boston July 1995; President of Bank of
Corporation, 100 Federal Boston and Bank of Boston
Street, Boston, MA 02110 Corporation since 1989; Chief
Operating Officer of Bank of
Boston and Bank of Boston
Corporation from 1993 to July
1995; Director of Massachusetts
Mutual Life Insurance Company
and Boston Edison Company.
Thomas J. May, Chairman and Chief Executive
Director Officer of Boston Edison
Company, 800 Boylston Street,
Boston, MA 02199, since July,
1994. Executive Vice President
of Boston Edison Company from
1990 to 1993 and President and
Chief Operating Officer from
1993 to July, 1994; Director of
New England Mutual Life
Insurance Company.
Donald F. McHenry, University Research Professor of
Director Diplomacy and International
Relations, Georgetown
University, School of Foreign
Service, Washington, D.C. 20057,
since 1981. President of the
IRC Group since 1983; Director
of American Telephone and
Telegraph Company, Coca-Cola
Company, International Paper
Company, and SmithKline Beecham,
PLC.
<PAGE>
J. Donald Monan, S.J., President of Boston College, 18
Director Old Colony Road, Chestnut Hill,
MA 02167, since 1972.
Paul C. O'Brien, President of The O'Brien Group,
Director Inc., One International Place,
Boston, MA 02110. President and
Chief Executive Officer of New
England Telephone and Telegraph
Company from 1988 to 1993 and
Chairman of the Board from 1993
to December 1994. Director of
Cambridge NeuroScience, Inc,
First Pacific Networks Inc. and
Shiva Corporation.
Edward A. O'Neal, Senior Executive Vice President,
Vice Chairman of Bank of Operating Services and
Boston and Bank of Boston Nationwide Consumer, Chemical
Corporation, 100 Federal Banking Corporation, in 1992;
Street, Boston, MA 02110 Executive Vice President of Bank
of Boston Corporation, and Group
Executive of Bank of Boston's
New England Banking Group from
1992 to 1993 and Vice Chairman
of Bank of Boston Corporation
and Bank of Boston since 1993.
John W. Rowe, President and Chief Executive
Director Officer of New England Electric
System, 25 Research Drive,
Westborough, MA 01582, since
1989. Director of New England
Electric System and UNUM
Corporation.
William J. Shea, Partner at Coopers & Lybrand
Vice Chairman and Chief from 1983 to 1992 and Vice
Financial Officer of Bank Chairman from 1991 to 1992;
of Boston and Vice Executive Vice President, Chief
Chairman, Chief Financial Financial Officer and Treasurer
Officer and Treasurer of of Bank of Boston Corporation
Bank of Boston and Chief Financial Officer of
Corporation, 100 Federal Bank of Boston from January to
Street, Boston, MA 02110 October, 1993 and Vice Chairman
of both since 1993.
Richard A. Smith, Chairman of the Board of
Director Harcourt General, Inc. and The
Neiman-Marcus Group, Inc., 27
Bolyston Street, Chestnut Hill,
MA 02167, since 1991. Chairman,
President and Chief Executive
Officer of GC Companies Inc.
since December, 1993; Chairman
and Chief Executive Officer of
Harcourt General, Inc. from 1985
to 1991 and Chairman and Chief
Executive Officer of the
Neiman-Marcus Group, Inc. from
1987 to 1991. Director of
Liberty Mutual Insurance Company
and Liberty Mutual Fire
Insurance Company.
<PAGE>
William C. Van Faasen, President and Chief Executive
Director Officer of Blue Cross and Blue
Shield of Massachusetts, Inc.,
100 Summer Street, Boston,
Massachusetts 02110. Executive
Vice President and Chief
Operating Officer of Blue Cross
and Blue Shield of
Massachusetts, Inc. from 1990 to
1992 and President and Chief
Executive Officer since 1992.
Thomas B. Wheeler, President and Chief Executive
Director Officer of Massachusetts Mutual
Life Insurance Company, 1295
State Street, Springfield, MA
01111. President of
Massachusetts Mutual Life
Insurance Company since 1987 and
Chief Executive Officer since
1988; Director of Massachusetts
Mutual Life Insurance Company
and Textron Inc.
Alfred M. Zeien, Chairman of the Board and Chief
Director Executive Officer of The
Gillette Company, Prudential
Tower Building, Boston, MA
02199, since 1991. Director of
Polaroid Corporation, Raytheon
Company, Repligen Corporation,
and Massachusetts Mutual Life
Insurance Company.
Kleinwort Benson Investment Management Americas Inc.
("Kleinwort Benson") is the U.S. registered investment
management subsidiary of the London based Kleinwort Benson
Group plc, a holding company for a merchant banking group
whose origins date back to 1792, which in turn is a
subsidiary of Dresdner Bank A.G. Kleinwort Benson has
offices in London, Hong Kong and Tokyo. As of December 31,
1995, Kleinwort Benson had approximately $22.3 billion of
assets under management. Kleinwort Benson's principal place
of business is 200 Park Avenue, New York, New York 10166.
Other business, profession, vocation, or employment of
a substantial nature in which each director or principal
officer of Kleinwort Benson is or has been, at any time
during the last two fiscal years, engaged for his or her own
account or in the capacity of director, officer, employee,
partner or trustee are as follows:
Name and Position Connection with and
with Investment Adviser Name of Other Company
Lesley M. S. Knox, --
Director and
Non-executive Chairman
Simon M. Robertson, Deputy Chairman, Kleinwort
Director Benson Group plc, 10 Fenchurch
Street, London, England EC3M
3HB, since 1992.
John L. Duffy, Chief Financial Officer,
Director Kleinwort Benson North America,
Inc. from May 1991 to July 1993.
<PAGE>
Lynn C. Thurber, Managing Director and Chief
Director Operating Officer, Alex Brown
Kleinwort Benson Realty Advisers
Corporation, 100 East Pratt
Street, Baltimore, MD 21202,
since July 1992. Principal,
Morgan Stanley Incorporated,
from 1975 to July 1992.
Geraint E.B. Thomas Chief Executive Officer since
Chief Executive Officer 1994. Finance Director
Kleinwort Benson from 1986 to
1994.
Item 29. Principal Underwriters
(a) The Registrant's distributor, SEI Financial Services Company ("SFS"),
acts as distributor for SEI Daily Income Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, SEI Index Funds, SEI Institutional Managed Trust,
SEI International Trust, Stepstone Funds, The Advisors' Inner Circle
Fund, The Pillar Funds, CUFund, STI Classic Funds, CoreFunds, Inc., First
American Funds, Inc., First American Investment Funds, Inc., The Arbor
Fund, 1784 Funds (registered trademark Marquis Funds(registered
trademaark), Morgan Grenfell Investment Trust, The PBHG Funds, Inc.,
Inventor Funds, Inc., The Achievement Funds Trust, Bishop Street Funds,
CrestFunds, Inc., STI Classic Variable Trust, ARK Funds, Monitor Funds,
FMB Funds, Inc., SEI Asset Allocation Trust and Turner Funds, pursuant
to distribution agreements dated July 15, 1982, November 29, 1982,
December 3, 1982, July 10, 1985, January 22, 1987, August 30, 1988,
January 30, 1991, November 14, 1991, February 28, 1992, May 1, 1992,
May 29, 1992, October 30, 1992, November 1, 1992, November 1, 1992,
January 28, 1993, June 1, 1993, August 17, 1993, January 3, 1994,
July 16, 1993, August 1, 1994, December 27, 1994, January 27, 1995,
March 1, 1995, August 18, 1995, November 1, 1995, January 11, 1996,
March 1, 1996, April 1, 1996 and April 30, 1996, respectively.
SFS provides numerous financial services to investment
managers, pension plan sponsors, and bank trust
departments. These services include fund evaluation,
performance measurement, and consulting services ("Funds
Evaluation") and automated execution, clearing and
settlement of securities transactions ("MarketLink").
(b) The following are the directors and officers of SFS.
Unless otherwise noted, the business address of each
director or officer is 680 East Swedesford Road, Wayne, PA
19087.
Position and Positions and
Name Offices with Offices with
Underwriter Registrant
Alfred P. West, Jr. Director, Chairman --
and Chief Executive
Officer
Henry H. Greer Director, President --
& Chief Operating
Officer
Carmen V. Romeo Director, Executive Treasurer &
Vice President & Assistant Secretary
Treasurer
Gilbert L. Beebower Executive Vice --
President
<PAGE>
Richard B. Lieb Executive Vice President, --
President of
Investment Services
Division
Kenneth Zimmer Senior Vice President --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jerome Hickey Senior Vice President --
President
David G. Lee Senior Vice Senior Vice President
President & Assistant Secretary
Steven Kramer Senior Vice President --
William Madden Senior Vice President --
A. Keith McDowell Senior Vice President --
Dennis J. McGonigle Senior Vice President --
Hartland J. McKeown Senior Vice President --
James V. Morris Senior Vice President --
Steven Onofrio Senior Vice President --
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Kevin P. Robins Senior Vice Vice President &
President, General Assistant Secretary
Counsel & Secretary
Kathryn L. Stanton Deputy General Vice President &
Counsel, Vice Assistant Secretary
President &
Assistant Secretary
Robert Crudup Vice President & --
Managing Director
Victor Galef Vice President & --
Managing Director
Kim Kirk Vice President & --
Managing Director
Carolyn McLaurin Vice President & --
Managing Director
<PAGE>
John Krzeminski Vice President & --
Managing Director
Barbara Moore Vice President & --
Managing Director
Donald Pepin Vice President & --
Managing Director
Mark Samuels Vice President & --
Managing Director
Wayne M. Withrow Vice President & --
Managing Director
Mick Duncan Vice President & --
Team Leader
Vicki Malloy Vice President & --
Team Leader
Sandra K. Orlow Vice President & Vice President &
Assistant Secretary Assistant Secretary
Robert Aller Vice President --
Charles Baker Vice President --
Steve Bendinelli Vice President --
Marc H. Cahn Vice President & Vice President &
Assistant Secretary Assistant Secretary
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Vice President &
Assistant Secretary Assistant Secretary
Ward Curtis Vice President --
Edward Daly Vice President --
Jeff Drennen Vice President --
Lucinda Dancalfe Vice President --
Kathy Heilig Vice President --
Larry Hutchison Vice President --
Michael Kantor Vice President --
Samuel King Vice President --
<PAGE>
Donald H. Korytowski Vice President --
Robert S. Ludwig Vice President & --
Team Leader
Jack May Vice President --
W. Kelso Morrill Vice President --
Barbara A. Nugent Vice President & Vice President &
Assistant Secretary Assistant Sescretary
Larry Pokora Vice President --
Kim Rainey Vice President --
Paul Sachs Vice President --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & --
Assistant Secretary
William Zawaski Vice President --
James Dougherty Director, Brokerage --
Services
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
The First National Bank of Boston (custodian,
investment adviser and portfolio accountant)
100 Federal Street
Boston, Massachusetts 02110
and
150 Royall Street,
Canton, Massachusetts 02021
Kleinwort Benson Investment Management Americas Inc.
(investment adviser)
200 Park Avenue
New York, NY 10166
and
10 Fenchurch Street
London, England EC3M 3HB
SEI Fund Resources (administrator)
680 E. Swedesford Road
Wayne, PA 19087
<PAGE>
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) The Registrant hereby undertakes to file a
post-effective amendment to this Registration
Statement, containing reasonably current financial
statements that need not be certified, within four to
six months following the date shares of the 1784 Prime
Money Market Fund are sold to the public or operations
for such Fund otherwise begin.
(c) The Registrant undertakes to furnish each person to
whom an applicable prospectus is delivered with a copy
of its latest Annual Reports to shareholders, upon
request without charge.
NOTICE
A copy of the Agreement and Declaration of Trust for the Trust is on file
with the Secretary of State of The Commonwealth of Massachusetts and notice is
hereby given that this Registration Statement has been executed on behalf of
the Trust by an officer of the Trust as an officer and by its Trustees as
trustees and not individually and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers, or
Shareholders individually but are binding only upon the assets and property of
the Trust.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 10 to its Registration Statement on Form N-1A to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Wayne, Commonwealth of Pennsylvania on the 17th day of July, 1996.
1784 FUNDS registered trademark
By: Robert A. Nesher
Robert A. Nesher
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A has
been signed below by the following persons in the capacity on the date
indicated.
Robert A. Nesher Trustee, President & Chief July 17, 1996
Executive Office
Robert A. Nesher
* Treasurer & Assisant Secretary July 17, 1996
Carmen V. Romeo
Stephen G. Meyer Controller July 17, 1996
Stephen G. Meyer
* Trustee July 17, 1996
David H. Carter
* Trustee July 17, 1996
Tarrant Cutler
* Trustee July 17, 1996
Kenneth A. Froot
* Trustee July 17, 1996
Kathryn F. Muncil
*By: Robert A. Nesher
Robert A. Nesher
Executed by Robert A. Nesher, Attorney-in-fact on behalf of those
indicated, pursuant to Powers of Attorney previously filed.
<PAGE>
EXHIBIT INDEX
Exhibit Name
5(b) Form of Investment Advisory
Agreement between the
Registrant and The First
National Bank of Boston
with Schedule reflecting
advisory fees to be paid by
the Registrant on behalf of
the 1784 Prime Money Market
Fund
19(a) Code of Ethics of the
Registrant
19(b) Code of Ethics of The First
National Bank of Boston
19(c) Code of Ethics of the
Administrator and
Distributor
Exhibit 5(b)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 1st day of June, 1993, by and between 1784 Funds a
Massachusetts business trust (the "Trust"), and The First National Bank of
Boston, a national banking association (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended,
consisting of several series of shares, each having its own investment
policies; and
WHEREAS, the Trust has retained SEI Financial Management Corporation (the
"Administrator") to provide administration of the Trust's operations, subject
to the control of the Board of Trustees; and
WHEREAS, the Trust has retained The First National Bank of Boston (the
"Fund Accountant") to provide Fund Accounting and related Portfolio Accounting
services to the Trust;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to its 1784 Growth and Income Fund, 1784 Asset
Allocation Fund, 1784 U.S. Government Medium-Term Income Fund, 1784 Tax-Exempt
Medium-Term Income Fund, 1784 Massachusetts Tax-Exempt Income Fund, 1784
Tax-Free Money Market Fund, 1784 U.S. Treasury Money Market Fund and 1784
Institutional U.S. Treasury Money Market Fund portfolios and such other
portfolios as the Trust and the Adviser may agree upon (the "Portfolios"), and
the Adviser is willing to render such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained,
the parties hereto agree as follows:
1. Duties of Adviser. The Trust employs the Adviser to manage the
investment and reinvestment of the assets, and to continuously review,
supervise, and administer the investment program of the Portfolios, to
determine in its discretion the securities to be purchased or sold, to provide
the Administrator and the Trust with records concerning the Adviser's
activities which the Trust is required to maintain, and to render regular
reports to the Administrator and to the Trust's Officers and Trustees
concerning the Adviser's discharge of the foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities subject to the
control of the Board of Trustees of the Trust and in compliance with such
policies as the Trustees may from time to time establish, and in compliance
with the objectives, policies, and limitations for each such Portfolio set
forth in the Trust's prospectus and statement of additional information as
amended from time to time, and applicable laws and regulations.
The Adviser accepts such employment and agrees, at its own expense, to
render the services and to provide the office space, furnishings and equipment
<PAGE>
and the personnel required by it to perform the services on the terms and for
the compensation provided herein.
2. Portfolio Transactions. The Adviser is authorized to select the
brokers or dealers that will execute the purchases and sales of portfolio
securities for the Portfolios and is directed to use its best efforts to obtain
the best net results as described in the Trust's prospectus or prospectuses and
statement of additional information from time to time. The Adviser will
promptly communicate to the Administrator, the Fund Accountant and the officers
and the Trustees of the Trust such information relating to portfolio
transactions as they may reasonably request.
It is understood that the Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Trust or be in breach
of any obligation owing to the Trust under this Agreement, or otherwise, solely
by reason of its having directed a securities transaction on behalf of the
Trust to a broker-dealer in compliance with the provisions of Section 28(e) of
the Securities Exchange Act of 1934.
3. Compensation of the Adviser. For the services to be rendered by the
Adviser as provided in Sections 1 and 2 of this Agreement, the Trust shall pay
to the Adviser compensation at the rate specified in the Schedule(s) which are
attached hereto and made a part of this Agreement. Such compensation shall be
paid to the Adviser at the end of each month, and calculated by applying a
daily rate, based on the annual percentage rates as specified in the attached
Schedule(s), to the assets. The fee shall be based on the average daily net
assets for the month involved.
All rights of compensation under this Agreement for services performed as
of the termination date shall survive the termination of this Agreement.
4. Excess Expenses. If the expenses for any Portfolio for any fiscal year
(including fees and other amounts payable to the Adviser, but excluding
interest, taxes, brokerage costs, litigation, and other extraordinary costs) as
calculated every business day would exceed the expense limitations imposed on
investment companies by any applicable statute or regulatory authority of any
jurisdiction in which Shares are qualified for offer and sale, the Adviser
shall waive its fees, or reimburse to the Trust out of fees previously paid to
the Adviser for such year in the amount necessary to comply with the expense
limitation.
However, no waiver or reimbursement under the foregoing paragraph shall
be made which would result in the Trust's inability to qualify as a regulated
investment company under provisions of the Internal Revenue Code. Waivers or
reimbursements pursuant to this Section 4 shall be settled on a monthly basis
(subject to fiscal year end reconciliation) by a reduction in the fee payable
to the Adviser for such month pursuant to Section 3 and, if such reduction
shall be insufficient to offset such expenses, by reimbursing the Trust.
5. Reports. The Trust and the Adviser agree to furnish to each other, if
applicable, current prospectuses, proxy statements, reports to shareholders,
certified copies of their financial statements, and such other information with
regard to their affairs as each may reasonably request.
<PAGE>
6. Status of Adviser. The services of the Adviser to the Trust are not to
be deemed exclusive, and the Adviser shall be free to render similar services
to others so long as its services to the Trust are not impaired thereby. The
Adviser shall be deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed an agent of the Trust.
7. Certain Records. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1 and Rule 31a-2 promulgated under the
Investment Company Act of 1940 which are prepared or maintained by the Adviser
on behalf of the Trust are the property of the Trust and will be surrendered
promptly to the Trust on request.
8. Limitation of Liability of Adviser. The duties of the Adviser shall be
confined to those expressly set forth herein, and no implied duties are assumed
by or may be asserted against the Adviser hereunder. The Adviser shall not be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in carrying out its duties
hereunder, except a loss resulting from willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder, except as may otherwise be provided
under provisions of applicable state law which cannot be waived or modified
hereby. (As used in this Paragraph 8, the term "Adviser" shall include
directors, officers, employees and other corporate agents of the Adviser as
well as that corporation itself).
So long as the Adviser acts in good faith and with due diligence and
without gross negligence, the Trust assumes full responsibility and shall
indemnify the Adviser and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and
against any and all losses, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of said advisory
relationship to the Trust or any other service rendered to the Trust hereunder.
The indemnity and defense provisions set forth herein shall indefinitely
survive the termination of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Trust may be asked to indemnify or hold the
Adviser harmless, the Trust shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Adviser will use all reasonable care to identify and notify
the Trust promptly concerning any situation which presents or appears likely to
present the probability of such a claim for indemnification against the Trust,
but failure to do so in good faith shall not affect the rights hereunder.
The Adviser may apply to the Trust at any time for instructions and may
consult counsel for the Trust or its own counsel and with accountants and other
experts with respect to any matter arising in connection with the Adviser's
<PAGE>
duties, and the Adviser shall not be liable or accountable for any action taken
or omitted by it in good faith in accordance with such instruction or with the
opinion of such counsel, accountants or other experts.
Also, the Adviser shall be protected in acting upon any document which it
reasonably believes to be genuine and to have been signed or presented by the
proper person or persons. Nor shall the Adviser be held to have notice of any
change of authority of any officers, employee or agent of the Trust until
receipt of written notice thereof from the Trust.
9. Permissible Interests. Trustees, agents, and shareholders of the Trust
are or may be interested in the Adviser (or any successor thereof) as
directors, partners, officers, or shareholders, or otherwise; directors,
partners, officers, agents, and shareholders of the Adviser are or may be
interested in the Trust as Trustees, shareholders or otherwise; and the Adviser
(or any successor) is or may be interested in the Trust as a shareholder or
otherwise. In addition, brokerage transactions for the Trust may be effected
through affiliates of the Adviser if approved by the Board of Trustees, subject
to the rules and regulations of the Securities and Exchange Commission.
10. Duration and Termination. This Agreement, unless sooner terminated as
provided herein, shall remain in effect until two years from date of execution,
and thereafter, for periods of one year so long as such continuance thereafter
is specifically approved at least annually (a) by the vote of a majority of
those Trustees of the Trust who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose
of voting on such approval, and (b) by the Trustees of the Trust or by vote of
a majority of the outstanding voting securities of each Portfolio; provided,
however, that if the shareholders of any Portfolio fail to approve the
Agreement as provided herein, the Adviser may continue to serve hereunder in
the manner and to the extent permitted by the Investment Company Act of 1940
and rules and regulations thereunder. The foregoing requirement that
continuance of this Agreement be "specifically approved at least annually"
shall be construed in a manner consistent with the Investment Company Act of
1940 and the rules and regulations thereunder.
This Agreement may be terminated as to any Portfolio at any time, without
the payment of any penalty by vote of a majority of the Trustees of the Trust
or by vote of a majority of the outstanding voting securities of the Portfolio
on not less than 30 days nor more than 60 days written notice to the Adviser,
or by the Adviser at any time without the payment of any penalty, on 90 days
written notice to the Trust. This Agreement will automatically and immediately
terminate in the event of its assignment.
As used in this Section 10, the terms "assignment", "interested persons",
and a "vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the Investment Company Act of 1940 and the
rules and regulations thereunder; subject to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
<PAGE>
11. Notice. Any notice required or permitted to be given by either party
to the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other party
at the last address furnished by the other party to the party giving notice: if
to the Trust, at 680 East Swedesford Road, Wayne, PA and if to the Adviser at :
100 Federal Street, Boston Massachusetts 02110, with copies to Janice B. Liva,
Assistant General Counsel, The First National Bank of Boston, 100 Federal
Street, 01-24-05, Boston Massachusetts 02110 and Allen W. Croessmann, Director
of Mutual Funds, The First National Bank of Boston, 100 Federal Street,
01-20-02, Boston, Massachusetts 02110.
12. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Trust as Trustees,
and that the obligations of this instrument are not binding upon any of the
Trustees, officers, or shareholders of the Trust individually but binding only
upon the assets and property of the Trust.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the day and year first written above.
1784 Funds The First National Bank of Boston
By: Wayne M. Withrow, V.P. By: Edward G. Riley, Jr.
Chief Investment Officer - Private Bank
Attest: Attest: Paul Auerbach
<PAGE>
Schedule A
to the
Investment Advisory Agreement
between 1784 Funds
and
The First National Bank of Boston
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an
annual rate as follows:
Portfolio Fee (in basis points)
1784 Growth and Income Fund 74
1784 Asset Allocation Fund 74
1784 Growth Fund 74
1784 U.S. Government Medium-Term Income Fund 74
1784 Tax-Exempt Medium-Term Income Fund 74
1784 Massachusetts Tax-Exempt Income Fund 74
1784 Florida Tax-Exempt Income Fund 74
1784 Rhode Island Tax-Exempt Income Fund 74
1784 Connecticut Tax-Exempt Income Fund 74
1784 Short-Term Income Fund 50
1784 Income Fund 74
1784 Tax-Free Money Market Fund 40
1784 Prime Money Market Fund 40
1784 U.S. Treasury Money Market Fund 40
1784 Institutional U.S. Treasury Money Market Fund 20
Exhibit 19(a)
CODE OF ETHICS
While affirming its confidence in the integrity and good faith of all of
its officers and trustees, the 1784 Funds (the "Trust"), recognizes that the
knowledge of present or future portfolio transactions and, in certain
instances, the power to influence portfolio transactions which may be possessed
by certain of its officers, employees and trustees could place such
individuals, if they engage in personal transactions in securities which are
eligible for investment by the Trust, in a position where their personal
interest may conflict with that of the Trust.
In view of the foregoing and of the provisions of Rule 17j-1(b)(1) under
the Investment Company Act of 1940 (the "1940 Act"), the Trust has determined
to adopt this Code of Ethics to specify and prohibit certain types of
transactions deemed to create conflicts of interest (or at least the potential
for or the appearance of such a conflict), and to establish reporting
requirements and enforcement procedures.
I. Statement of General Principles.
In recognition of the trust and confidence placed in the Trust by its
shareholders, and to give effect to the Trust's belief that its operations
should be directed to the benefit of its shareholders, the Trust hereby adopts
the following general principles to guide the actions of its trustees, officers
and employees.
(1) The interests of the Trust's shareholders are paramount, and all
of the Trust's personnel must conduct themselves and their
operations to give maximum effect to this tenet by assiduously
placing the interests of the shareholders before their own.
(2) All personal transactions in securities by the Trust's personnel
must be accomplished so as to avoid even the appearance of a
conflict of interest on the part of such personnel with the
interests of the Trust and its shareholders.
(3) All of the Trust's personnel must avoid actions or activities that
allow (or appear to allow) a person to profit or benefit
inappropriately from his or her position with respect to the
Trust.
<PAGE>
II. Definitions.
(1) "Access Person" shall mean (i) each trustee or officer of the
Trust, (ii) each employee of the Trust (or of any company in a
control relationship to the Trust) who, in connection with his or
her regular functions or duties, makes, participates in, or
obtains information regarding the purchase or sale of a security
by the Trust, or whose functions relate to the making of any
recommendations with respect to such purchases or sales, and (iii)
any natural person in a control relationship to the Trust who
obtains information concerning recommendations made to or by the
Trust with respect to the purchase or sale of a security by the
Trust.
(2) "Beneficial ownership" of a security is to be determined in the
same manner as it is for purposes of Section 16 of the Securities
Exchange Act of 1934 (except for the provisions of Rule
16a-1(a)(1)). This means that a person should generally consider
himself the beneficial owner of any securities in which he has a
direct or indirect pecuniary interest. In addition, a person
should consider himself the beneficial owner of securities held by
his spouse, his minor children, a relative who shares his home, or
other persons by reason of any contract, arrangement,
understanding or relationship that provides him with sole or
shared voting or investment power.
(3) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the 1940 Act. Section 2(a)(9) provides that "control"
means the power to exercise a controlling influence over the
management or policies of a company, unless such power is solely
the result of an official position with such company. Ownership of
25% or more of a company's outstanding voting security is presumed
to give the holder thereof control over the company. Such
presumption may be countered by the facts and circumstances of a
given situation.
(4) "Disinterested Trustee" means a Trustee of the Trust who is not an
"interested person" of the Trust within the meaning of Section
2(a)(19) of the 1940 Act.
(5) "Purchase or sale of a security" includes, among other things, the
writing of an option to purchase or sell a security.
<PAGE>
(6) "Review Officer,, shall mean that person designated by the
officers of the Trust to receive all reports pursuant to this Code
of Ethics.
(7) "Security" shall have the same meaning as that set forth in
Section 2(a)(36) of the 1940 Act, except that it shall not include
securities issued by the Government of the United States or an
agency thereof, bankers' acceptances, bank certificates of
deposit, commercial paper and registered, open-end mutual funds.
(8) A "Security held or to be acquired" by the Trust (or any Fund)
means any Security which, within the most recent fifteen days, (i)
is or has been held by the Trust (or any Fund), or (ii) is being
or has been considered by any investment adviser or sub-adviser
for purchase by the Trust (or any Fund).
(9) A Security is "being purchased or sold" by the Trust from the time
when a purchase or sale program has been communicated to the
person who places the buy and sell orders for the Trust until the
time when such program has been fully completed or terminated.
III. Prohibited Purchases and Sales of Securities.
(1) No Access Person shall, in connection with the purchase or sale,
directly or indirectly, by such person of a Security held or to be
acquired by any Fund:
(A) employ any device, scheme or artifice to defraud
the Trust or such Fund;
(B) make to the Trust or such Fund any untrue statement of a
material fact or omit to state to such Fund a material fact
necessary in order to make the statements made, in light of
the circumstances under which they are made, not misleading;
(C) engage in any act, practice or course of business which would
operate as a fraud or deceit upon the Trust or such Fund; or
(D) engage in any manipulative practice with respect to the Trust
or such Fund.
<PAGE>
IV. Reporting Obligation.
(1) Each Access Person (other than the Trust's Disinterested Trustees)
shall report all transactions in Securities in which the person
has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership. Reports shall be filed with the
Review Officer quarterly. The Review Officer shall submit
confidential quarterly reports with respect to his or her own
personal securities transactions to an officer designated to
receive his or her reports ("Alternate Review Officer"), who shall
act in all respects in the manner prescribed herein for the Review
Officer.
(2) Every report shall be made not later than 10 days after the end of
the calendar quarter in which the transaction to which the report
relates was effected, and shall contain the following information:
(A) The date of the transaction, the title and the number of
shares or the principal amount of each security involved;
(B) The nature of the transaction (i.e., purchase,
sale or any other type of acquisition or
disposition);
(C) The price at which the transaction was effected;
and
(D) The name of the broker, dealer or bank with or through whom
the transaction was effected.
(E) The date the report was signed.
(3) In the event no reportable transactions occurred during the
quarter, the report should be so noted and returned signed and
dated
(4) An Access Person who would otherwise be required to report his or
her transactions under this Code shall not be required to file
reports pursuant to this Section V where such person is required
to file reports pursuant to a code of ethics described in Section
VI, hereof. An Access Person is not required to submit reports or
confirmations or periodic statements with respect to transactions
effected in any account over which the Access Person does not have
any direct or indirect influence or control, including such an
account in which an Access Person has any Beneficial Ownership.
<PAGE>
(5) A Disinterested Trustee shall report transactions in Securities
only if the Trustee knew at the time of the transaction or, in the
ordinary course of fulfilling his or her official duties as a
trustee, should have known, that during the 15 day period
immediately preceding or following the date of the transaction,
such security was purchased or sold, or was being considered for
purchase or sale, by the Trust. (The "should have known" standard
implies no duty of inquiry, does not presume there should have
been any deduction or extrapolation from discussions or memoranda
dealing with tactics to be employed meeting the Trust's investment
objectives, or that any knowledge is to be imputed because of
prior knowledge of the Trust's portfolio holdings, market
considerations, or the Trust's investment policies, objectives and
restrictions.)
(6) Any such report may contain a statement that the report shall not
be construed as an admission by the person making such report that
he has any direct or indirect beneficial ownership in the security
to which the report relates.
(7) Each Disinterested Trustee shall report the name of any
publicly-owned company (or any company anticipating a public
offering of its equity securities) and the total number of its
shares beneficially owned by him if such total ownership is more
than 1/2 of 1% of the company's outstanding shares. Such report
shall be made promptly after the date upon which the Trustee's
ownership interest equalled or exceeded 1/2 of 1%.
(8) Each Access Person must certify annually that he or she has read
and understands this Code of Ethics and has complied with its
provisions. Such certificates and reports are to be given to the
Review Officer (or, in the case of the Review Officer, the
Alternate Review Officer).
V. Review and Enforcement.
(1) The Review Officer shall compare all reported personal securities
transactions with completed portfolio transactions of the Trust
and a list of securities being considered for purchase or sale by
the Trust to determine whether a violation of this Code may have
occurred. Before making any determination that a violation has
been committed by any person, the Review Officer shall give such
person an opportunity to supply additional explanatory material.
<PAGE>
(2) If the Review Officer determines that a violation of this Code may
have occurred, he shall submit his written determination, together
with the confidential monthly report and any additional
explanatory material provided by the individual, to the President
of the Trust and outside counsel, who shall make an independent
determination as to whether a violation has occurred.
(3) If the President and outside counsel find that a violation has
occurred, the President shall impose upon the individual such
sanctions as he or she deems appropriate and shall report the
violation and the sanction imposed to the Board of Trustees of the
Trust.
(4) No person shall participate in a determination of whether he has
committed a violation of the Code or of the imposition of any
sanction against himself. If a securities transaction of the
President is under consideration, any Vice President shall act in
all respects in the manner prescribed herein for the President.
VI. Investment Adviser's, Administrator's or Principal
Underwriter's Code of Ethics.
This Code does not apply to "access persons,, (as defined in Rule 17j-1
under the 1940 Act) of any investment adviser, sub-adviser, co-adviser,
administrator or principal underwriter of the Trust who are not otherwise
Access Persons as defined herein. Each investment adviser (including, where
applicable, any sub-adviser or co-adviser), administrator (if any) or principal
underwriter of the Trust shall:
(1) submit to the Board of Trustees of the Trust a copy of its code of
ethics adopted pursuant to Rule 17j-1, which code shall comply
with the recommendations of the Investment Company Institute's
Advisory Group on Personal Investing or be accompanied by a
statement explaining any difference and supplying the rationale
therefor;
(2) Promptly report to the Trust in writing any material
amendments to such Code;
(3) Promptly furnish to the Trust upon request copies of any reports
made pursuant to such Code by any person who is an Access Person
as to the Trust; and
<PAGE>
(4) Shall immediately furnish to the Trust, without request, all
material information regarding any violation of such Code by any
person who is an Access Person as to the Trust.
VII. Records.
The Trust shall maintain records in the manner and to the extent set
forth below, which records may be maintained on microfilm under the conditions
described in Rule 31a-2 under the Investment Company Act and shall be available
for examination by representatives of the Securities and Exchange Commission.
(1) A copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved
in an easily accessible place;
(2) A record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
(3) A copy of each report made by an officer or trustee pursuant to
this Code shall be preserved for a period of not less than five
years from the end of the fiscal year in which it is made, the
first two years in an easily accessible place; and
(4) A list of all persons who are, or within the past five years have
been, required to make reports pursuant to this Code shall be
maintained in an easily accessible place.
VIII. Miscellaneous
(1) Confidentiality. All reports of securities transactions and any
other information filed with the Trust pursuant to this Code shall
be treated as confidential.
(2) Interpretation of Provisions. The Board of Trustees may from time
to time adopt such interpretations of this Code as it deems
appropriate.
<PAGE>
(3) Periodic Review and Reporting. The President of the Trust shall
report to the Board of Trustees at least annually as to the
operation of this Code and shall address in any such report the
need (if any) for further changes or modifications to this Code.
Adopted this ________ day of ______________, 199__.
Exhibit 19(b)
THE FIRST NATIONAL BANK OF BOSTON
CODE OF ETHICS
While affirming its confidence in the integrity and good faith of all of
its employees, officers and directors, The First National Bank of Boston (the
"Adviser") recognizes that the knowledge of present or future portfolio
transactions and, in certain instances, the power to influence portfolio
transactions made by or for the 1784 Funds (the "Trust") which may be possessed
by certain of its personnel could place such individuals, if they engage in
personal transactions in securities which are eligible for investment by the
Trust, in a position where their personal interest may conflict with that of the
Trust.
In view of the foregoing and of the provisions of Rule 17j-l(b)(1) under
the Investment Company Act of 1940 (the "1940 Act"), the Adviser has determined
to adopt this Code of Ethics to specify and prohibit certain types of
transactions deemed to create conflicts of interest (or at least the potential
for or the appearance of such a conflict), and to establish reporting
requirements and enforcement procedures.
I. STATEMENT OF GENERAL PRINCIPLES.
In recognition of the trust and confidence placed in the Adviser by the
Trust and its shareholders, and to give effect to the Adviser's belief that its
operations should be directed to the benefit of the Trust's shareholders, the
Adviser hereby adopts the following general principles to guide the actions of
its employees, officers and directors:
(1) The interests of the Trust's shareholders are paramount, and all of
the Adviser's personnel must conduct themselves and their operations
to give maximum effect to this tenet by assiduously placing the
interests of the shareholders before their own.
(2) All personal transactions in securities by the Adviser's personnel
must be accomplished so as to avoid even the appearance of a conflict
of interest on the part of such personnel with the interests of the
Trust and its shareholders.
<PAGE>
(3) All of the Adviser's personnel must avoid actions or activities that
allow (or appear to allow) a person to profit or benefit from his or
her position with respect to the Trust, or that otherwise bring into
question the person's independence or judgment.
II. DEFINITIONS.
(1) "Access Person" shall mean any director, officer, or Advisory Person
of the Adviser who, with respect to the Trust, makes any
recommendation, participates in the determination of which
recommendation shall be made, or whose principal function or duties
relate to the determination of which recommendation shall be made by
the Adviser with respect to the purchase or sale of a security by the
Trust, or who, in connection with his or her duties, obtains any
information concerning securities recommendations being made by the
Adviser to the Trust.
(2) "Advisory Person" shall mean (i) any employee of the Adviser (or of
any company in a control relationship to the Adviser) who, in
connection with his regular functions or duties, makes, participates
in, or obtains information regarding the purchase or sale of a
security by the Trust, or whose functions relate to the making of any
recommendations with respect to such purchases and sales; and (ii)
any natural person in a control relationship to the Adviser who
obtains information concerning recommendations made to the Trust with
regard to the purchase or sale of a security.
(3) "Beneficial ownership" of a security is to be determined in the same
manner as it is for purposes of Section 16 of the Securities Exchange
Act of 1934. This means that a person should generally consider
himself the beneficial owner of any securities in which he has a
direct or indirect pecuniary interest. In addition, a person should
consider himself the beneficial owner of securities held by his
spouse, his minor children, a relative who shares his home, or other
persons by reason of any contract, arrangement, understanding or
relationship that provides him with sole or shared voting or
investment power.
<PAGE>
(4) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the 1940 Act.
(5) "Investment Personnel" means all Access Persons who occupy the
position of portfolio manager (or who serve on an investment
committee that carries out the portfolio management function) with
respect to the Trust or any separately-managed series thereof (a
"Fund"), and all Access Persons who provide information or advice to
any portfolio manager (or committee), or who execute or help execute
any portfolio manager's (or committee's) decisions.
(6) "Purchase or sale of a security" includes, among other things, the
writing of an option to purchase or sell a security.
(7) "Security" shall have the same meaning as that set forth in Section
2(a)(36) of the 1940 Act, except that it shall not include securities
issued by the Government of the United States, bankers' acceptances,
bank certificates of deposit, commercial paper and registered
open-end investment companies.
(8) A "security held or to be acquired" by the Trust (or any Fund) means
any security which, within the most recent fifteen days, (i) is or
has been held by the Trust, or (ii) is being or has been considered
by the Adviser for purchase by the Trust.
(9) A security is "being purchased or sold" by the Trust from the time
when a purchase or sale program has been communicated to the person
who places the buy and sell orders for the Trust until the time when
such program has been fully completed or terminated.
III. PROHIBITED PURCHASES AND SALES OF SECURITIES.
(1) No Access Person shall, in connection with the purchase or sale,
directly or indirectly, by such person of a security held or to be
acquired by any Fund:
(A) employ any device, scheme or artifice to defraud such Fund;
<PAGE>
(B) make to such Fund any untrue statement of a material fact or
omit to state to such Fund a material fact necessary in order to
make the statements made, in light of the circumstances under
which they are made, not misleading;
(C) engage in any act, practice or course of business which would
operate as a fraud or deceit upon such Fund; or
(D) engage in any manipulative practice with respect to Fund.
(2) Subject to Section IV(2) of this Code, no Access Person shall
purchase or sell, directly or indirectly, any security in which he
had or by reason of such transaction acquires any beneficial
ownership, within 24 hours (7 days, in the case of any portfolio
manager to the Fund in question) before or after the time that the
same (or a related) security is being purchased or sold by any Fund.
(3) No Investment Personnel may acquire securities as part of an initial
public offering by the issuer of such class of securities.
(4) Subject to Section IV(2) of this Code, no Investment Personnel shall
sell a security within 60 days of acquiring beneficial ownership of
that security.
IV. PRE-CLEARANCE OF TRANSACTIONS.
(1) Except as provided in Section IV(2), each Access Person shall
pre-clear each proposed transaction in securities with the Adviser's
designated Review Officer prior to proceeding with the transaction.
No transaction in securities may be effected without the prior
written approval of the Review Officer and, in the case of a proposed
acquisition of securities by Investment Personnel in a private
placement, the Chief Investment Officer. In determining whether to
grant such clearance, the Review Officer and, if applicable, the
Chief Investment Officer shall consider whether the proposed
transaction appears, upon reasonable inquiry and investigation, to
present no reasonable likelihood of harm to the Trust and is
otherwise in accordance with Rule 17j-1 and the Report of the
Advisory Group on Personal Investing (Investment Company Institute,
May 9, 1994).
<PAGE>
(2) The requirements of Section IV(1) shall not apply to the following
transactions:
(A) Purchases or sales over which the Access Person has no direct or
indirect influence or control.
(B) Purchases or sales which are non-volitional on the part of
either the Access Person or any Fund, including purchases or
sales upon exercise of puts or calls written by the Access
Person and sales from a margin account pursuant to a bona fide
margin call.
(C) Purchases which are part of an automatic dividend reinvestment
plan.
(D) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
the extent such rights were acquired from such issuer.
V. ADDITIONAL RESTRICTIONS AND REQUIREMENTS
(1) No Access Person shall accept or receive any gift or other thing of more
than de minimis value from any person or entity that does business with or
on behalf of the Adviser or the Trust.
(2) No Investment Personnel may accept a position as a director, trustee or
general partner of a publicly-traded company (other than Bank of Boston
Corporation) unless such position has been presented to and approved by
the Adviser and by the Trust's Board of Trustees as consistent with the
interests of the Trust and its shareholders.
(3) Any Investment Personnel who have acquired securities in a private
placement shall disclose that investment when they play a part in any
Fund's subsequent consideration of an investment in the issuer, and the
Fund's decision to purchase securities of such an issuer shall be subject
to an independent review of Investment Personnel with no personal interest
in the issuer.
<PAGE>
(4) Any Access Person who realizes profits on transactions in violation of
Section III(2) or Section III(4) of this Code shall disgorge such profits
to the Trust.
VI. REPORTING OBLIGATIONS
(1) The Adviser shall create and thereafter maintain a list of all Investment
Personnel and other Access Persons.
(2) Each Access Person shall report on a quarterly basis all transactions in
securities in which the person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership.
(3) Each Access Person must direct each brokerage firm or bank at which such
person maintains a securities account to promptly send duplicate copies of
such person's statement to the Adviser.
(4) Each Access Person must provide to the Review Officer a complete listing
of all securities owned by such person as of June 30, 1995, and thereafter
must submit a revised list of such holdings to the Review Officer as of
January 1 of each subsequent year. The initial listing must be submitted
no later than July 31, 1995 (or within 10 days of the date upon which such
person first became an Access Person), and each update thereafter must be
provided no later than 10 days after the start of the subsequent year.
VII. REPORTS
(1) Quarterly reports shall be filed with the Review Officer. The Review
Officer shall submit confidential quarterly reports with respect to his or
her own personal securities transactions to an officer designated to
receive his or her reports ("Alternate Review Officer"), who shall act in
all respects in the manner prescribed herein for the Review Officer.
(2) Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he has any
direct or indirect beneficial ownership in the security to which the
report relates.
(3) Every Access Person shall report the name of any publicly-owned company
(or any company anticipating a public offering of its equity securities)
and the total number of its shares beneficially owned by him.
<PAGE>
(4) Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
(A) The date of the transaction, the title and the number of shares or
the principal amount of each security involved;
(B) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(C) The price at which the transaction was effected;
(D) The name of the broker, dealer or bank with or through whom the
transaction was effected; and
(E) The date the report was signed.
(5) In the event no reportable transactions occurred during the quarter, the
report should be so noted and returned signed and dated
VIII. REVIEW AND ENFORCEMENT.
(1) The Review Officer shall compare all reported personal securities
transactions with completed portfolio transactions of the Trust and a list
of securities being considered for purchase or sale by the Adviser to
determine whether a violation of this Code may have occurred. Before
making any determination that a violation has been committed by any
person, the Review Officer shall give such person an opportunity to supply
additional explanatory material.
(2) If the Review Officer determines that a violation of this Code may have
occurred, he shall submit his written determination, together with the
confidential monthly report and any additional explanatory material
provided by the individual, to the Chief Investment Officer of the
Adviser, who shall make an independent determination as to whether a
violation has occurred.
(3) If the Chief Investment Officer finds that a violation has occurred, the
Chief Investment Officer shall impose upon the individual such sanctions
as he or she deems appropriate and shall report the violation and the
sanction imposed to the Board of Trustees of the Trust.
<PAGE>
(4) No person shall participate in a determination of whether he has committed
a violation of the Code or of the imposition of any sanction against
himself. If a securities transaction of the Chief Investment Officer is
under consideration, the President of The Private Bank shall act in all
respects in the manner prescribed herein for the Chief Investment Officer.
IX. RECORDS.
The Adviser shall maintain records in the manner and to the extent set forth
below, which records shall be available for examination by representatives of
the Securities and Exchange Commission.
(1) A copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved in
an easily accessible place;
(2) A record of any violation of this Code and of any action taken as a
result of such violation shall be preserved in an easily accessible
place for a period of not less than five years following the end of
the fiscal year in which the violation occurs;
(3) A copy of each report made by an officer or trustee pursuant to this
Code shall be preserved for a period of not less than five years from
the end of the fiscal year in which it is made, the first two years
in an easily accessible place; and
(4) A list of all Persons who are, or within the past five years have
been, required to make reports pursuant to this Code shall be
maintained in an easily accessible place.
X. MISCELLANEOUS
(1) All reports of securities transactions and any other information filed
with the Trust pursuant to this Code shall be treated as confidential.
<PAGE>
(2) The Adviser may from time to time adopt such interpretations of this Code
as it deems appropriate.
(3) The Chief Investment Officer of the Adviser shall report to the Adviser
and to the Board of Trustees of the Trust at least annually as to the
operation of this Code and shall address in any such report the need (if
any) for further changes or modifications to this Code.
Adopted this 6th day of July, 1995.
Exhibit 19(c)
SEI FINANCIAL SERVICES COMPANY
CODE OF ETHICS
While affirming its confidence in the integrity and good faith of all of
its employees, officers and directors, SEI Financial Services Company (the
"Underwriter"), recognizes that the knowledge of present or future portfolio
transactions and the power to influence portfolio transactions made by or for
any investment company for which the Underwriter serves as distributor
(collectively the "Trusts") which may be possessed by certain of its personnel
could place such individuals, if they engage in personal transactions in
securities which are eligible for investment by the Trusts, in a position where
their personal interest may conflict with that of the Trusts.
In view of the foregoing and of the provisions of Rule 17j-1(b)(1) under
the Investment Company Act of 1940 (the "1940 Act"), the Underwriter has
determined to adopt this Code of Ethics to specify and prohibit certain types
of transactions deemed to create conflicts of interest (or at least the
potential for or the appearance of such a conflict), and to establish reporting
requirements and enforcement procedures.
I. Statement of General Principles.
In recognition of the trust and confidence placed in the Underwriter by
the Trusts and their shareholders, and to give effect to the Underwriter's
belief that its operations should be directed to the benefit of the Trusts'
shareholders, the Underwriter hereby adopts the following general principles to
guide the actions of its employees, officers and directors:
(1) The interests of the Trusts' shareholders are
paramount, and all of the Underwriter's personnel
must conduct themselves and their operations to give
maximum effect to this tenet by assiduously placing
the interests of the shareholders before their own.
(2) All personal transactions in securities by the
Underwriter's personnel must be accomplished so as to
avoid even the appearance of a conflict of interest
on the part of such personnel with the interests of
the Trusts and their shareholders.
(3) All of the Underwriter's personnel must avoid actions
or activities that allow (or appear to allow) a
person to profit or benefit from his or her position
with respect to the Trusts, or that otherwise bring
into question the person's independence or judgment.
<PAGE>
II. Definitions.
(1) "Access Person" shall mean each director or officer of Underwriter
who, in the ordinary course of his business, makes, participates in, or obtains
information regarding the purchase or sale of securities for any
registered investment company for which Underwriter acts as
principal underwriter or whose functions or duties as part of the
ordinary course of his business relates to the making of any recommendation to
such investment companies regarding the purchase or sale of securities.
(2) "Beneficial ownership" of a security is to be
determined in the same manner as it is for purposes
of Section 16 of the Securities Exchange Act of
1934. This means that a person should generally
consider himself the beneficial owner of any
securities in which he has a direct or indirect
pecuniary interest. In addition, a person should
consider himself the beneficial owner of securities
held by his spouse, his minor children, a relative
who shares his home, or other persons by reason of
any contract, arrangement, understanding or
relationship that provides him with sole or shared
voting or investment power.
(3) "Control" shall have the same meaning as that set
forth in Section 2(a)(9) of the 1940 Act. Section
2(a)(9) provides that "control" means the power to
exercise a controlling influence over the management
or policies of a company, unless such power is solely
the result of an official position with such
company. Ownership of 25% or more of a company's
outstanding voting securities is presumed to give the
holder thereof control over the company. Such
presumption may be countered by the facts and
circumstances of a given situation.
(4) "Purchase or sale of a Security" includes, among
other things, the writing of an option to purchase or
sell a Security.
(5) "Security" shall have the same meaning as that set
forth in Section 2(a)(36) of the 1940 Act, except
that it shall not include securities issued by the
Government of the United States or an agency thereof,
bankers' acceptances, bank certificates of deposit,
commercial paper and registered, open-end mutual
funds.
<PAGE>
(6) A "Security held or to be acquired" by the Trusts (or
any Fund) means any Security which, within the most
recent fifteen days, (i) is or has been held by the
Trusts (or any Fund), or (ii) is being or has been
considered by the Trusts' investment adviser for
purchase by the Trusts (or any Fund).
(7) A Security is "being purchased or sold" by the Trusts
from the time when a purchase or sale program has
been communicated to the person who places the buy
and sell orders for the Trusts until the time when
such program has been fully completed or terminated.
III. Prohibited Purchases and Sales of Securities.
(1) No Access Person shall, in connection with the
purchase or sale, directly or indirectly, by such
person of a Security held or to be acquired by any
Fund:
(A) employ any device, scheme or artifice to defraud
such Fund;
(B) make to such Fund any untrue statement of a
material fact or omit to state to such Fund a
material fact necessary in order to make the
statements made, in light of the circumstances
under which they are made, not misleading;
(C) engage in any act, practice or course of
business which would operate as a fraud or
deceit upon such Fund; or
(D) engage in any manipulative practice with respect
to such Fund.
(2) Subject to Sections IV(2) and IV(3) of this Code, no Access Person may
purchase or sell, directly or indirectly, any Security in which he had or by
reason of such transaction acquires any Beneficial Ownership, within 24 hours
before or after the time that the same (or a related) Security is being
purchased or sold by any Fund.
IV. Pre-Clearance of Transactions.
(1) Except as provided in Section IV(2), all Access
Persons must pre-clear each proposed transaction in
Securities with the Underwriter's designated Review
Officer prior to proceeding with the transaction.
No transaction in Securities may be effected without
the prior written approval of the Review Officer.
In determining whether to grant such clearance, the
Review Officer shall refer to Section IV(3), below.
<PAGE>
(2) The pre-clearance requirements of Section IV(1) shall
not apply to the following transactions:
(A) Purchases or sales over which the Access Person
has no direct or indirect influence or control.
(B) Purchases or sales which are non-volitional on
the part of either the Access Person or any
Fund, including purchases or sales upon exercise
of puts or calls written by the Access Person
and sales from a margin account pursuant to a
bona fide margin call.
(C) Purchases which are part of an automatic
dividend reinvestment plan.
(D) Purchases effected upon the exercise of rights
issued by an issuer pro rata to all holders of a
class of its Securities, to the extent such
rights were acquired from such issuer.
(3) The following transactions shall be entitled to
clearance from the Review Officer:
(A) Transactions which appear upon reasonable
inquiry and investigation to present no
reasonable likelihood of harm to the Trusts and
which are otherwise in accordance with Rule
l7j-l. Such transactions would normally include
purchases or sales of up to 1,000 shares of a
Security which is being considered for purchase
or sale by a Fund (but not then being purchased
or sold) if the issuer has a market
capitalization of over $1 billion.
(B) Purchases or sales of securities which are not
eligible for purchase or sale by any Fund of the
Trusts, as determined by reference to the Act
and blue sky laws and regulations thereunder,
the investment objectives and policies and
investment restrictions of the Trusts and its
series, undertakings made to regulatory
authorities.
(C) Transactions which the Review Officer of the
Underwriter, after consideration of all the
facts and circumstances, determines to be in
accordance with Section III and to present no
reasonable likelihood of harm to the Trusts.
<PAGE>
(4) AN ACCESS PERSON WHO WOULD OTHERWISE BE REQUIRED TO
PRE-CLEAR HIS OR HER TRANSACTIONS UNDER THIS CODE
SHALL NOT BE REQUIRED TO DO SO UNDER THIS SECTION IV
WHERE SUCH PERSON IS REQUIRED TO PRE-CLEAR
TRANSACTIONS PURSUANT TO A CODE OF ETHICS DESCRIBED
IN SECTION VII, HEREOF.
V. Additional Restrictions and Requirements
(1) No Access Person shall accept or receive any gift of
more than de minimis value from any person or entity
that does business with or on behalf of the Trusts.
(2) Each Access Person must direct each brokerage firm or bank at which
such person maintains a securities account to promptly send duplicate
copies of such person's statement to the Review Officer. Compliance with
this provision can be effected by the Access Person providing duplicate
copies of all such statements directly to the Review Officer within two
business days of receipt by the Access Person.
VI. Reporting Obligation.
(1) The Underwriter shall create and thereafter maintain
a list of all Access Persons and Review Officers.
(2) Each Access Person shall report all transactions in
Securities in which the person has, or by reason of
such transaction acquires, any direct or indirect
beneficial ownership. Reports shall be filed with
the Review Officer each quarter. The Review Officer
shall submit confidential quarterly reports with
respect to his or her own personal securities
transactions to an officer designated to receive his
or her reports ("Alternate Review Officer"), who
shall act in all respects in the manner prescribed
herein for the Review Officer.
Report forms will be sent to all Access Persons by
the Review Officer prior tothe end of each quarter.
(3) Every report shall be made not later than 10 days
after the end of the calendar quarter in which the
transaction to which the report relates was effected,
and shall contain the following information:
(A) The date of the transaction, the title and the
number of shares or the principal amount of each
security involved;
<PAGE>
(B) The nature of the transaction (i.e., purchase,
sale or any other type of acquisition or
disposition);
(C) The price at which the transaction was effected;
and
(D) The name of the broker, dealer or bank with or
through whom the transaction was effected.
(E) The date the report was signed.
(4) Any such report may contain a statement that the
report shall not be construed as an admission by the
person making such report that he has any direct or
indirect beneficial ownership in the Security to
which the report relates.
(5) Every Access Person shall report the name of any
publicly-owned company (or any company anticipating a
public offering of its equity securities) and the
total number of its shares beneficially owned by him
if such total ownership is more than 1/2 of 1% of the
company's outstanding shares.
(6) In the event no reportable transactions occurred
during the quarter, the report should be so noted and
returned.
(7) Each Access Person shall sign an acknowledgment at
the time this Code is adopted or at the time such person becomes
an Access Person and on an annual
basis thereafter that he has read, understands, and agrees to
abide by this Code.
VII. Alternate Code of Ethics.
WHERE AN ACCESS PERSON OF THE UNDERWRITER IS ALSO SUBJECT
TO REPORTING AND PRE-CLEARANCE PROVISIONS UNDER A CODE OF ETHICS
ADOPTED PURSUANT TO RULE 17J-1 BY THE TRUSTS OR BY THE TRUSTS'
INVESTMENT ADVISER OR ADMINISTRATOR, AND SUCH OTHER CODE(S) HAS
BEEN SUBMITTED TO THE TRUSTS' BOARD OF TRUSTEES, COMPLIANCE WITH
SUCH ALTERNATE CODE SHALL BE DEEMED TO CONSTITUTE COMPLIANCE WITH
THIS CODE.
VIII. Review and Enforcement.
(1) The Review Officer shall review reported securities
transactions, brokerage statements, and/or the
Trusts securities transactions to determine whether
a violation of this Code may have occurred. Before
making any determination that a violation has been
committed by any person, the Review Officer shall
give such person an opportunity to supply additional
explanatory material.
<PAGE>
(2) If the Review Officer determines that a violation of
this Code may have occurred, he shall submit his
written determination, together with the confidential
monthly report and any additional explanatory
material provided by the individual, to the General
Counsel or Counsel of the Underwriter, who shall make
an independent determination as to whether a
violation has occurred.
(3) If the General Counsel or Counsel finds that a
violation has occurred, the General Counsel or
Counsel shall impose upon the individual such
sanctions as he or she deems appropriate and shall
report the violation and the sanction imposed to the
Board of Trustees of the Trusts.
(4) No person shall participate in a determination of
whether he has committed a violation of the Code or
of the imposition of any sanction against himself.
If a securities transaction of the General Counsel or
Counsel is under consideration, any other Counsel
shall act in all respects in the manner prescribed
herein for the General Counsel or Counsel.
IX. Records.
The Underwriter shall maintain records in the manner and to the extent
set forth below, which records shall be available for examination by
representatives of the Securities and Exchange Commission.
(1) A copy of this Code and any other code which is, or
at any time within the past five years has been, in
effect shall be preserved in an easily accessible
place;
(2) A record of any violation of this Code and of any
action taken as a result of such violation shall be
preserved in an easily accessible place for a period
of not less than five years following the end of the
fiscal year in which the violation occurs;
(3) A copy of each report made by an officer or Trustee
pursuant to this Code shall be preserved for a period
of not less than five years from the end of the
fiscal year in which it is made, the first two years
in an easily accessible place; and
<PAGE>
(4) A list of all persons who are, or within the past
five years have been, required to make reports
pursuant to this Code shall be maintained in an
easily accessible place.
X. Miscellaneous
(1) All reports of securities transactions and any other
information filed with the Trusts pursuant to this
Code shall be treated as confidential.
(2) The Underwriter may from time to time adopt such
interpretations of this Code as it deems appropriate.
(3) The General Counsel or Counsel of the Underwriter
shall report to the Board of Trustees of the Trusts
at least annually as to the operation of this Code
and shall address in any such report the need (if
any) for further changes or modifications to this
Code.
Adopted this ________ day
of ______________, 199__.
