Rule 497(c)
File Nos. 33-58004
and 811-7474
MONEY MARKET FUNDS
[SQUARE BULLET] BOSTON 1784 TAX-FREE MONEY MARKET FUND
[SQUARE BULLET] BOSTON 1784 U.S. TREASURY MONEY
MARKET FUND
[SQUARE BULLET] BOSTON 1784 INSTITUTIONAL U.S. TREASURY
MONEY MARKET FUND
[SQUARE BULLET] BOSTON 1784 PRIME MONEY MARKET FUND
[SQUARE BULLET] BOSTON 1784 INSTITUTIONAL PRIME MONEY
MARKET FUND
BOND FUNDS
[SQUARE BULLET] BOSTON 1784 SHORT-TERM INCOME FUND
[SQUARE BULLET] BOSTON 1784 INCOME FUND
[SQUARE BULLET] BOSTON 1784 U.S. GOVERNMENT MEDIUM-
TERM INCOME FUND
TAX-EXEMPT INCOME FUNDS
[SQUARE BULLET] BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
[SQUARE BULLET] BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
[SQUARE BULLET] BOSTON 1784 FLORIDA TAX-EXEMPT
INCOME FUND
[SQUARE BULLET] BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
[SQUARE BULLET] BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
STOCK FUNDS
[SQUARE BULLET] BOSTON 1784 ASSET ALLOCATION FUND
[SQUARE BULLET] BOSTON 1784 GROWTH AND INCOME FUND
[SQUARE BULLET] BOSTON 1784 GROWTH FUND
[SQUARE BULLET] BOSTON 1784 SMALL CAP EQUITY FUND
[SQUARE BULLET] BOSTON 1784 LARGE CAP EQUITY FUND
[SQUARE BULLET] BOSTON 1784 INTERNATIONAL EQUITY FUND
BOSTON 1784 FUNDS
P.O. BOX 8524
BOSTON, MA 02266-8524
1-800-BKB-1784
WWW.BOSTON1784FUNDS.COM
MF-0137 (12/97)
NOT PART OF THE PROSPECTUS
Money Market
Funds
[BOSTON 1784 FUNDS LOGO OMITTED]
FUND INFORMATION AND PROSPECTUS
DECEMBER 2, 1997
[PHOTO OMITTED]
<PAGE>
BOSTON 1784 MONEY MARKET FUNDS
LOW RISK, FLEXIBILITY AND CURRENT INCOME -- WITH A TAX-FREE OPTION.
- --------------------------------------------------------------------------------
FOR MANY SAVERS AND INVESTORS, MONEY MARKET FUNDS ARE A GOOD COMPLEMENT TO
SAVINGS ACCOUNTS, CDS AND OTHER LOW-RISK INVESTMENTS. CONSIDER THE ADVANTAGES OF
BOSTON 1784 MONEY MARKET FUNDS AND YOU'LL UNDERSTAND WHY.
[SQUARE BULLET] STABILITY --
These Funds are managed with the goal of returning a dollar to you for every
dollar you invest, plus dividends.
[SQUARE BULLET] ATTRACTIVE, COMPETITIVE YIELDS --
These Funds seek to provide variable after-tax rates of return that exceed
insured savings accounts and the money market deposit accounts available through
banks.
[SQUARE BULLET] ACCESS TO YOUR MONEY --
You have access to your money whenever you need it because the Funds will buy
back your shares whenever you want. And you'll have access that's as easy as
writing a check. Minimum check amount is $250.
[SQUARE BULLET] CONVENIENCE --
Boston 1784 Money Market Funds are an excellent place to hold cash you plan to
invest longer-term or that you may need soon.
INTRODUCING THE BOSTON 1784 MONEY MARKET FUNDS TEAM:
JAMES L. BOSLAND, CFA
BOSTON 1784 TAX-FREE MONEY MARKET FUND
EMMETT M. WRIGHT, CFA
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
MARY K. WERLER, CFA
BOSTON 1784 PRIME MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
LISA W. LEBOEUF
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
BOSTON 1784 PRIME MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
MONEY MANAGEMENT STRENGTH.
Boston 1784 Funds[SERVICE MARK] are managed by BankBoston. Founded in 1784,
BankBoston has a 100-year track record of investment management experience.
Boston 1784 Funds are managed by the same investment professionals who
oversee more than $24 billion for clients of BankBoston's family of banks
and who have earned national recognition and respect.
[PHOTO OMITTED]
IMPORTANT INFORMATION ABOUT BOSTON 1784 FUNDS
BOSTON 1784 FUNDS ARE NOT FDIC INSURED, ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF, OR GUARANTEED BY, ANY BANK, AND INVOLVE INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
BankBoston, N.A. serves as investment adviser, shareholder servicing agent
and custodian for Boston 1784 Funds. Boston 1784 Funds are distributed by
SEI Investments Distribution Co. The Distributor is not affiliated with
BankBoston or any of its affiliates. Financial Services Counselors are
registered representatives of BankBoston Investor Services, Inc.
(member NASD/SIPC), a wholly-owned subsidiary of BankBoston, N.A.
MONEY MARKET FUNDS SEEK TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE, BUT THERE IS NO ASSURANCE THAT THEY WILL BE ABLE TO DO SO ON A
CONTINUING BASIS. MONEY MARKET FUNDS ARE NOT INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT.
NOT PART OF THE PROSPECTUS
1
<PAGE>
WHICH BOSTON 1784 MONEY MARKET FUND IS RIGHT FOR YOU?
- --------------------------------------------------------------------------------
[PHOTO OMITTED]
"I WANT SAFETY AS MUCH
AS I NEED RETURN."
Consider Boston 1784 U.S.
Treasury Money Market Fund.
[PHOTO OMITTED]
"I WANT A HIGHER RETURN,
AND I'M WILLING TO TAKE A
LITTLE MORE RISK TO GET IT."
Consider Boston 1784
Prime Money Market Fund.
[PHOTO OMITTED]
"I WANT A COMPETITIVE RETURN
WITHOUT INCREASING MY TAXES."
Consider Boston 1784
Tax-Free Money Market Fund.
BOSTON 1784 MONEY MARKET FUNDS*
- --------------------------------------------------------------------------------
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND --
FOR RELATIVELY LOW RISK.
[SQUARE BULLET] Stability AND safety are very important to you.
[SQUARE BULLET] You want the opportunity to earn a higher yield
than insured bank savings accounts and bank money market
deposit accounts.
This Fund is a portfolio of some of the safest investments -- U.S. Treasury and
related securities. U.S. Treasury securities are often viewed as a no-risk
investment in that the U.S. Government is unlikely to fail to meet its
obligations. And, as this graph shows, the yields paid by this Fund have
historically been higher than many types of stable, insured investments such as
bank savings and money market accounts.
COMPARISON OF BOSTON 1784 U.S TREASURY
MONEY MARKET FUND TO BANK RATES
[LINE GRAPH OMITTED]
Boston
Money Market 1784 U.S.Treasury
Deposit Account Statement Money Market
(MMDA)+ Savings+ Fund
Dec-93 2.36 2.22 2.57
2.40 2.22 2.64
2.39 2.22 2.65
2.37 2.22 2.86
2.33 2.22 3.07
2.45 2.22 3.51
Jun-94 2.40 2.22 3.67
2.42 2.22 3.81
2.46 2.22 4.17
2.50 2.22 4.30
2.62 2.26 4.55
2.67 2.26 5.30
Dec-94 2.79 2.26 5.52
2.83 2.36 4.98
2.87 2.36 5.50
2.89 2.36 5.64
2.89 2.32 5.63
2.87 2.32 5.66
Jun-95 2.86 2.32 5.64
2.86 2.32 5.40
2.86 2.32 5.37
2.86 2.32 5.40
2.86 2.33 5.32
2.84 2.33 5.41
Dec-95 2.82 2.33 5.23
2.77 2.33 5.07
2.73 2.33 4.78
2.71 2.33 4.91
2.68 2.22 4.78
2.65 2.22 4.54
Sep-96 2.67 2.22 4.87
2.67 2.19 4.90
2.64 2.19 4.83
2.67 2.19 4.87
Dec-96 2.63 2.19 5.05
2.63 2.19 4.81
2.63 2.19 4.79
2.64 2.19 5.10
Apr-97 2.63 2.13 4.93
[] 1784 U.S. TREASURY MONEY MARKET FUND
[] MONEY MARKET DEPOSIT ACCOUNT (MMDA) +
[] STATEMENT SAVINGS +
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. STATEMENT SAVINGS AND MONEY
MARKET DEPOSIT ACCOUNTS ARE FDIC INSURED. BOSTON 1784 U.S. TREASURY MONEY MARKET
FUND IS NOT FDIC INSURED.
+ SOURCE: BANK RATE MONITOR, INC., N. PALM BEACH, FL 33408. MMDA RATES ARE A
NATIONAL AVERAGE OF THE TOP 25 MARKETS. RATES ARE AS OF THE LAST WEEK OF EACH
MONTH. STATEMENT SAVINGS ARE AVERAGE RATES PAID BY THE INSTITUTIONS IN THE
BANK RATE MONITOR NATIONAL INDEX.
NOT PART OF THE PROSPECTUS
2
<PAGE>
- --------------------------------------------------------------------------------
BOSTON 1784 PRIME MONEY MARKET FUND --
FOR HIGHER YIELD POTENTIAL.
[SQUARE BULLET] Higher yield potential is important to you.
[SQUARE BULLET] You don't mind taking a little more risk than a fund that
invests primarily in U.S. Government securities.
Because this Fund invests in short-term bank and corporate obligations, it may
earn a higher yield than a money market fund that invests solely in lower-risk
U.S. Government securities. This graph shows how historical yields of funds of
this type have compared with the yields of funds that invest in U.S. Treasury
obligations.
COMPARISON OF DONOGHUE'S ALL-TAXABLE TO
U.S. TREASURY FUNDS
[LINE GRAPH OMITTED]
Donoghue's Donoghue's
U.S. Treasury All Taxable
Dec-93 2.65 2.76
2.63 2.71
2.66 2.83
2.72 2.98
2.97 3.18
3.27 3.57
Jun-94 3.51 3.71
3.57 3.87
3.82 4.11
4.04 4.29
4.23 4.44
4.60 4.96
Dec-94 4.84 5.32
5.03 5.37
5.28 5.64
5.42 5.68
5.36 5.68
5.37 5.66
Jun-95 5.26 5.62
5.19 5.46
5.02 5.27
5.06 5.35
5.00 5.36
5.04 5.40
Dec-95 4.91 5.28
4.83 5.13
4.66 4.89
4.61 4.90
4.61 4.86
4.61 4.85
Sep-96 4.63 4.92
4.68 4.94
4.74 4.98
Dec-96 4.56 4.90
4.56 4.82
4.58 4.80
4.55 4.96
Apr-97 4.72 4.96
[] DONOGHUE'S ALL TAXABLE
[] DONOGHUE'S U.S. TREASURY
SOURCE: IBC/DONOGHUE, INC.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
BOSTON 1784 TAX-FREE MONEY MARKET FUND --
FOR TAX-FREE CURRENT INCOME.**
[SQUARE BULLET] Minimizing any additional tax burden from your investments is
important to you.
[SQUARE BULLET] Your federal tax bracket is higher than 28%.
If your federal tax bracket is above 28%, this Fund's after-tax performance may
compare favorably with funds that pay higher taxable yields. The Fund invests
primarily in municipal securities, so income may be exempt from federal taxes.
The higher your tax bracket, the greater a benefit this may be to you.
Current yields and tax rates may vary-consult your tax adviser.
COMPARISON OF TAX EQUIVALENT YIELDS FOR
VARIOUS TAX BRACKETS TO DONOGHUE'S ALL-TAXABLE
[LINE GRAPH OMITTED]
Donoghue's All-Taxable
Boston 1784 Tax-Free
Money Market Fund
Tax Equiv. Yield at 28.0% at 31.0% at 36.0% at 39.6%
Dec-93 2.76 3.04 3.17 3.42 3.63
2.71 2.58 2.70 2.91 3.08
2.83 2.76 2.88 3.11 3.29
2.98 2.47 2.58 2.78 2.95
3.18 3.06 3.19 3.44 3.64
3.57 3.29 3.43 3.70 3.92
Jun-94 3.71 3.18 3.32 3.58 3.79
3.87 3.22 3.36 3.63 3.84
4.11 3.44 3.59 3.88 4.11
4.29 3.96 4.13 4.45 4.72
4.44 3.72 3.88 4.19 4.44
4.96 4.38 4.57 4.92 5.22
Dec-94 5.32 5.79 6.04 6.52 6.90
5.37 4.43 4.62 4.98 5.28
5.64 4.92 5.13 5.53 5.86
5.68 4.88 5.09 5.48 5.81
5.68 5.43 5.67 6.11 6.47
5.66 5.10 5.32 5.73 6.08
Jun-95 5.62 4.96 5.17 5.58 5.91
5.46 4.64 4.84 5.22 5.53
5.27 4.50 4.70 5.06 5.36
5.35 4.82 5.03 5.42 5.75
5.36 4.69 4.90 5.28 5.60
5.40 4.65 4.86 5.23 5.55
Dec-95 5.28 5.60 5.84 6.30 6.67
5.13 4.07 4.25 4.58 4.85
4.89 4.04 4.22 4.55 4.82
4.90 4.04 4.22 4.55 4.82
4.86 4.56 4.75 5.13 5.43
4.85 4.40 4.59 4.95 5.25
4.92 4.08 4.26 4.59 4.87
4.94 4.21 4.39 4.73 5.02
Sep-96 4.98 4.63 4.83 5.20 5.51
4.32 4.60 4.80 5.17 5.48
4.88 4.68 4.88 5.27 5.58
Dec-96 4.90 4.69 4.90 5.28 5.60
4.82 4.43 4.62 4.98 5.28
4.80 4.46 4.65 5.02 5.31
4.96 4.43 4.82 4.98 5.28
Apr-97 4.96 5.17 4.39 5.31 6.16
SOURCE: IBC/DONOGHUE, INC.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* MONEY MARKET FUNDS SEEK TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE, BUT THERE IS NO ASSURANCE THAT THEY WILL BE ABLE TO DO SO ON A
CONTINUING BASIS. MONEY MARKET FUNDS ARE NOT INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT.
** A PORTION OF THE INCOME OF THIS FUND MAY BE SUBJECT TO ALTERNATIVE MINIMUM
TAX AND/OR LOCAL TAXES.
NOT PART OF THIS PROSPECTUS
3
<PAGE>
BOSTON 1784 MONEY MARKET FUNDS
INVEST IN YOUR CHOICE TODAY.
- --------------------------------------------------------------------------------
THIS INVESTMENT KIT CONTAINS EVERYTHING YOU NEED TO INVEST IN A BOSTON 1784
MONEY MARKET FUND, INCLUDING A NEW ACCOUNT APPLICATION, CHECKWRITING SIGNATURE
CARD AND PROSPECTUS.
TO INVEST IN A BOSTON 1784 MONEY MARKET FUND:
[SQUARE BULLET] Select the Fund that is right for you.
[SQUARE BULLET] Complete the enclosed New Account Application.
[SQUARE BULLET] If you would like the checkwriting option, complete the
checkwriting signature card.
[SQUARE BULLET] Make out a check (payable to Boston 1784 Funds) or debit your
bank account for the amount you are investing.
[SQUARE BULLET] Give the Application and your check to a service representative
in your branch, or mail in the envelope provided.
You should receive a confirmation of your investment by mail within five
business days.
If you have any questions on Boston 1784 Money Market Funds, please call
1-800-BKB-1784 to speak with a Financial Services Specialist or Financial
Services Counselor. PLEASE KEEP IN MIND THAT YOUR BRANCH STAFF CANNOT ADVISE YOU
ON HOW TO INVEST--BUT THEY CAN HELP YOU TO SET UP AN APPOINTMENT WITH A
FINANCIAL SERVICES COUNSELOR, WHO CAN PROVIDE INFORMED ANSWERS.
EXPERT PLANNING
AND GUIDANCE.
WHEN YOU HAVE QUESTIONS OR
WANT ADVICE, YOU CAN TALK TO A
FINANCIAL SERVICES COUNSELOR
(FSC) WHO WILL PROVIDE EXPERT,
STRAIGHT-FORWARD HELP BASED ON
YOUR GOALS. AND BECAUSE
BOSTON 1784 FUNDS ARE NO-LOAD,
THIS GUIDANCE IS AVAILABLE
TO YOU WITHOUT COMMISSIONS OR
SALES CHARGES.
[BOSTON 1784 FUNDS LOGO OMITTED]
NOT PART OF THE PROSPECTUS
4
<PAGE>
BOSTON 1784 FUNDS[SERVICE MARK] PROSPECTUS
- --------------------------------------------------------------------------------
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.
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 October 1, 1997, as supplemented
November 5, 1997 and December 2, 1997. 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-BKB-1784.
- --------------------------------------------------------------------------------
REMEMBER THAT SHARES OF THE FUNDS:
[SQUARE BULLET] ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY;
[SQUARE BULLET] ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
BANKBOSTON, N.A. OR ANY OF ITS AFFILIATES;
[SQUARE BULLET] INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
AS 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.
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.
[SQUARE BULLET] Boston 1784 Tax-Free Money Market Fund
[SQUARE BULLET] Boston 1784 U.S. Treasury Money Market Fund
[SQUARE BULLET] Boston 1784 Institutional U.S. Treasury Money Market Fund
[SQUARE BULLET] Boston 1784 Prime Money Market Fund
[SQUARE BULLET] Boston 1784 Institutional Prime Money Market Fund
December 2, 1997
PROSPECTUS
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
FUND SUMMARY ............................................................. 1
EXPENSES ................................................................. 2
FINANCIAL HIGHLIGHTS ..................................................... 3
INVESTMENT INFORMATION ................................................... 4
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT POLICIES .... 4
ADDITIONAL INVESTMENT POLICIES ............................. 5
RISK CONSIDERATIONS ........................................ 6
DIVIDENDS AND DISTRIBUTIONS .............................................. 7
MANAGEMENT ............................................................... 8
SHAREHOLDER SERVICES ..................................................... 10
HOW TO REACH THE FUNDS ..................................... 10
TYPES OF ACCOUNTS .......................................... 10
HOW TO OPEN AN ACCOUNT ..................................... 10
HOW TO PURCHASE SHARES ..................................... 11
HOW TO SELL SHARES ......................................... 12
SHAREHOLDER SERVICES AND POLICIES .......................... 14
TAXES .................................................................... 16
GENERAL INFORMATION ...................................................... 17
NET ASSET VALUE ............................................ 17
ORGANIZATION ............................................... 17
VOTING AND OTHER RIGHTS .................................... 17
PERFORMANCE INFORMATION .................................... 18
EXPENSES ................................................... 18
COUNSEL AND INDEPENDENT AUDITORS ........................... 19
APPENDIX A-- TAXABLE EQUIVALENT YIELD TABLES ............................. 20
APPENDIX B-- PERMITTED INVESTMENTS AND INVESTMENT PRACTICES .............. 21
PROSPECTUS
<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.
BOSTON 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.
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND,
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
BOSTON 1784 PRIME MONEY MARKET FUND AND
BOSTON 1784 INSTITUTIONAL PRIME 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 Funds are designed for conservative investors who want liquidity,
current income at money market rates and stability of principal. Since
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.
PROSPECTUS
1
<PAGE>
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 8 AND "GENERAL INFORMATION - EXPENSES" ON PAGE 18.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases and reinvested dividends None
Deferred sales charges imposed on redemptions None
Redemption fee* None
Exchange fee None
- --------------------------------------------------------------------------------
*There is a $12 service fee if the Funds wire redemption proceeds to your bank
account.
ANNUAL OPERATING EXPENSES (1)(4)
(EXPRESSED AS A PERCENTAGE OF AVERAGE NET ASSETS)
Total
Advisory Other Operating
Fee(2) Expenses(2) Expenses(2)
- --------------------------------------------------------------------------------
Tax-Free Money
Market Fund .38% .16% .54%
U.S. Treasury Money
Market Fund .33 .32 .65
Institutional U.S. Treasury
Money Market Fund .20 .14 .34
Prime Money
Market Fund .30 .35 .65
Institutional Prime
Money Market Fund(3) .20 .20 .40
- --------------------------------------------------------------------------------
EXAMPLE (1)(4)
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 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Tax-Free Money Market Fund $6 $17 $30 $68
U.S. Treasury Money
Market Fund 7 21 36 81
Institutional U.S. Treasury
Money Market Fund 3 11 19 43
Prime Money Market Fund 7 21 36 81
Institutional Prime
Money Market Fund(3) 4 13 N/A N/A
- --------------------------------------------------------------------------------
(1) Unless otherwise noted, the information in the expense table and the example
has been restated to reflect current fees 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.
(2) Without fee waivers and reimbursements, advisory fees would be .40% for each
Fund (.20% for the Institutional U.S. Treasury Money Market Fund and the
Institutional Prime Money Market Fund); and other expenses and total
operating expenses would be .16% and .56% for the Tax-Free Money Market
Fund, .32% and .72% for the U.S. Treasury Money Market Fund, .14% and .34%
for the Institutional U.S. Treasury Money Market Fund, .35% and .75% for
the Prime Money Market Fund, and .20% and .40% for the Institutional Prime
Money Market Fund.
(3) Because the Fund is newly organized, the information in the expense table
and the example is estimated for the current fiscal year.
(4) Shares may be purchased through certain financial institutions including
BankBoston. These institutions may charge fees for purchases and
redemptions of shares of the Funds.
PROSPECTUS
2
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THIS TABLE CONTAINS FINANCIAL INFORMATION ABOUT THE FUNDS WHICH IS INCLUDED IN
THE FUNDS' ANNUAL REPORTS. EXCEPT AS NOTED BELOW, THE FINANCIAL INFORMATION HAS
BEEN AUDITED BY COOPERS & LYBRAND L.L.P., INDEPENDENT ACCOUNTANTS. THEIR REPORTS
ON THE AUDITED FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE INCLUDED IN THE
ANNUAL REPORTS. THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS FROM THE
ANNUAL REPORTS ARE INCORPORATED BY REFERENCE INTO THE STATEMENT OF ADDITIONAL
INFORMATION. COPIES OF THE ANNUAL REPORTS MAY BE OBTAINED WITHOUT CHARGE BY
CALLING 1-800-BKB-1784. THE INSTITUTIONAL PRIME MONEY MARKET FUND IS NEWLY
ORGANIZED AND HAS NOT YET ISSUED FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
NET NET NET
ASSET DISTRIBUTIONS ASSET ASSETS RATIO
VALUE NET FROM NET VALUE END OF EXPENSES
BEGINNING INVESTMENT INVESTMENT END TOTAL OF PERIOD TO AVERAGE
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
BOSTON 1784 TAX-FREE MONEY MARKET FUND
<S> <C> <C> <C> <C> <C> <C> <C>
For the year ended May 31, 1997 $1.00 0.03 (0.03) $1.00 3.22% $845,612 0.54%
For the year ended May 31, 1996 $1.00 0.03 (0.03) $1.00 3.55% $549,628 0.54%
For the year ended May 31, 1995 $1.00 0.03 (0.03) $1.00 3.29% $539,412 0.50%
For the period ended May 31, 1994 (1) $1.00 0.02 (0.02) $1.00 2.31%* $407,448 0.27%
- ------------------------------------------------------------------------------------------------------------------
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
For the year ended May 31, 1997 $1.00 0.05 (0.05) $1.00 4.86% $390,294 0.64%
For the year ended May 31, 1996 $1.00 0.05 (0.05) $1.00 5.16% $ 78,999 0.64%
For the year ended May 31, 1995 $1.00 0.05 (0.05) $1.00 4.81% $ 55,068 0.60%
For the period ended May 31, 1994 (2) $1.00 0.03 (0.03) $1.00 2.64%* $ 5,593 0.65%
- ------------------------------------------------------------------------------------------------------------------
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
For the year ended May 31, 1997 $1.00 0.05 (0.05) $1.00 5.16% $2,591,487 0.33%
For the year ended May 31, 1996 $1.00 0.05 (0.05) $1.00 5.45% $ 644,733 0.32%
For the year ended May 31, 1995 $1.00 0.05 (0.05) $1.00 5.05% $ 395,585 0.30%
For the period ended May 31, 1994 (3) $1.00 0.03 (0.03) $1.00 2.99%* $ 181,568 0.22%
- ------------------------------------------------------------------------------------------------------------------
BOSTON 1784 PRIME MONEY MARKET FUND
For the period
ended May 31, 1997 (4) $1.00 0.02 (0.02) $1.00 2.07%* $123,099 0.65%
For the year ended
December 31, 1996 (5) $1.00 0.05 (0.05) $1.00 5.02% $ 93,229 0.66%
For the year ended December 31, 1995 $1.00 0.05 (0.05) $1.00 5.49% $156,532 0.62%
For the year ended December 31, 1994 $1.00 0.04 (0.04) $1.00 3.75% $136,923 0.65%
For the year ended December 31, 1993 $1.00 0.03 (0.03) $1.00 2.72% $168,909 0.59%
For the period ended
December 31, 1992 (6) $1.00 0.02 (0.02) $1.00 2.13%* $242,935 0.59%
For the period ended April 30, 1992 (7) $1.00 0.03 (0.03) $1.00 3.55% $280,931 0.48%
- ------------------------------------------------------------------------------------------------------------------
RATIO RATIO OF
RATIO OF EXPENSES NET INCOME
OF NET TO AVERAGE TO AVERAGE
INCOME NET ASSETS NET ASSETS
TO AVERAGE (EXCLUDING (EXCLUDING
NET ASSETS WAIVERS) WAIVERS)
- --------------------------------------------------------------------------
BOSTON 1784 TAX-FREE MONEY MARKET FUND
<S> <C> <C> <C>
For the year ended May 31, 1997 3.17% 0.56% 3.15%
For the year ended May 31, 1996 3.49% 0.60% 3.43%
For the year ended May 31, 1995 3.28% 0.61% 3.17%
For the period ended May 31, 1994 (1) 2.39% 0.71% 1.95%
- --------------------------------------------------------------------------
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
For the year ended May 31, 1997 4.76% 0.72% 4.68%
For the year ended May 31, 1996 5.02% 0.75% 4.91%
For the year ended May 31, 1995 5.13% 0.92% 4.81%
For the period ended May 31, 1994 (2) 2.91% 6.42% (2.86)%
- --------------------------------------------------------------------------
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
For the year ended May 31, 1997 5.05% 0.34% 5.04%
For the year ended May 31, 1996 5.29% 0.39% 5.22%
For the year ended May 31, 1995 5.12% 0.41% 5.01%
For the period ended May 31, 1994 (3) 3.16% 0.55% 2.83%
- --------------------------------------------------------------------------
BOSTON 1784 PRIME MONEY MARKET FUND
For the period
ended May 31, 1997 (4) 4.98% 0.75% 4.88%
For the year ended
December 31, 1996 (5) 4.85% 0.66% 4.85%
For the year ended December 31, 1995 5.40% 0.62% 5.40%
For the year ended December 31, 1994 3.64% 0.69% 3.60%
For the year ended December 31, 1993 2.68% 0.70% 2.57%
For the period ended
December 31, 1992 (6) 3.13% 0.64% 3.08%
For the period ended April 30, 1992 (7) 4.61% 0.63% 4.46%
- --------------------------------------------------------------------------
<FN>
* Returns are for the period indicated and have not been annualized.
(1) The Tax-Free Money Market Fund commenced operations on June 14, 1993. All
ratios for the period have been annualized.
(2) The U.S. Treasury Money Market Fund commenced operations on June 7, 1993.
All ratios for the period have been annualized.
(3) The Institutional U.S. Treasury Money Market Fund commenced operations on
June 14, 1993. All ratios for the period have been annualized.
(4) The Prime Money Market Fund changed its fiscal year from December 31 to
May 31. Reflects operations for the period from January 1, 1997 to May 31,
1997. All ratios for the period have been annualized.
(5) Until December 9, 1996, the Prime Money Market Fund was known as the
BayFunds Money Market Portfolio and was a portfolio of BayFunds, an open-end
investment company registered under the Investment Company Act of 1940, as
amended. Shares of the BayFunds Money Market Portfolio were divided into two
classes, known as Investment Shares and Trust Shares. The Prime Money Market
Fund has only a single class of outstanding shares. For periods prior to
December 9, 1996, Ernst & Young LLP were the auditors of the BayFunds
Money Market Portfolio.
(6) The Prime Money Market Fund changed its fiscal year from April 30 to
December 31. Reflects operations for the period from May 1, 1992 to
December 31, 1992. All ratios for the period have been annualized.
(7) Reflects operations for the period from August 1, 1991 (date of initial
public investment) to April 30, 1992. During the period from May 16, 1991
(start of business) to August 1, 1991, net investment income aggregating to
$0.01 per share ($1,101) was distributed to Federated Administrative
Services. All ratios for the period have been annualized.
</FN>
</TABLE>
PROSPECTUS
3
<PAGE>
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.
The investment objective of BOSTON 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 BOSTON 1784 U.S. TREASURY MONEY MARKET FUND, BOSTON
1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND, 1784 PRIME MONEY MARKET FUND
and BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND is to preserve principal
value and maintain a high degree of liquidity while providing current income.
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 are 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 are invested in taxable instruments. See Appendix
A for information on taxable equivalent yields.
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 are 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.
The PRIME MONEY MARKET FUND and INSTITUTIONAL PRIME MONEY MARKET FUND invest
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.
PROSPECTUS
4
<PAGE>
- --------------------------------------------------------------------------------
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.
ADDITIONAL INVESTMENT POLICIES: THIS SECTION DESCRIBES ADDITIONAL INVESTMENT
POLICIES OF THE FUNDS. SEE "RISK CONSIDERATIONS" ON PAGE 6 FOR MORE INFORMATION.
NON-U.S. SECURITIES
Each Fund (other than the U.S. Treasury Money Market Fund and the Institutional
U.S. Treasury Money Market Fund) may invest a portion 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. 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
The Prime Money Market Fund may invest substantially all of its assets in a
mutual fund having the same investment objective and policies as the Fund. This
structure is known as a master/feeder investment structure. Shareholders of the
Prime Money Market Fund will be given at least 30 days' notice before the Fund
converts to this structure.
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
PROSPECTUS
5
<PAGE>
INVESTMENT INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
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 amount of
brokerage commissions and realization of taxable capital gains will tend to
increase as the level of portfolio activity increases.
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 adviser or 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.
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.
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.
PROSPECTUS
6
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Substantially all of each 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.
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. 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.
If a shareholder has elected to receive dividends and/or distributions in cash,
and the postal or other delivery service fails to deliver checks to the
shareholder's address of record, or the shareholder does not respond to mailings
from the shareholder servicing agent with regard to uncashed distribution
checks, the shareholder's distribution option will automatically be converted to
having dividends and other distributions reinvested in additional shares. No
interest will accrue on amounts represented by uncashed distribution or
redemption checks.
PROSPECTUS
7
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
Each Fund is supervised by the Board of Trustees of Boston 1784 Funds. More
information on the Trustees and Fund officers may be found under "Management" in
the Statement of Additional Information.
INVESTMENT ADVISER
BankBoston is the investment adviser of each Fund and, subject to policies set
by the Trustees, makes investment decisions. BankBoston is the successor to a
bank chartered in 1784 and offers a wide range of banking and investment
services to customers throughout the world. BankBoston has been providing asset
management services since 1890. The Private Bank Division of BankBoston is the
investment management group within BankBoston that advises the Funds. As of July
31, 1997, BankBoston's Private Bank was responsible for the investment
management of approximately $24 billion of individual, institutional, endowment
and corporate assets, including nearly $7 billion in assets in the Boston 1784
Funds family, in money market, equity, and fixed income securities. BankBoston's
Private Bank has earned national recognition and respect as an investment
manager. BankBoston is a wholly-owned subsidiary of BankBoston Corporation; its
legal name is BankBoston, National Association and its address is 100 Federal
Street, Boston, Massachusetts 02110. Prior to April 24, 1997, BankBoston's legal
name was The First National Bank of Boston.
The following chart shows the investment advisory fees currently paid by each
Fund. The Institutional Prime Money Market Fund is newly organized and had no
operations during the fiscal year ended May 31, 1997.
- --------------------------------------------------------------------------------
Advisory fees paid
(expressed as a percentage
of average net assets)
- --------------------------------------------------------------------------------
Tax-Free Money Market Fund .38%
U.S. Treasury Money Market Fund. .33
Institutional U.S. Treasury Money Market Fund .20
Prime Money Market Fund .30
BankBoston may waive its investment advisory fees to the extent necessary to
limit the total operating expenses of the Funds to a specified level. BankBoston
also may contribute to the Funds from time to time to help them maintain a
competitive expense ratio. These arrangements would be voluntary and could
be terminated at any time.
BANKING RELATIONSHIPS. BankBoston 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.
BankBoston 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 BankBoston or any of its affiliates.
BANK REGULATORY MATTERS. The Glass-Steagall Act prohibits certain financial
institutions, such as BankBoston, from underwriting securities of open-end
investment companies, such as the Funds. BankBoston 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 BankBoston from
PROSPECTUS
8
<PAGE>
- --------------------------------------------------------------------------------
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 and fund accounting
services to the Funds, including regulatory reporting, office facilities, and
equipment and personnel. SEI receives a fee for these services, which is
calculated daily and paid monthly, at an annual rate of .085% of the first $5
billion of the combined average daily net assets of the Funds and the other
funds in the Boston 1784 Funds family and .045% of combined average daily net
assets in excess of $5 billion. SEI has agreed to waive portions of its fee from
time to time. SEImay retain sub-administrators, including BankBoston, whose fees
would be paid by SEI.
SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT. Boston Financial Data Services,
2 Heritage Drive, North Quincy, Massachusetts 02171, is the Funds' dividend
disbursing agent. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, is the transfer agent. BankBoston is the
shareholder servicing agent.
DISTRIBUTION ARRANGEMENTS. SEI Investments Distribution Co. (formerly known as
SEI Financial Services Company), 1 Freedom Valley Drive, Oaks, Pennsylvania
19456, is the distributor of shares of each Fund. The Distributor receives no
fee for these services.
From time to time, the Distributor may provide incentive compensation to its own
employees and employees of banks (including BankBoston), 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. BankBoston is the Funds' custodian. Fund securities may be held by a
sub-custodian bank approved by the Trustees.
PROSPECTUS
9
<PAGE>
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
This section describes how to do business with the Funds and shareholder
services that are available.
HOW TO REACH THE FUNDS
BY TELEPHONE 1-800-BKB-1784
Call for account or Fund
information Monday through
Friday 8 a.m. to 8 p.m. or Saturday
and Sunday between
9 a.m. and 4 p.m. (Eastern time).
BY REGULAR MAIL Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
OR IN THE ENCLOSED POSTAGE-PAID ENVELOPE
BY OVERNIGHT COURIER Boston 1784 Funds
c/o Boston Financial Data Services
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-BKB-1784.
[SQUARE BULLET] INDIVIDUAL OR JOINT OWNERSHIP. Individual accounts are owned
by one person. Joint accounts have two or more owners.
[SQUARE BULLET] GIFT OR TRANSFER TO MINOR (UGMA OR UTMA). A UGMA (Uniform Gifts
to Minors Act) or UTMA (Uniform Transfers to Minors Act) 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.
[SQUARE BULLET] 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.
[SQUARE BULLET] CORPORATIONS, PARTNERSHIPS AND OTHER LEGAL ENTITIES.
Corporations, partnerships and other legal entities may also
open an account. The application and resolution form must be
signed by a general partner of the partnership or an authorized
officer of the corporation or other legal entity.
[SQUARE BULLET] RETIREMENT. If you are eligible, you may set up your account
under a tax-sheltered retirement plan, such as an Individual
Retirement Account. BankBoston offers a number of retirement
plans through which Fund shares may be purchased. Call 1-800-
BKB-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 Boston 1784 Funds. Send all items to one of the following
addresses:
BY REGULAR MAIL Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
OR IN THE ENCLOSED POSTAGE-PAID ENVELOPE
BY OVERNIGHT COURIER Boston 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
BankBoston. These institutions may have their own procedures for purchases and
redemptions, and may charge fees. Contact your financial institution for more
information.
PROSPECTUS
10
<PAGE>
- --------------------------------------------------------------------------------
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 per share, 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 12 noon Eastern time (3 p.m. for the Institutional U.S.
Treasury Money Market Fund and the Institutional Prime Money Market Fund). For
the Institutional U.S. Treasury Money Market Fund and the Institutional Prime
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 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 and the Institutional Prime 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 "Authorization of Telephone
Transfer" section on the application and attach a "voided" check from your bank
account.
If you wish to open an account by debiting your checking or savings account,
please attach a "voided" check or savings withdrawal slip, and complete the
"Bank Wire and ACH Instructions" section of the application.
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-BKB-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 on page 10.
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-BKB-1784 to request the appropriate
form.
BY WIRE. Purchases may also be made by wiring money from your bank account
to your Fund account. Call 1-800-BKB-1784 to receive wiring instructions prior
to sending any money.
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-BKB-1784 for information.
PROSPECTUS
11
<PAGE>
SHAREHOLDER SERVICES (CONTINUED)
- --------------------------------------------------------------------------------
PAYING FOR SHARES. Please note the following:
[SQUARE BULLET] Purchases may be made by check, wire transfer and
automated clearing house transactions.
[SQUARE BULLET] All purchases must be made in U.S. dollars.
[SQUARE BULLET] Checks must be drawn on U.S. banks and must be payable to
Boston 1784 Funds. Third party checks are not accepted.
[SQUARE BULLET] Cash and credit card checks are not accepted.
[SQUARE BULLET] If a check does not clear your bank, the Funds reserve the
right to cancel the purchase.
[SQUARE BULLET] 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
* $100,000 for the Institutional U.S. Treasury Money Market Fund and the
Institutional Prime Money Market Fund
** $5,000 for the Institutional U.S. Treasury Money Market Fund and the
Institutional Prime 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 10 business 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 10 and must include the
following information (please refer to "Signature guarantees" on page 13 if your
redemption request is in excess of $100,000):
[SQUARE BULLET] the name of the Fund(s),
[SQUARE BULLET] the account number(s),
[SQUARE BULLET] the amount of money or number of shares
being redeemed,
[SQUARE BULLET] the name(s) on the account,
[SQUARE BULLET] the signature(s) of all registered account owners, and
[SQUARE BULLET] your daytime telephone number.
Signature requirements vary based on the type of account you have:
[SQUARE BULLET] INDIVIDUAL, JOINT TENANTS, TENANTS IN COMMON: Written
instructions must be signed by each shareholder exactly
as the names appear in the account registration.
[SQUARE BULLET] UGMA OR UTMA: Written instructions must be signed by the
custodian in his/her capacity as it appears in the
account registration.
PROSPECTUS
12
<PAGE>
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[SQUARE BULLET] SOLE PROPRIETOR, GENERAL PARTNER: Written instructions
must be signed by an authorized individual in his/her
capacity as it appears in the account registration.
[SQUARE BULLET] 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.
[SQUARE BULLET] 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.
[SQUARE BULLET] RETIREMENT: Written instructions must be signed by the
account owner. Call 1-800-BKB-1784 for more information.
BY TELEPHONE. If you selected this option on your account application, you may
make redemptions from your account by calling 1-800-BKB-1784. The Funds require
that requests for redemptions in excess of $100,000 be in writing with
signatures guaranteed. 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-BKB-1784.
PAYMENT OF REDEMPTION PROCEEDS. Payments may be made by check, wire transfer or
electronic 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 business day of 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-BKB-1784 to
sign up for this service. Wire redemptions are not available for
retirement accounts.
BY If you have established this option, your redemption proceeds will
ELECTRONIC be transferred electronically to your pre-designated bank account.
TRANSFER To establish this option on an existing account, please call 1-800-
(ACH) BKB-1784 to request the appropriate form.
SIGNATURE GUARANTEES. In addition to the signature requirements, a signature
guarantee is required in any of the following circumstances:
[SQUARE BULLET] You would like the check made payable to anyone other
than the shareholder(s) of record.
[SQUARE BULLET] You would like the check mailed to an address other
than the address of record.
[SQUARE BULLET] You would like the check mailed to an address of record
that has changed within the preceding 30 days.
[SQUARE BULLET] Your redemption request is in excess of $100,000.
PROSPECTUS
13
<PAGE>
SHAREHOLDER SERVICES (CONTINUED)
- --------------------------------------------------------------------------------
At the Funds' discretion, signature guarantees may also be required for other
redemptions. 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 determine 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 or any other fund in the Boston 1784 Funds family.
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 when
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.
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
backup withholding or you did not certify your taxpayer identification number,
the IRS requires the Funds to withhold 31% of any dividends and redemption or
exchange proceeds. The Funds reserve the right to reject any application that
does not include a certified social security or taxpayer identification number.
SHARE CERTIFICATES. Share certificates are not issued.
INVOLUNTARY REDEMPTIONS. If your account balance falls below the minimum
required investment 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. Purchases, exchanges or redemptions may be made by
telephone if you selected this option on your account application. If you wish
to establish this option on an existing account, please call 1-800-BKB-1784 to
request the appropriate form. The Funds and their agents will not be responsible
for any losses resulting from acting upon wire or telephone instructions that it
reasonably believes to be genuine. The Funds and their agents will each employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Such procedures may include taping of telephone conversations. 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.
PROSPECTUS
14
<PAGE>
- --------------------------------------------------------------------------------
ADDRESS CHANGES. To change the address on your account, call 1-800-BKB-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-BKB-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 semi-annually to all shareholders.
CHECKWRITING. Checkwriting privileges are available to certain shareholders for
Boston 1784 Tax-Free Money Market Fund, Boston 1784 U.S. Treasury Money Market
Fund, and Boston 1784 Prime Money Market Fund. Call 1-800-BKB-1784 for more
information. You may not use a check to close your account. Checks may be
written against your investment for a minimum of $250 each check.
PROSPECTUS
15
<PAGE>
TAXES
- --------------------------------------------------------------------------------
This discussion of taxes is for general information only. Investors should
consult their own tax advisers about their particular situations.
Each Fund is treated as a separate entity for federal income tax purposes, and
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. Any Fund that receives income from foreign securities
may pay withholding or other taxes to foreign governments during the year,
however, and these taxes will reduce that Fund's dividends.
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 Tax-Free Money Market Fund expects that its
distributions from interest on municipal securities will usually be exempt from
federal income tax. 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. It is not expected that any Fund
distributions will be eligible for the dividends received deduction for
corporations. Distributions of long-term net capital gains will be taxed as
long-term capital gains regardless of how long the shares of a Fund have been
held; however, it is not clear at this time whether all or any part of such
distributions will be eligible to be taxed at a maximum rate below 28%.
Interest on loans to purchase or carry shares of the Tax-Free Money Market Fund
will not be deductible for federal income tax purposes. Exempt-interest
dividends may be subject to alternative minimum tax.
Foreign shareholders may be subject to U.S. withholding taxes.
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 investments
under state and local laws.
PROSPECTUS
16
<PAGE>
GENERAL INFORMATION
- --------------------------------------------------------------------------------
NET ASSET VALUE
Net asset value per share for each Fund, other than the Institutional U.S.
Treasury Money Market Fund and Institutional Prime Money Market Fund, is
calculated each business day at 12 noon Eastern time. Net asset value per share
for the Institutional U.S. Treasury Money Market Fund and Institutional Prime
Money Market Fund are calculated each business day at 3 p.m. Eastern time (12
noon on days when the financial markets close early).
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
12 noon Eastern time (3 p.m. for the Institutional U.S. Treasury Money Market
Fund and Institutional Prime Money Market Fund unless the financial markets
close early). 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 held by the Funds are valued at
amortized cost, which approximates market value.
ORGANIZATION
Each Fund is a series of Boston 1784 Funds. Boston 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. Prior to May 27, 1997, Boston 1784 Funds was known as 1784 Funds. On that
date, the Trust and each Fund added "Boston" to their names. Boston 1784 Funds
currently has nineteen active series.
Each Fund 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.
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
Boston 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 Boston 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
BankBoston. Class C and Class D shares may have different expenses, which may
affect performance. Call 1-800-BKB-1784 for more information.
Since Boston 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.
PROSPECTUS
17
<PAGE>
GENERAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
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, 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.
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, 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.
The Tax-Free Money Market Fund may also advertise a "tax-equivalent yield." The
"tax-equivalent yield" is determined by calculating 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.
A Fund's performance may from time to time be compared to that of other mutual
funds tracked by mutual fund rating services, broad groups of comparable mutual
funds or unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs.
Certain Funds may advertise performance that includes results from periods in
which the Funds' assets were managed in a non-registered predecessor vehicle.
Of 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, 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 BankBoston or the Administrator, government fees, taxes, accounting and
legal fees, expenses of communicating with shareholders, interest expense, and
insurance premiums.
PROSPECTUS
18
<PAGE>
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The following table shows each Fund's current expenses, expressed as a
percentage of average net assets. The Institutional Prime Money Market Fund is
newly organized and had no operations during the fiscal year ended May 31, 1997.
Expenses
- --------------------------------------------------------------------------------
Tax-Free Money Market Fund .54%
U.S. Treasury Money Market Fund .65
Institutional U.S. Treasury Money Market Fund .34
Prime Money Market Fund .65
COUNSEL AND INDEPENDENT AUDITORS
Bingham Dana LLP, Boston, Massachusetts, is counsel for each Fund. Coopers &
Lybrand L.L.P., Philadelphia, Pennsylvania, serves as independent auditor for
each Fund.
The Statement of Additional Information dated October 1, 1997, as supplemented
November 5, 1997 and December 2, 1997, 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.
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.
PROSPECTUS
19
<PAGE>
APPENDIX A -- TAXABLE EQUIVALENT YIELDS
- --------------------------------------------------------------------------------
THIS TABLE SHOWS 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. THEY ARE ACCURATE AS OF SEPTEMBER 15, 1997.
FEDERAL
Equivalent yields: Tax-exempt versus taxable securities
<TABLE>
<CAPTION>
1997
Taxable Income Federal
- ------------------------------- Marginal
Single Joint Rate 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-24,000 $0-40,100 15.00% 2.35% 2.94% 3.53% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06%
24,001-58,150 40,101-96,900 28.00% 2.78% 3.47% 4.17% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33%
58,151-121,300 96,901-147,700 31.00% 2.90% 3.62% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70%
121,301-263,750 147,701-263,750 36.00% 3.13% 3.91% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38%
over 263,750 over 263,750 39.60% 3.31% 4.14% 4.97% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
PROSPECTUS
20
<PAGE>
APPENDIX B -- PERMITTED INVESTMENTS AND INVESTMENT PRACTICES
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations include bills, notes and bonds issued by the U.S.
Treasury and separately traded interest and principal component parts of such
obligations that are transferable through the Federal Reserve book-entry system
known as Separately Traded Registered Interest and Principal Securities
(STRIPS). STRIPS are sold as zero coupon securities. These securities are
usually structured with two classes that receive different portions of the
interest and principal payments from the underlying obligation. The yield to
maturity on the interest-only class is extremely sensitive to the rate of
principal payments on the underlying obligation. The market value of the
principal-only class generally is unusually volatile in response to changes in
interest rates. See "Zero Coupon Securities" for more information. Each 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.
(CONTINUED)
PROSPECTUS
21
<PAGE>
APPENDIX B (CONTINUED)
- --------------------------------------------------------------------------------
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 an average weighted maturity of 90 days or less.
Subject to applicable statutory and regulatory limitations, the Tax-Free Money
Market Fund and the Prime Money Market Fund may each invest a certain percentage
of its 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.
CORPORATE BONDS
Investment in bonds of U.S. and foreign issuers are used by U.S. and foreign
corporate issuers to borrow money from investors, and may have varying
maturities. Corporate bonds have varying degress of quality and varying degrees
of sensitivity to changes in interest rates. The value of these investments
fluctuates based on changes in interest rates and in the underlying credit
quality of the bond issuers represented in the portfolio.
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
PROSPECTUS
22
<PAGE>
- --------------------------------------------------------------------------------
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.
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 delivery and payment ordinarily take place beyond customary
settlement time. The interest rate realized on these securities is fixed as of
the purchase date and no interest accrues to the 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.
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.
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
(CONTINUED)
PROSPECTUS
23
<PAGE>
APPENDIX B (CONTINUED)
- --------------------------------------------------------------------------------
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.
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 10%
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.
RULE 144A SECURITIES
The Funds may purchase restricted securities that are not registered for sale to
the general public if it is determined that there is a dealer or institutional
market in the securities. In that case, the securities will not be treated as
illiquid for purposes of the Fund's investment limitation described above. The
Trustees will review these determinations. These securities are known as "Rule
144A securities" because they are traded under SEC Rule 144A among qualified
institutional buyers. Institutional trading in Rule 144A securities is
relatively new and the liquidity of these investments could be impaired if
trading in Rule 144A securities does not develop or if qualified institutional
buyers become, for a time, uninterested in purchasing Rule 144A securities.
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.
PROSPECTUS
24
<PAGE>
NOTES
- --------------------------------------------------------------------------------
PROSPECTUS
25
<PAGE>
NOTES
- --------------------------------------------------------------------------------
PROSPECTUS
26
<PAGE>
CORPORATE RESOLUTION FORM
- --------------------------------------------------------------------------------
THIS FORM IS REQUIRED FOR CORPORATIONS, BUSINESS TRUSTS, PARTNERSHIPS, LIMITED
LIABILITY COMPANIES AND OTHER SIMILAR ORGANIZATIONS ONLY AND MUST ACCOMPANY A
COMPLETED NEW ACCOUNT APPLICATION AND/OR THE CHECKWRITING SIGNATURE CARD.
[BULLET] FOR TELEPHONE REDEMPTION, COMPLETE SECTIONS 1, 2 AND 4.
[BULLET] FOR CHECKWRITING, COMPLETE SECTIONS 3 AND 4.
[BULLET] FOR BOTH FEATURES COMPLETE SECTIONS 1, 2, 3 AND 4.
================================================================================
1. RESOLUTIONS FOR TELEPHONE REDEMPTION
RESOLVED: In connection with any funds invested in shares of
- --------------------------------------------------------------------------------
NAME OF BOSTON 1784 FUND(S) AND ACCOUNT NUMBER(S) (IF AVAILABLE)
- --------------------------------------------------------------------------------
TITLE(S)OR NAME(S) OF THOSE WITH AUTHORITY
(are) (is) hereby authorized to execute an authorization of telephone
redemptions and to name the following bank as the recipient of the proceeds of
any such redemptions:
- --------------------------------------------------------------------------------
FURTHER RESOLVED: That the (Clerk) (Assistant Clerk) (Secretary) (Assistant
Secretary) (Managing Partner) (Member) (Manager) be and hereby is authorized and
directed to certify the foregoing resolution and that the provisions thereof are
in conformity with the (Articles of Organization) (Certificate of Incorporation)
(Charter) (Declaration of Trust) (Partnership Agreement) and (By-Laws)
(Operating Agreement) of this (Corporation) (Trust) (Partnership) (Limited
Liability Company).
================================================================================
2. APPOINTMENT OF AGENTS FOR TELEPHONE
REDEMPTION AUTHORIZATION
We, the undersigned, constitute and appoint Boston 1784 Funds' Transfer Agent
and Shareholder Servicing Agent (collectively the "Agents") our true and lawful
attorneys to surrender for redemption any and all shares held by
- --------------------------------------------------------------------------------
ACCOUNT NAME AND ADDRESS
- --------------------------------------------------------------------------------
with full power of substitution in the premises. The Agents are hereby
authorized and directed to accept and act upon any telephone directions for
redemptions of shares held in the above account from any person who requests
payment to be made to the bank account identified in the Application Form
submitted herewith.
BOSTON 1784 FUNDS, P.O. BOX 8524, BOSTON, MA 02266-8524
FOR INFORMATION, CALL: 1-800-BKB-1784
We understand and agree that the Agents will not be liable for any loss, expense
or costs arising out of any telephone request for redemption so long as the
Agents act in accordance with the telephone redemption procedures as described
in the prospectus of Boston 1784 Funds, as amended from time to time. (This
authorization and the following certificate must be completed and received by
the Agents before telephone, ACH or wire redemption requests for transmission of
funds will be honored. Any amendment or modification of the above information
will require that a new Corporate Resolution Form be completed and submitted,
with a completed Telephone Redemption Form with a signature guarantee.)
We hereby certify that each of the persons listed below has been duly elected
and is now legally holding the office set forth opposite his name.
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPE FULL NAME(S) AND TITLE(S)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We further certify that said
---------------------------------------------------
TYPE OF ORGANIZATION
- --------------------------------------------------------------------------------
is duly organized and existing, and has the power to take the action called for
by the foregoing resolutions.
We further certify and agree that the above certifications, authorizations and
appointments will continue until the Agents receive actual written notice of any
change thereof.
PLEASE COMPLETE OTHER SIDE
5
<PAGE>
================================================================================
3. RESOLUTIONS FOR CHECKS
RESOLVED: That this (Corporation) (Trust) (Partnership) (Limited Liability
Company) open a checking account with Boston 1784 Funds (the Funds) in the name
of this (Corporation) (Trust) (Partnership) (Limited Liability Company) and that
the funds on deposit in such account be subject to withdrawal or charge at any
time by checks or orders for the payment of money when made, signed or drawn on
the Company's behalf by any of the following:
- --------------------------------------------------------------------------------
NAME AND TITLE OF OFFICERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
including those drawn to the individual order of a signer, without any
obligation of inquiry on the part of the Funds as to the circumstances of their
issue or reason for payment.
FURTHER RESOLVED: That until duly notified in writing of a resolution to the
contrary, the Funds is authorized to accept and to act upon the certificate of
the (Clerk) (Assistant Clerk) (Secretary) (Assistant Secretary) (Managing
Partner) (Member) (Manager) or any other officer of this (Corporation) (Trust)
(Partnership) (Limited Liability Company) as to the name of the present and
future officers of this (Corporation) (Trust) (Partnership) (Limited Liability
Company) and to act and rely upon any signatures of officers, or other persons,
if any, authorized to sign and act for this (Corporation) (Trust) (Partnership)
(Limited Liability Company) which are furnished to the Funds by such (Clerk)
(Assistant Clerk) (Secretary) (Assistant Secretary) (Managing Partner) (Member)
(Manager) or any other officer.
FURTHER RESOLVED: That the Funds and the Agents are hereby appointed agents of
this (Corporation) (Trust) (Partnership) (Limited Liability Company) and, as
such agents, directed to redeem shares of
---------------------------------------
NAME OF BOSTON 1784 FUND
registered in the name of this (Corporation) (Trust) (Partnership) (Limited
Liability Company) and, upon receipt of, and to the amount of, checks drawn upon
the (Corporation's) (Trust's) (Partnership's) (Limited Liability Company's)
checking account; provided, however, that no such redemption shall be effected
for less than $250 or such other minimum amount as may from time to time be
established by the Agents.
That the aforesaid appointment of the Funds and the Agents as agents shall be
effective upon receipt of said agents of a copy of these resolutions and without
the need of further evidence thereof.
FURTHER RESOLVED: That the preceding resolutions are to remain in full force and
effect unless and until terminated by subsequent resolution by the (Board of
Directors) (Trustees) (Partners or Managing Partners) (Members) and until
written notice thereof is delivered to the Agents.
FURTHER RESOLVED: That the (Clerk) (Assistant Clerk) (Secretary) (Assistant
Secretary) (Managing Partner) (Member) (Manager) be and hereby is authorized and
directed to certify the foregoing resolutions and that the provisions thereof
are in conformity with the (Articles of Organization) (Certificate of
Incorporation) (Charter) (Declaration of Trust) (Partnership Agreement) and
(By-Laws) (Operating Agreement) of this (Corporation) (Trust) (Partnership)
(Limited Liability Company).
================================================================================
4. CERTIFICATION
I hereby certify that the foregoing resolutions relating to:
[ ] Telephone Redemption [ ] Checkwriting are in conformity
with the (Articles of Organization) (Certificate of Incorporation) (Charter)
(Declaration of Trust) (Partnership Agreement) and the (By-Laws) (Operating
Agreement) of the
---------------------------------------------------------------
NAME OF ORGANIZATION
organized under the laws of and were adopted (by
--------------------------------
STATE
unanimous consent) (at a meeting) of the (Board of Directors) (Trustees)
(Partners)(Members) of the (Corporation) (Trust) (Partnership) (Limited
Liability Company) duly called and held on
--------------------------------------
DATE
at which a quorum was present and acting throughout, and that the same are now
in full force and effect. I further certify that the following is (are) the duly
elected officer(s) of the (Corporation) (Trust) (Partnership) (Limited Liability
Company), authorized to act in accordance with the foregoing resolutions.
- --------------------------------------------------------------------------------
NAME TITLE
- --------------------------------------------------------------------------------
NAME TITLE
Witness my (our) hand(s) and the seal of the (Corporation) (Trust) (Partnership)
(Limited Liability Company) this day of , .
---------- ----------------- -------------
- --------------------------------------------------------------------------------
SECRETARY, CLERK, MANAGING PARTNER, MEMBER OR MANAGER CONFIRMED
- --------------------------------------------------------------------------------
OTHER OFFICER
IF THE SECRETARY OR OTHER RECORDING OFFICER IS AUTHORIZED TO ACT BY THE ABOVE
RESOLUTIONS, THIS CERTIFICATE MUST ALSO BE SIGNED BY ANOTHER OFFICER.
6
<PAGE>
BOSTON 1784 MONEY MARKET FUNDS
INVESTMENT CHOICES TO MEET A RANGE OF GOALS.
- --------------------------------------------------------------------------------
IN ADDITION TO MONEY MARKET FUNDS, BOSTON 1784 FUNDS FAMILY INCLUDES STOCK, BOND
AND TAX-EXEMPT FUNDS TO MEET A WIDE RANGE OF INVESTMENT GOALS. YOU MAY SELECT
INDIVIDUAL FUNDS TO TARGET VERY SPECIFIC INVESTMENT OBJECTIVES OR COMBINE BOSTON
1784 FUNDS TO CREATE AN ENTIRE PORTFOLIO STRUCTURED IN THE MOST EFFECTIVE WAY TO
MEET YOUR LONG-TERM GOALS.
MONEY MARKET FUNDS
BOSTON 1784 TAX-FREE MONEY MARKET FUND
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY
MARKET FUND
BOSTON 1784 PRIME MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
BOND FUNDS
BOSTON 1784 SHORT-TERM INCOME FUND
BOSTON 1784 INCOME FUND
BOSTON 1784 U.S. GOVERNMENT MEDIUM-
TERM INCOME FUND
TAX-EXEMPT INCOME FUNDS
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
STOCK FUNDS
BOSTON 1784 ASSET ALLOCATION FUND
BOSTON 1784 GROWTH AND INCOME FUND
BOSTON 1784 GROWTH FUND
BOSTON 1784 SMALL CAP EQUITY FUND
BOSTON 1784 LARGE CAP EQUITY FUND
BOSTON 1784 INTERNATIONAL EQUITY FUND
FOR MORE COMPLETE INFORMATION ON ALL BOSTON 1784 FUNDS, INCLUDING CHARGES AND
EXPENSES, PLEASE CALL 1-800-BKB-1784 FOR A FREE PROSPECTUS. THIS INFORMATION
MUST BE ACCOMPANIED BY A PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE
YOU INVEST OR SEND MONEY.
THE SIMPLE, CONVENIENT
WAY TO INVEST.
[SQUARE BULLET] NO-LOAD INVESTING --
No sales charges, exchange or redemption fees.
[SQUARE BULLET] LOW MINIMUM INVESTMENT --
Initial investment of $1,000 with additional investments as
low as $250.
[SQUARE BULLET] AUTOMATIC INVESTMENT OF AS LITTLE AS $50 --
Arrange to have funds automatically invested from your
bank account.
[SQUARE BULLET] 24-HOUR ACCESS --
Automated account information at 1-800-BKB-1784 24-hours
a day.
[SQUARE BULLET] MONTHLY INVESTMENT STATEMENT --
Receive information on all your Boston 1784 Funds monthly.
In addition, you'll receive written confirmation each time
you buy or sell shares.
NOTE: THE INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND AND THE INSTITUTIONAL
PRIME MONEY MARKET FUND HAVE HIGHER MINIMUMS FOR INITIAL INVESTMENT AND
AUTOMATIC INVESTMENT.
[BOSTON 1784 FUNDS LOGO OMITTED]
NOT PART OF THE PROSPECTUS
7
<PAGE>
[BOSTON 1784 FUNDS LOGO OMITTED]
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Boston 1784 Funds, P.O. Box 8524, Boston, MA 02266-8524
For information, call: 1-800-BKB-1784
PLEASE PRINT CLEARLY ALL ITEMS EXCEPT SIGNATURE
================================================================================
1. SHAREHOLDER REGISTRATION
- --------------------------------------------------------------------------------
OWNER'S FIRST NAME OR BUSINESS NAME MIDDLE INITIAL LAST NAME
- --------------------------------------------------------------------------------
JOINT OWNER'S FIRST NAME MIDDLE INITIAL LAST NAME
- --------------------------------------------------------------------------------
ADDRESS
- --------------------------------------------------------------------------------
CITY STATE ZIP
( ) ( )
- --------------------------------------------------------------------------------
DAYTIME PHONE EVENING PHONE
- --------------------------------------------------------------------------------
OWNER: SOCIAL SECURITY OR TAX PAYER I.D. NUMBER
- --------------------------------------------------------------------------------
JOINT OWNER: SOCIAL SECURITY OR TAX PAYER I.D. NUMBER
- --------------------------------------------------------------------------------
DATE OF BIRTH OCCUPATION
[ ] U.S. Citizen [ ] Other
------------------------------------------
SPECIFY
================================================================================
2. TYPE OF ACCOUNT
COMPLETE ONE SECTION ONLY
[ ] Individual [ ] Joint Owner (cannot be a minor)
[ ] Gift or Transfer to Minor:
- --------------------------------------------------------------------------------
CUSTODIAN'S NAME (ONLY ONE PERMITTED)
- --------------------------------------------------------------------------------
MINOR'S NAME (ONLY ONE PERMITTED)
- --------------------------------------------------------------------------------
MINOR'S SOCIAL SECURITY NUMBER MINOR'S DATE OF BIRTH
[ ] A Trust (including Corporate Pension Plans):
as trustee(s) for
- ---------------------------------------------------------------
NAME OF TRUSTEE(S)
- --------------------------------------------------------------------------------
NAME OF TRUST TRUST ACCOUNT NUMBER
under agreement dated
-----------------------------------------------------------
DATE OF TRUST AGREEMENT
[ ] A Corporation, Partnership or other entity:
- --------------------------------------------------------------------------------
NAME OF CORPORATION OR OTHER ENTITY (PLEASE BE SURE TO COMPLETE CORPORATE
RESOLUTION FORM AT THE BACK OF THIS PROSPECTUS)
================================================================================
3. BOSTON 1784 FUNDS INVESTMENT SELECTION
CHECK THE FUND(S) AND INDICATE THE AMOUNT OF INVESTMENT FOR EACH FUND.
ENCLOSE ONE CHECK FOR THE TOTAL AMOUNT OF YOUR INVESTMENT.
MINIMUM INITIAL INVESTMENT: $1,000 PER FUND ($100,000 FOR BOSTON 1784
INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND AND BOSTON 1784 INSTITUTIONAL
PRIME MONEY MARKET FUND).
[ ] $ Tax-Free Money Market (901)
-----------
[ ] $ U.S. Treasury Money Market (902)
-----------
[ ] $ Institutional U.S. Treasury Money Market (903)
-----------
[ ] $ Prime Money Market (932)
-----------
[ ] $ Institutional Prime Money Market (900)
-----------
METHOD OF PAYMENT:
[ ] Enclosed is my check for the total amount of my investment made payable to
Boston 1784 Funds.
[ ] Debit my checking or savings account. (Please be sure to
attach a voided check or savings withdrawal slip and complete Section 6.)
================================================================================
4. DIVIDEND INCOME AND CAPITAL GAINS
All dividend income and capital gains, if any, will be reinvested automatically
unless you check one of the boxes below.
METHOD OF PAYMENT: If dividend income or capital gains are to be distributed in
cash, select one of the following:
[ ] Credit my checking account (payment by ACH transfer). Please be sure to
fill in Section 6 and attach a voided check to this form.
[ ] Check
================================================================================
5. AUTHORIZATION OF TELEPHONE TRANSFER
CHECK ONE OR MORE BOXES TO AUTHORIZE TELEPHONE EXCHANGES AND/OR WIRE TRANSFERS,
AND/OR ACH TRANSFERS, AND/OR CHECK REDEMPTION.
I/We authorize the Shareholder Servicing Agent of Boston 1784 Funds to act upon
instructions received by telephone from me/us to perform the following services:
[ ] EXCHANGE BETWEEN FUNDS
[ ] WIRE TRANSFER: I/We understand that a fee is charged each time I/we
request a wire redemption. PLEASE COMPLETE SECTION 6.
[ ] ACH: PLEASE COMPLETE SECTION 6.
[ ] SEND CHECK TO ADDRESS OF RECORD
================================================================================
6. BANK WIRE AND ACH INSTRUCTIONS
If you wish to purchase or redeem shares with payment via wire transfer or ACH,
or make use of the Systematic Investment Plan, YOU MUST ATTACH A VOIDED CHECK OR
SAVINGS WITHDRAWAL SLIP FOR THE BANK ACCOUNT YOU WISH TO USE, AND provide full
bank account information as shown below. Any change in these instructions must
be made in writing to Boston 1784 Funds.
- --------------------------------------------------------------------------------
BANK NAME BRANCH OFFICE (IF APPLICABLE)
- --------------------------------------------------------------------------------
BANK ADDRESS (DO NOT USE P.O. BOX)
- --------------------------------------------------------------------------------
CITY STATE ZIP
- --------------------------------------------------------------------------------
NAME(S) ON BANK ACCOUNT
- --------------------------------------------------------------------------------
BANK ACCOUNT NUMBER BANK ABA NO.
Account Type (CHECK ONE): [ ] Checking [ ] Savings/Money Market
================================================================================
7. CHECKWRITING PRIVILEGE (OPTIONAL)
AVAILABLE ON CERTAIN FUNDS ONLY
If you elect this service, be sure to fill out and sign the enclosed signature
card and return it in the envelope provided. Allow 14 business days for the
delivery of your checkbook after our receipt of the signed signature card.
Checks may be written against your investment for a minimum of $250 each check.
These checks are not immediately redeemable at your branch.
CHECK THE FUND(S) YOU WANT FOR THIS SERVICE.
[ ] Tax-Free Money Market (901)
[ ] U.S. Treasury Money Market (902)
[ ] Prime Money Market (932)
================================================================================
8. SYSTEMATIC INVESTMENT PLAN (OPTIONAL)
IF YOU CHOOSE THIS OPTION, YOU MUST ATTACH A VOIDED CHECK AND PROVIDE FULL BANK
INFORMATION IN SECTION 6
[ ] Check box if you want this service.
I/We authorize the Shareholder Servicing Agent of Boston 1784 Funds to draw on
my/our bank account on a periodic basis, as indicated below, for investment in
my/our Boston 1784 Funds account. I/We understand that if there are insufficient
funds in my/our account service, charges may apply.
[ ] I/We have attached a voided check and have provided bank information in
Section 6.
[ ] Periodic investment amount $
----------------------------------------------
$50 MINIMUM/MONTH
Name of Boston 1784 Fund
--------------------------------------------------------
PREFERRED INVESTMENT SCHEDULE:
[ ] Twice monthly (PLEASE CHOOSE TWO DAYS PER MONTH ON WHICH YOU WOULD LIKE
INVESTMENTS MADE) beginning:
-----------------------------------------------
MONTH 1ST DATE 2ND DATE
[ ] Monthly, beginning:
-------------------------------------------------------
MONTH DATE
PLEASE COMPLETE OTHER SIDE
ATTACH A VOIDED CHECK OR SAVINGS WITHDRAWAL SLIP HERE
<PAGE>
================================================================================
9. SHAREHOLDER AGREEMENT
In this Agreement, "I," "my," "you" and "your" means each customer individually
and/or any two or more customers signing this Agreement.
[SQUARE BULLET] I have full right, power, authority and legal capacity to
purchase shares of the Fund(s) and such purchases are not
illegal in my state of residence. I affirm that I have received
and read the current prospectus(es) of the Fund(s) selected on
the first page and agree to its terms. I understand the
investment objectives and program, and have determined that the
Fund(s) is/are a suitable investment, based upon my investment
needs and financial situation. I agree that neither SEI
Investments Distribution Co., Federated Securities Corp.,
Federated Municipal Trust, the Shareholder Servicing Agent,
Boston 1784 Funds, nor any bank or broker-dealer through which
purchases may be made, nor any affiliate of any of the foregoing
or any of their agents, officers, directors, or employees
("Other Parties") will be liable for any loss, expense, or cost
from my investment decision, nor from acting upon my
instructions or inquiries believed to be genuine, including
instructions received by telephone, if the procedures
described in the prospectus(es) concerning verification are
followed.
[SQUARE BULLET] I understand that the authorization(s) with respect to telephone
transactions, wire redemption and ACH are subject to the
conditions and limitations set forth in the current
prospectus(es). I ratify any instructions given pursuant to the
above authorization(s) and agree that no Other Party will be
liable for any loss, expense, or cost from my investment
decision, nor from acting upon my instructions or inquiries
believed genuine, including instructions received by telephone
if the procedures described in the prospectus(es) concerning
verification are followed. I authorize you to honor all debit
and credit entries initiated by me. All my debits are subject to
sufficient collected funds in the account noted above. I further
agree that if any such entries are dishonored with good and
sufficient cause, no Other Party shall be under any liability
whatsoever.
[SQUARE BULLET] I understand and acknowledge that Boston 1784 Funds shares are
not insured by the FDIC or any other government agency; are not
deposits or other obligations of, or guaranteed by any bank; and
involve investment risks, including possible loss of the
principal amount invested. I understand that Boston 1784 Funds
are distributed by SEI Investments Distribution Co. and that
Massachusetts Municipal Cash Trust, a portfolio of Federated
Municipal Trust, is distributed by Federated Securities Corp.
[SQUARE BULLET] I understand and agree that any telephone conversation with
Boston 1784 Funds, the Shareholder Servicing Agent, or any bank
or broker-dealer or any of their affiliates may be recorded for
accuracy.
[SQUARE BULLET] This Agreement shall be governed by the laws of the Commonwealth
of Massachusetts. Unless otherwise specified, Uniform Gifts or
Transfers to Minors Act accounts will be governed by the Act of
the custodian's state when the account is opened.
================================================================================
10. SIGNATURE & CERTIFICATION
Under the penalties of perjury, I certify the following:
[SQUARE BULLET] The number shown on this form is my/our correct Social
Security/Taxpayer ID Number.
[SQUARE BULLET] I am not subject to back-up withholding either because I have
not been notified that I am subject to back-up withholding as a
result of a failure to report all interest and dividends, or the
Internal Revenue Service has notified me that I am no longer
subject to back-up withholding, or I am exempt from back-up
withholding.
[SQUARE BULLET] I hereby authorize the Shareholder Servicing Agent to deposit or
withdraw funds, described above, to my account at the financial
institution named in Section 6 and to adjust any over-deposit or
under-withdrawal which is caused to be made to my account. I
will not hold the financial institution named above liable for
any erroneous deposits, withdrawals, or adjustments made by
the Shareholder Servicing Agent.
X
- --------------------------------------------------------------------------------
SIGNATURE (INDIVIDUAL OR CUSTODIAN) DATE
X
- --------------------------------------------------------------------------------
SIGNATURE (JOINT REGISTRANT, IF ANY) DATE
X
- --------------------------------------------------------------------------------
SIGNATURE & TITLE DATE
(CORPORATE OFFICER, PARTNER, TRUSTEE, ETC.)
[ ] Check box if you have received IRS notification that you are subject to
back-up withholding.
================================================================================
11. FOR NON-RESIDENT ALIENS ONLY
Certificate of Foreign Status (Substitute W-8 Form)
(Non-Resident Alien)
[SQUARE BULLET] Under penalties of perjury, I certify that, to the best of my
knowledge and belief, I qualify as a foreign person because I am
not a U.S. citizen or resident.
X
- --------------------------------------------------------------------------------
SIGNATURE OF APPLICANT DATE
- --------------------------------------------------------------------------------
PERMANENT ADDRESS
- --------------------------------------------------------------------------------
COUNTRY OF CITIZENSHIP
Certificate of Foreign Status (Substitute W-8 Form)
(Non-Resident Alien Co-Applicant)
[SQUARE BULLET] Under penalties of perjury, I certify that, to the best of my
knowledge and belief, I qualify as a foreign person because I am
not a U.S. citizen or resident.
X
- --------------------------------------------------------------------------------
SIGNATURE OF CO-APPLICANT DATE
- --------------------------------------------------------------------------------
PERMANENT ADDRESS
- --------------------------------------------------------------------------------
COUNTRY OF CITIZENSHIP
THANK YOU FOR YOUR INVESTMENT. YOU WILL RECEIVE WRITTEN CONFIRMATION SHORTLY.
FOR INTERNAL USE ONLY:
- --------------------------------------------------------------------------------
ACCOUNT NUMBER FOR LINKAGE TO STATEMENT:
----------------------------------------
CHECKING/SAVINGS ACCOUNT #
BANK CODE: 001 (MA and NH), 426 (RI), 401 (CT):
FCB-40-001 (MA and NH), 40-426 (RI), 40-401 (CT)--------------------------------
YOUR BRANCH'S 4-DIGIT RC:
-------------------------------------------------------
YOUR NAME AND RETAIL STAR I.D. NUMBER:
------------------------------------------
NAME OF REPRESENTATIVE RETAIL STAR I.D. #
<PAGE>
[BOSTON 1784 FUNDS LOGO OMITTED]
CHECKWRITING SIGNATURE CARD
- --------------------------------------------------------------------------------
(SUBJECT TO CONDITIONS ON REVERSE SIDE)
To make use of checkwriting privileges on an account, all registered
shareholders or fiduciaries must sign this card.*
PLEASE INDICATE NAME OF BOSTON 1784 FUND:
[ ] Tax-Free Money Market (901)
[ ] U.S. Treasury Money Market (902)
[ ] Prime Money Market (932)
*MINORS AND POWERS OF ATTORNEY WILL NOT BE ACCEPTED.
- ------------------------------------
For internal use only:
- ---------------------------------
Account Number
- ------------------------------------
- --------------------------------------------------------------------------------
NAME (PLEASE PRINT CLEARLY) SOCIAL SECURITY/TAXPAYER I.D. NO.
X
- --------------------------------------------------------------------------------
SIGNATURE*
- --------------------------------------------------------------------------------
NAME (PLEASE PRINT CLEARLY) SOCIAL SECURITY/TAXPAYER I.D. NO.
X
- --------------------------------------------------------------------------------
SIGNATURE*
- --------------------------------------------------------------------------------
NAME (PLEASE PRINT CLEARLY) SOCIAL SECURITY/TAXPAYER I.D. NO.
X
- --------------------------------------------------------------------------------
SIGNATURE*
<PAGE>
CHECKWRITING SIGNATURE CARD
(NOT AVAILABLE FOR RETIREMENT ACCOUNTS)
Please provide information requested on the reverse side. The payments of funds
on the conditions set forth below is authorized by the signature(s) appearing on
the reverse side. Allow 14 business days for delivery of your checkbook, which
includes 15 checks, 5 investment purchase forms and a reorder form, after our
receipt of the signed signature card. Checks may be written against your Boston
1784 Prime Money Market Fund, Boston 1784 U.S. Treasury Money Market Fund or
Boston 1784 Tax-Free Money Market Fund investments for a minimum of $250 each
check. These checks are not immediately redeemable at your branch.
CERTIFICATION: I hereby authorize Boston 1784 Funds to honor checks drawn by me
on my Boston 1784 Funds account and to effect a redemption of sufficient shares
in my account to cover payments of such checks. I understand that: (1) this
privilege may be terminated at any time by the Fund and it shall not incur any
liability to me for honoring such checks, or for effecting redemptions to pay
such checks, or for returning checks which have not been paid; (2) no check
shall be issued or honored, or redemption effected for any amounts represented
by shares unless payment for such shares has been made in full and any checks
given in such payment have been collected through normal banking channels; (3)
only one signature is required for a joint account; and (4) this privilege is
subject to all terms and conditions contained in the current Boston 1784 Funds
prospectus(es).
<PAGE>
Rule 497(c)
File Nos. 33-58004
and 811-7474
Statement of
Additional Information
October 1, 1997, as supplemented
November 5, 1997 and December 2, 1997
Boston 1784 Funds(REGISTERED MARK)
MONEY MARKET FUNDS:
Boston 1784 Tax-Free Money Market Fund
Boston 1784 U.S. Treasury Money Market Fund
Boston 1784 Institutional U.S. Treasury Money Market Fund
Boston 1784 Prime Money Market Fund
Boston 1784 Institutional Prime Money Market Fund
BOND FUNDS:
Boston 1784 Short-Term Income Fund
Boston 1784 Income Fund
Boston 1784 U.S. Government Medium-Term Income Fund
TAX-EXEMPT FUNDS:
Boston 1784 Tax-Exempt Medium-Term Income Fund
Boston 1784 Connecticut Tax-Exempt Income Fund
Boston 1784 Florida Tax-Exempt Income Fund
Boston 1784 Massachusetts Tax-Exempt Income Fund
Boston 1784 Rhode Island Tax-Exempt Income Fund
STOCK FUNDS:
Boston 1784 Asset Allocation Fund
Boston 1784 Growth and Income Fund
Boston 1784 Growth Fund
Boston 1784 Small Cap Equity Fund
Boston 1784 Large Cap Equity Fund
Boston 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 October 1,
1997, November 5, 1997 and December 2, 1997. You may obtain a Prospectus without
charge by calling 1-800-BKB-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.
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CONTENTS
PAGE
1. The Trust 3
2. Investment Objectives and Policies 4
3. Permitted Investments and Investment Practices 5
4. Investment Restrictions 20
5. Management 23
6. Fund Transactions; Trading Practices and Brokerage 31
7. Performance Information 34
8. Determination of Net Asset Value 41
9. Purchase and Redemption of Shares 43
10. Systematic Withdrawal Plan 43
11. Taxes 44
12. Servicemarks 48
13. Description of Shares 48
14. Trustee and Shareholder Liability 49
15. Financial Information 49
APPENDIX A -- CERTAIN INFORMATION CONCERNING CONNECTICUT, FLORIDA, MASSACHUSETTS
AND RHODE ISLAND
APPENDIX B -- DESCRIPTION OF SECURITIES RATINGS
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1. THE TRUST
BOSTON 1784 FUNDS(REGISTERED MARK) (the "Trust") is an open-end
management investment company established under Massachusetts law as a
Massachusetts business trust on February 5, 1993. Prior to May 27, 1997, Boston
1784 Funds was known as 1784 Funds. On that date the Trust and each Fund added
"Boston" to their names. Boston 1784 Funds currently has nineteen active series.
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:
Boston 1784 Tax-Free Money Market Fund
Boston 1784 U.S. Treasury Money Market Fund
Boston 1784 Institutional U.S. Treasury Money Market Fund
Boston 1784 Prime Money Market Fund
Boston 1784 Institutional Prime Money Market Fund
BOND FUNDS:
Boston 1784 Short-Term Income Fund
Boston 1784 Income Fund
Boston 1784 U.S. Government Medium-Term Income Fund
TAX-EXEMPT FUNDS:
Boston 1784 Tax-Exempt Medium-Term Income Fund
Boston 1784 Connecticut Tax-Exempt Income Fund
Boston 1784 Florida Tax-Exempt Income Fund
Boston 1784 Massachusetts Tax-Exempt Income Fund
Boston 1784 Rhode Island Tax-Exempt Income Fund
STOCK FUNDS:
Boston 1784 Asset Allocation Fund
Boston 1784 Growth and Income Fund
Boston 1784 Growth Fund
Boston 1784 Small Cap Equity Fund
Boston 1784 Large Cap Equity Fund
Boston 1784 International Equity Fund
BankBoston, N.A. ("BankBoston") is the investment adviser of each
Fund. Kleinwort Benson Investment Management Americas, Inc. is the investment
adviser of the International Equity Fund with BankBoston (BankBoston and
Kleinwort Benson are each referred to as an "Adviser"). SEI Investments
Distribution Co. is the distributor of shares of each Fund.
References in this Statement of Additional Information to the
Prospectuses are to the Funds' Prospectuses dated October 1, 1997, November 5,
1997 and December 2, 1997.
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As required by law, each of the Trust, BankBoston 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.
2. INVESTMENT OBJECTIVES AND POLICIES
The investment objective of BOSTON 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 BOSTON 1784 U.S. TREASURY MONEY MARKET
FUND, BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND, BOSTON 1784
PRIME MONEY MARKET FUND AND BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND is
to preserve principal value and maintain a high degree of liquidity while
providing current income.
The investment objective of BOSTON 1784 SHORT-TERM INCOME FUND and
BOSTON 1784 INCOME FUND is to maximize current income. Preservation of capital
is a secondary objective for each of these Funds.
The investment objective of BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM
INCOME FUND is current income consistent with preservation of capital.
The investment objective of BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME
FUND is current income, exempt from federal income tax, consistent with
preservation of capital.
The investment objective of BOSTON 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 BOSTON 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 BOSTON 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 BOSTON 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 BOSTON 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.
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The investment objective of BOSTON 1784 GROWTH AND INCOME FUND is
long-term growth of capital with a secondary objective of income.
The investment objective of BOSTON 1784 GROWTH FUND and BOSTON 1784
SMALL CAP EQUITY FUND is capital appreciation. Dividend income, if any, is
incidental to this objective for each of these Funds.
The investment objective of BOSTON 1784 LARGE CAP EQUITY FUND is income
and capital appreciation.
The investment objective of BOSTON 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.
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 Connecticut, Florida,
Massachusetts and Rhode Island. Each of the Connecticut, Florida, Massachusetts
and Rhode Island 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 Boston 1784 Institutional U.S. Treasury Money
Market Fund and Boston 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
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interest pursuant to direct arrangements between the Trust, as lender, on behalf
of a Fund and the borrower. Such notes provide that the interest rate on the
amount outstanding varies on a daily, weekly or monthly basis depending upon a
stated short-term interest rate index. Both the lender and the borrower have the
right to reduce the amount of outstanding indebtedness at any time. There is no
secondary market for the notes. It is not generally contemplated that such
instruments will be traded.
GNMA SECURITIES
Each Fund may invest in securities issued by the Government National
Mortgage Association ("GNMA"), a wholly-owned U.S. Government corporation which
guarantees the timely payment of principal and interest. The market value and
interest yield of these instruments can vary due to market interest rate
fluctuations and early prepayments of underlying mortgages. These securities
represent ownership in a pool of federally insured mortgage loans. GNMA
certificates consist of underlying mortgages with a maximum maturity of 30
years. However, due to scheduled and unscheduled principal payments, GNMA
certificates have a shorter average maturity and, therefore, less principal
volatility than a comparable 30-year bond. Since prepayment rates vary widely,
it is not possible to predict accurately the average maturity of a particular
GNMA pool. The scheduled monthly interest and principal payments relating to
mortgages in the pool will be "passed through" to investors. GNMA securities
differ from conventional bonds in that principal is paid back to the certificate
holders over the life of the loan rather than at maturity. As a result, there
will be monthly scheduled payments of principal and interest. In addition, there
may be unscheduled principal payments representing prepayments on the underlying
mortgages. Although GNMA certificates may offer yields higher than those
available from other types of U.S. Government securities, GNMA certificates may
be less effective than other types of securities as a means of "locking in"
attractive long-term rates because of the prepayment feature. For instance, when
interest rates decline, the value of a GNMA certificate likely will not rise as
much as comparable debt securities due to the prepayment feature. In addition,
these prepayments can cause the price of a GNMA certificate originally purchased
at a premium to decline in price to its par value, which may result in a loss.
MORTGAGE-BACKED SECURITIES
Each of the 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 Rating Services ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Fitch Investors Service, LLP ("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
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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 Boston 1784 Institutional U.S. Treasury Money Market Fund and Boston 1784
U.S. Treasury Money Market Fund) may invest in asset-backed securities including
company receivables, truck and auto loans, leases, and credit card receivables.
These issues may be traded over-the-counter and typically have a short to
intermediate maturity structure depending on the paydown characteristics of the
underlying financial assets which are passed through to the security holder.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
Boston 1784 Short-Term Income Fund and Boston 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,
BankBoston, 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.
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REPURCHASE AGREEMENTS
Each of the Funds may invest in repurchase agreements collateralized by
securities in which that Fund may otherwise invest. Repurchase agreements are
agreements by which a Fund obtains a security and simultaneously commits to
return the security to the seller (a primary securities dealer recognized by the
Federal Reserve Bank of New York or a national member bank as defined in Section
3(d)(1) of the Federal Deposit Insurance Act, as amended) at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days (usually not more than seven) from the date of purchase. The resale
price reflects the purchase price plus an agreed upon market rate of interest
which is unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security.
Repurchase agreements are considered to be loans by a Fund for purposes
of its investment limitations. The repurchase agreements entered into by the
Funds will provide that the underlying security at all times shall have a value
at least equal to 100% of the resale price stated in the agreement; the Adviser
or Advisers to each Fund will monitor compliance with this requirement. Under
all repurchase agreements entered into by any Fund, the Custodian or its agent
must take possession of the underlying collateral. However, if the seller under
a repurchase agreement defaults, the Fund investing in that repurchase agreement
could realize a loss on the sale of the underlying security to the extent that
the proceeds of the sale (including accrued interest) are less than the resale
price provided in the repurchase agreement (including interest). In addition,
even though the Bankruptcy Code provides protection for most repurchase
agreements, if the seller should be involved in bankruptcy or insolvency
proceedings, a Fund may face delays and incur costs in selling the underlying
security or may suffer a loss of principal and interest.
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 Boston 1784 U.S.
Treasury Money Market Fund, Boston 1784 Institutional U.S. Treasury Money Market
Fund and Boston 1784 Institutional Prime 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
Boston 1784 Prime Money Market Fund, Boston 1784 Institutional Prime
Money Market Fund, Boston 1784 Short-Term Income Fund, Boston 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
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revenues from a specific source), bond anticipation notes, certificates of
indebtedness, demand notes and construction loan notes. A Fund's investment in
any of the notes described above will be limited to those obligations which are
rated (i) MIG-2 or VMIG-2 or better at the time of investment by Moody's, (ii)
SP-2 or better at the time of investment by S&P, or (iii) F-2 or better at the
time of investment by Fitch, or which, if not rated by Moody's, S&P or Fitch,
are of at least comparable quality, as determined by the Adviser to the Fund.
Municipal bonds, in which these same Funds may invest, must be rated BBB or
better by S&P or Fitch or Baa or better by Moody's at the time of investment or,
if not rated by Moody's, S&P or Fitch, must be determined by the Adviser to the
Funds to have essentially the same characteristics and quality as bonds having
the above ratings. Bonds rated BBB by S&P or Fitch or Baa by Moody's may have
speculative characteristics. The Adviser to these Funds may purchase industrial
development and pollution control bonds for these Funds if the interest paid
thereon is exempt from federal income tax. These bonds are issued by or on
behalf of public authorities to raise money to finance various
privately-operated facilities for business and manufacturing, housing, sports,
and pollution control. These bonds may also be used to finance public facilities
such as airports, mass transit systems, ports, and parking. The payment of the
principal and interest on such bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property so financed as security for such payment.
Municipal securities also include participations in municipal leases.
These are undivided interests in a portion of an obligation in the form of a
lease or installment purchase issued by a state or local government to acquire
equipment or facilities. Municipal leases frequently have special risks not
normally associated with general obligation bonds or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Although the
obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In light of these concerns, the Trust has
adopted and follows procedures for determining whether municipal lease
securities purchased by a Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures require
that a number of factors be used in evaluating the liquidity of a municipal
lease security, including the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers, the willingness of dealers to undertake to make a
market in the security, the nature of the marketplace in which the security
trades, the credit quality of the security, and other factors which the Adviser
to the Fund may deem relevant.
TAX-EXEMPT COMMERCIAL PAPER in which a Tax-Exempt Fund, Boston 1784
Prime Money Market Fund and Boston 1784 Institutional Prime Money Market 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.
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Each of the Tax-Exempt Funds, Boston 1784 Prime Money Market Fund and
Boston 1784 Institutional Prime Money Market Fund may invest in FLOATING RATE
NOTES. Investments in such floating rate instruments will normally involve
industrial development or revenue (now known as "private activity") bonds which
provide that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate) at a major commercial bank, and
that a Fund can demand payment of the obligation at all times or at stipulated
dates on short notice (not to exceed 30 days) at par plus accrued interest. For
purposes of determining the maturity of these obligations, the Fund may use the
longer of (a) the period required before the Fund is entitled to prepayment
under such obligations or (b) the period remaining until the next interest rate
adjustment date. Such obligations are frequently secured by letters of credit or
other credit support arrangements provided by banks. The quality of the
underlying credit or of the bank, as the case may be, must in the Fund Adviser's
opinion be equivalent to the long-term bond or commercial paper ratings on
securities in which the Fund may invest. The Adviser to the Fund will monitor
the earning power, cash flow and liquidity ratios of the issuers of floating
rate instruments and the ability of an issuer of a demand instrument to pay
principal and interest on demand. The Adviser to the Fund may also purchase
other types of tax-exempt instruments for these Funds as long as they are of a
quality equivalent to the bonds or commercial paper in which these Funds may
invest.
STANDBY COMMITMENTS
Funds investing in municipal securities may acquire such securities
subject to a "standby commitment." The Adviser or, if applicable, each of the
Advisers, to these Funds has the authority to purchase for these Funds
securities at a price which would result in a yield to maturity lower than that
generally offered by the seller at the time of purchase when they can
simultaneously acquire the right to sell the securities back to the seller, the
issuer, or a third party (the "writer") at an agreed-upon price at any time
during a stated period or on a certain date. Such a right is generally denoted
as a "standby commitment" or a "put." The purpose of engaging in transactions
involving puts is to maintain flexibility and liquidity to permit the Fund to
meet redemptions and remain as fully invested as possible in municipal
securities. The Funds reserve their right to engage in put transactions. The
right to put the securities depends on the writer's ability to pay for the
securities at the time the put is exercised. Each Fund would limit its put
transactions to institutions which the Adviser or, if applicable, each Adviser,
to such Fund believes present minimum credit risks. Each Adviser would use its
best efforts initially to determine and to continue to monitor the financial
strength of the sellers of the options by evaluating their financial statements
and such other information as is available in the marketplace. It may, however,
be difficult to monitor the financial strength of the writers because adequate
current financial information may not be available. In the event that any writer
is unable to honor a put for financial reasons, the Fund would be a general
creditor (i.e., on a parity with all other unsecured creditors) of the writer.
Furthermore, particular provisions of the contract between the Fund and the
writer may excuse the writer from repurchasing the securities; for example, a
change in the published rating of the underlying municipal securities or any
similar event that has an adverse effect on the issuer's credit or a provision
in the contract that the put will not be exercised except in certain special
cases, for example, to maintain fund liquidity. The Fund could, however, at any
time sell the underlying security in the open market or wait until the security
matures, at which time it should realize the full par value of the security.
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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, Boston 1784 Short-Term Income Fund and Boston
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
Boston 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.
Each of the Stock Funds, Tax-Exempt Funds, Boston 1784 Short-Term
Income Fund, Boston 1784 Income Fund and Boston 1784 U.S. Government Medium-Term
Income Fund may write covered call options from time to time on its assets as
determined by the Adviser or Advisers to such Fund to be appropriate in seeking
to achieve such Fund's investment objective, provided that the aggregate value
of such options may not exceed 10% of such Fund's net assets as of the time such
Fund enters into such options.
The purchaser of a call option has the right to buy, and the writer (in
this case a Fund) of a call option has the obligation to sell, an underlying
security at a specified exercise price during a specified option period. The
advantage to a Fund of writing covered calls is that the Fund receives a premium
for writing the call, which is additional income. However, if the security rises
in value and the call is exercised, the Fund may not participate fully in the
market appreciation of the security.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time at 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
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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 of the Stock Funds, Tax-Exempt Funds, Boston 1784 Short-Term
Income Fund, Boston 1784 Income Fund and Boston 1784 U.S. Government Medium-Term
Income 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 or a call option
plus any transaction costs will reduce the benefit, if any, realized by the Fund
upon exercise of the option, and, unless the price of the underlying security
rises or declines sufficiently, the option may expire worthless to the Fund. In
addition, in the event that the price of the security in connection with which
an option was purchased moves in a direction favorable to the Fund, the benefits
realized by the Fund as a result of such favorable movement will be reduced by
the amount of the premium paid for the option and related transaction costs.
<PAGE>
-13-
OPTIONS ON STOCK INDICES
The Stock Funds may engage in transactions involving options on stock
indices. A stock index assigns relative values to the common stocks included in
the index, and the index fluctuates with changes in the market values of the
underlying common stocks. The Funds will not engage in transactions in options
on stock indices for speculative purposes but only to protect appreciation
attained, to offset capital losses and to take advantage of the liquidity
available in the option markets. The aggregate premium paid on all options on
stock indices will not exceed 5% of a Fund's total assets.
Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or make
delivery of the underlying stock at a specified price. A stock index option
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return for the
option premium received, to make delivery of this amount. Gain or loss to a Fund
on transactions in stock index options will depend on price movements in the
stock market generally (or in a particular industry or segment of the market)
rather than price movements of individual securities.
As with stock options, a Fund may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
A stock index fluctuates with changes in the market values of the
stock included in the index. Some stock index options are based on a broad
market index such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index, or a narrower market index such as the Standard & Poor's 100.
Indices are also based on an industry or market segment such as the AMEX Oil and
Gas Index or the Computer and Business Equipment Index. Options on stock indices
are currently traded on the following exchanges, among others: The Chicago Board
Options Exchange, New York Stock Exchange and American Stock Exchange.
A Fund's ability to hedge effectively all or a portion of its
securities through transactions in options on stock indices depends on the
degree to which price movements in the underlying index correlate with price
movements in the securities held by the Fund. Since the Fund will not duplicate
all of the components of an index, the correlation will not be exact.
Consequently, the Fund bears the risk that the prices of the securities being
hedged will not move in the same amount as the hedging instrument. It is also
possible that there may be a negative correlation between the index or other
securities underlying the hedging instrument and the hedged securities which
would result in a loss on both such securities and the hedging instrument.
Positions in stock index options may be closed out only on an
exchange which provides a secondary market. There can be no assurance that a
liquid secondary
<PAGE>
-14-
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% or less 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.
<PAGE>
-15-
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
As provided in the Prospectuses, each of the Funds (other than Boston
1784 Institutional U.S. Treasury Money Market Fund and Boston 1784 U.S. Treasury
Money Market Fund) may invest in certain obligations or securities of foreign
issuers. Boston 1784 International Equity Fund intends to invest a substantial
portion of its assets in securities and obligations of foreign issuers.
Permissible investments include 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
<PAGE>
-16-
comparable U.S. companies. Foreign security trading practices, including those
involving securities settlement where a Fund's assets may be released prior to
receipt of payment, may expose a Fund to increased risk in the event of a failed
trade or the insolvency of a foreign broker-dealer. In addition, foreign
brokerage commissions are generally higher than commissions on securities traded
in the U.S. and may be non-negotiable. In general, there is less overall
governmental supervision and regulation of foreign securities exchanges, brokers
and listed companies than in the U.S.
The current policy of Boston 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, Boston 1784 Income Fund and Boston 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
<PAGE>
-17-
currency on a spot basis from time to time, and investors should be aware of the
costs of currency conversion. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (the
"spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Funds do not currently intend to
speculate in foreign currency exchange rates or forward contracts.
A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract, agreed upon by the parties at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no fees
or commissions are charged at any stage for trades.
When a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the U.S.
dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign
currency involved in the underlying security transaction, a Fund will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received.
When the Adviser or each of the Advisers to a Fund believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract to sell, for
a fixed amount of U.S. dollars, the amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the value of
the securities involved is not generally possible since the future value of such
securities in foreign currencies changes as a consequence of market movements in
the value of those securities between the date the forward contract is entered
into and the date it matures. The projection of a short-term hedging strategy is
highly uncertain. A Fund does not enter into such forward contracts or maintain
a net exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's securities or other assets denominated in the applicable
currency. Under normal circumstances, consideration of the prospect for currency
parities is incorporated in the longer term investment decisions made with
regard to overall diversification strategies. However, each Adviser to such
Funds believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of such Funds will
be served.
A Fund generally does not enter into a forward contract with a term
greater than one year. At the maturity of a forward contract, the Fund either
sells the security and makes delivery of the foreign currency, or it retains the
security and terminates its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency.
If a Fund retains the security and engages in an offsetting
transaction, the Fund incurs a gain or loss (as described below) to the extent
that there has been movement in forward contract prices. If the Fund engages in
an offsetting transaction, it may
<PAGE>
-18-
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between the date the Fund enters
into a forward contract for the sale of the foreign currency and the date it
enters into an offsetting contract for the purchase of foreign currency, the
Fund will realize a gain to the extent the price of the currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
It is impossible to forecast with precision the market value of Fund
securities at the expiration of the contract. Accordingly, it may be necessary
for the Fund to purchase additional foreign currency for the Fund on the spot
market (and cause the Fund to bear the expense of such purchase) if the market
value of the security is less than the amount of foreign currency the Fund is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the security
if its market value exceeds the amount of foreign currency the Fund is obligated
to deliver.
The Funds' dealings in foreign currency contracts are limited to the
transactions described above. Of course, no Fund is required to enter into such
transactions with regard to the Fund's foreign currency-denominated securities
and will not do so unless deemed appropriate by the Adviser or Advisers to such
Fund. It should also be realized that this method of protecting the value of a
Fund's securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they also tend to limit any potential gain
which might result should the value of such currency increase.
WHEN-ISSUED SECURITIES
Each Fund may invest in securities on a when-issued basis, in which
case delivery and payment normally take place beyond conventional settlement
time after the date of commitment to purchase. The Funds will make commitments
to purchase obligations on a when-issued basis only with the intention of
actually acquiring the securities, but may sell them before the settlement date.
The when-issued securities are subject to market fluctuation, and no interest
accrues on the security to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case,
there could be an unrealized loss at the time of delivery.
While awaiting delivery of securities purchased on a when-issued basis,
a Fund will establish a segregated account consisting of cash, short-term money
market instruments or high quality debt securities (for Boston 1784
Institutional U.S. Treasury Money Market Fund and Boston 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.
<PAGE>
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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. Boston 1784 Prime Money Market Fund, Boston 1784
Institutional Prime Money Market Fund, 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 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 Boston 1784 Institutional U.S. Treasury Money
Market Fund and Boston 1784 U.S. Treasury Money Market Fund) are not prohibited
from investing in obligations of banks which are clients of SEI Investments
Company ("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.
<PAGE>
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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 Boston 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 Boston 1784 Prime Money Market
Fund, Boston 1784 Institutional Prime Money Market Fund, Boston 1784
Florida Tax-Exempt Income Fund, Boston 1784 Growth Fund, Boston 1784 Small
Cap Equity Fund, Boston 1784 Large Cap Equity Fund and Boston 1784
International Equity Fund in a diversified, open-end management investment
company having the same investment objective and policies and substantially
the same investment restrictions as those applicable to 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
<PAGE>
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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 Boston 1784
Massachusetts Tax-Exempt Income Fund, Boston 1784 Connecticut Tax-Exempt
Income Fund, Boston 1784 Rhode Island Tax-Exempt Income Fund or Boston 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,
Boston 1784 Tax-Exempt Medium-Term Income Fund, Boston 1784 Tax-Free Money
Market Fund, Boston 1784 Prime Money Market Fund or Boston 1784
Institutional Prime Money Market Fund; and (c) the foregoing limitation
does not apply to an investment of all of the investable assets of Boston
1784 Prime Money Market Fund, Boston 1784 Institutional Prime Money Market
Fund, Boston 1784 Florida Tax-Exempt Income Fund, Boston 1784 Growth Fund,
Boston 1784 Small Cap Equity Fund, Boston 1784 Large Cap Equity Fund, or
Boston 1784 International Equity 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
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 Boston 1784 Asset Allocation Fund, Boston 1784 Growth
and Income Fund, Money Market Funds (other than Boston 1784 Prime Money
Market Fund and Boston 1784 Institutional Prime Money Market Fund),
Boston 1784 U.S. Government Medium-Term Income Fund, Boston 1784
Tax-Exempt Medium-Term Income Fund and Boston 1784 Massachusetts
Tax-Exempt Income Fund, pledge, mortgage or hypothecate assets except
to secure temporary borrowings permitted by (5) above in aggregate
amounts not to exceed 10% of total assets taken at current value at the
time of the incurrence of such loan, except as permitted with respect
to securities lending.
7. 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.
<PAGE>
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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 Boston 1784 Prime Money Market Fund, Boston 1784 Institutional
Prime Money Market Fund, Boston 1784 Florida Tax-Exempt Income Fund,
Boston 1784 Growth Fund, Boston 1784 Small Cap Equity Fund, Boston 1784
Large Cap Equity Fund and Boston 1784 International Equity 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.
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) Boston 1784 Short-Term
Income Fund and Boston 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
<PAGE>
-23-
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 Boston 1784 Prime Money Market Fund, Boston 1784
Institutional Prime Money Market Fund, Boston 1784 Florida Tax-Exempt Income
Fund, Boston 1784 Growth Fund, Boston 1784 Small Cap Equity Fund, Boston 1784
Large Cap Equity Fund or Boston 1784 International Equity 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 Boston 1784 Prime Money Market Fund, Boston 1784
Institutional Prime Money Market Fund, Boston 1784 Florida Tax-Exempt Income
Fund, Boston 1784 Growth Fund, Boston 1784 Small Cap Equity Fund, Boston 1784
Large Cap Equity Fund or Boston 1784 International Equity Fund in a Qualifying
Portfolio.
The foregoing percentages will apply at the time of the purchase of a
security and shall not be considered violated unless an excess occurs or exists
immediately after and as a result of a purchase of such security.
5. 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). Main Board Director, Touche Remnant & Co.
(investment
<PAGE>
-24-
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). The Industrial Bank of
Japan Professor of Finance and Director of Research, Harvard University Graduate
School of Business, since 1993; Thomas Henry Carroll-Ford Visiting Professor of
Business Administration, Harvard University Graduate School of Business,
1991-1993; 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.
SARA L. JOHNSON - Trustee - 30 Eaton Court, Wellesley Hills, Massachusetts (date
of birth November 16, 1951). Chief Regional Economist (since 1995) and principal
(since 1992), Director of Regional Forecasting, Managing Economist for Regional
Information Group's Eastern Regions (1988-1991) and Senior Economist, U.S.
Economic Service (1983-1988), DRI/McGraw Hill; formerly, Trustee of BayFunds.
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 - 1 Freedom
Valley Drive, Oaks, Pennsylvania 19456 (date of birth August 17, 1946). Mr.
Nesher currently performs various services on behalf of SEI for which he is
compensated. 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.
ALVIN J. SILK - Trustee - Graduate School of Business Administration, Harvard
University, Soldiers Field Road, Boston, Massachusetts (date of birth December
31, 1935). Co-Chairman, Marketing Area and Lincoln Filene Professor of Business
Administration, Graduate School of Business Administration, Harvard University
(1988-present); formerly, Trustee of BayFunds; formerly, Erwin H. Schell
Professor of Management, Sloan School of Management, Massachusetts Institute of
Technology; formerly, Director, BayBank Systems, Inc.; Trustee, Marketing
Science Institute; Director, Reed and Barton, Inc.
MARC H. CAHN - Vice President and Assistant Secretary - 1 Freedom Valley
Drive, Oaks, Pennsylvania 19456 (date of birth June 19, 1957). Vice President
and Assistant Secretary of SEI, the Administrator and the Distributor 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 - 1 Freedom Valley
Drive, Oaks, Pennsylvania 19456 (date of birth February 14, 1966). Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1995. Associate,
<PAGE>
-25-
Dewey Ballantine (law firm)(1994-1995). Associate, Winston & Strawn (law firm)
(1991-1994).
ROGER P. JOSEPH - Secretary - 150 Federal Street, Boston, Massachusetts 02110
(date of birth October 3, 1951). Partner, Bingham Dana LLP, counsel to the
Trust, since 1983.
DAVID G. LEE - Senior Vice President & Assistant Secretary - 1 Freedom Valley
Drive, Oaks, Pennsylvania 19456 (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.
STEPHEN G. MEYER - Controller - 1 Freedom Valley Drive, Oaks, Pennsylvania
19456. 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 - 1 Freedom Valley
Drive, Oaks, Pennsylvania 19456 (date of birth June 18, 1956). Vice President
and Secretary of SEI, the Administrator and Distributor 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 - 1 Freedom Valley
Drive, Oaks, Pennsylvania 19456 (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 - 1 Freedom Valley
Drive, Oaks, Pennsylvania 19456 (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.
KATHRYN L. STANTON - Vice President, Assistant Secretary - 1 Freedom Valley
Drive, Oaks, Pennsylvania 19456 (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.
<PAGE>
-25-
The following table sets forth certain information regarding the compensation of
the Trust's Trustees for the fiscal year ended May 31, 1997. The Officers of the
Trust receive no compensation from the Trust for serving in such capacity.
Compensation Table
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement Benefits Estimated Annual from the Trust and
Aggregate Accrued as Part of Benefits Upon the Funds Paid to
Compensation from Fund Expenses Retirement Trustee
Name of Trustee the Trust
<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
Sara L. Johnson 14,500 (1) 0 0 14,500 (1)
Kathryn F. Muncil 29,000 0 0 29,000
Robert A. Nesher 0 0 0 0
Alvin J. Silk 14,500 (1) 0 0 14,500 (1)
</TABLE>
(1) The aggregate and total compensation figures for Sara L. Johnson and Alvin
J. Silk reflect payments made from the Trust for the period from December 1,
1996 to May 31, 1997.
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 November 18, 1997, Back Pay Partners V LP, One Financial Center
44th Floor, Boston, MA 02111 owned of record 66.13% of the outstanding Shares
of Boston 1784 Institutional Prime Money Market Fund.
As of November 18, 1997, Winthrop Financial Assoc., Five Cambridge
Center, 9th Floor, Cambridge, MA 02142 owned 12.87% of the outstanding shares
of Boston 1784 Institutional Prime Money Market Fund.
As of November 18, 1997, Millennium Technologies Inc., 55 Cambridge
Street, Burlington, MA 01803 owned 5.81% of the outstanding shares of Boston
1784 Institutional Prime Money Market Fund.
As of November 18, 1997, 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:
Boston 1784 Tax-Free Money Market Fund -- 5.68%
Boston 1784 U.S. Treasury Money Market Fund -- 16.83%
Boston 1784 Prime Money Market Fund -- 5.33%
Boston 1784 Short-Term Income Fund -- 8.04%
Boston 1784 Massachusetts Tax-Exempt Income Fund -- 13.55%
Boston 1784 Rhode Island Tax-Exempt Income Fund -- 9.17%
Boston 1784 Asset Allocation Fund -- 31.90%
Boston 1784 Growth and Income Fund -- 10.23%
Boston 1784 Connecticut Tax-Exempt Income Fund -- 9.07%
As of November 18, 1997, BankBoston, N.A., 100 Federal Street, Boston,
Massachusetts 02110, and its affiliates, owned of record the following
percentages of the outstanding shares of the following Funds:
Boston 1784 Tax-Free Money Market Fund -- 84.05%
Boston 1784 Prime Money Market Fund -- 44.83%
Boston 1784 Institutional U.S. Treasury Money Market Fund -- 55.98%
Boston 1784 Institutional Prime Money Market Fund -- 9.14%
Boston 1784 Tax-Exempt Medium-Term Income Fund -- 91.02%
<PAGE>
-27-
Boston 1784 Massachusetts Tax-Exempt Income Fund -- 69.98%
Boston 1784 Rhode Island Tax-Exempt Income Fund -- 81.40%
Boston 1784 Connecticut Tax-Exempt Income Fund -- 79.90%
Boston 1784 Florida Tax-Exempt Income Fund -- 96.56%
Boston 1784 U.S. Government Medium-Term Income Fund -- 38.17%
Boston 1784 Short-Term Income Fund -- 73.88%
Boston 1784 Income Fund -- 86.24%
Boston 1784 Asset Allocation Fund -- 31.25%
Boston 1784 Growth and Income Fund -- 73.32%
Boston 1784 Growth Fund -- 77.29%
Boston 1784 International Equity Fund -- 91.74%
THE ADVISERS
The Trust has entered into separate advisory agreements (each, an
"Advisory Agreement") with BankBoston and, for Boston 1784 International Equity
Fund, with Kleinwort Benson Investment Management Americas Inc. ("Kleinwort
Benson"). The Advisory Agreement with BankBoston for the Funds other than Boston
1784 International Equity Fund is dated as of June 1, 1993 and the Advisory
Agreement with BankBoston for Boston 1784 International Equity Fund is dated as
of November 28, 1994. The Advisory Agreement with Kleinwort Benson for Boston
1784 International Equity Fund is dated as of October 27, 1995. BankBoston 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, 1995, 1996 and 1997, the Trust paid the
following fees (after fee waivers) on behalf of the Funds:
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------- ---------------------- ------------------------- ----------------------
BankBoston BankBoston BankBoston
Investment Investment Investment
Fund Advisory Fees 1995 Advisory Fees Advisory Fees 1997
1996
- --------------------------------------------- ---------------------- ------------------------- ----------------------
<S> <C> <C> <C>
Boston 1784 Tax-Free Money Market Fund $ 1,471,000 $1,996,000 $2,663,000
Boston 1784 U.S. Treasury Money Market Fund 69,000 276,000 879,000
Boston 1784 Institutional U.S. Treasury 85,000 651,000 3,052,000
Money Market Fund
Boston 1784 Institutional Prime Money N/A N/A N/A
Market Fund (1)
Boston 1784 Prime Money Market Fund N/A (2) 6,700 (2) 142,000 (3)
Boston 1784 Short-Term Income Fund 86,000 348,000 708,000
Boston 1784 Income Fund 521,000 1,257,000 1,829,000
Boston 1784 U.S. Government Medium-Term 679,000 906,000 1,199,000
Income Fund
Boston 1784 Tax-Exempt Medium-Term Income 602,000 1,116,000 1,387,000
Fund
Boston 1784 Connecticut Tax-Exempt Income 138,000 418,000 573,000
Fund
Boston 1784 Florida Tax-Exempt Income Fund (1) N/A N/A N/A
Boston 1784 Massachusetts Tax-Exempt Fund 363,000 548,000 768,000
Boston 1784 Rhode Island Tax-Exempt Income 77,000 208,000 280,000
Fund
Boston 1784 Asset Allocation Fund 23,000 90,000 177,000
Boston 1784 Growth and Income Fund 1,393,000 1,997,000 2,650,000
Boston 1784 Growth Fund 0 1,050,000
Boston 1784 Small Cap Equity Fund (1) N/A N/A N/A
Boston 1784 Large Cap Equity Fund (1) N/A N/A N/A
Boston 1784 International Equity Fund 0 636,000 2,111,000
- --------------------------------------------- ---------------------- ------------------------- ----------------------
Total $ 5,707,000 $10,453,700 $19,468,000
- --------------------------------------------- ---------------------- ------------------------- ----------------------
</TABLE>
(1) The Boston 1784 Institutional Prime Money Market Fund, Boston 1784 Florida
Tax-Exempt Income Fund, Boston 1784 Small Cap Equity Fund and Boston 1784
Large Cap Equity Fund are newly organized and had no operations during the
periods indicated.
(2) The Prime Money Market Fund is the successor through a reorganization with
the BayFunds Money Market Portfolio. The BayFunds Money Market Portfolio
was a portfolio of BayFunds, an open-end investment company registered
under the 1940 Act and reorganized with the Prime Money Market Fund on
December 9, 1996. Prior to the reorganization, BayBank, N.A. was the
investment adviser of the BayFunds Money Market Portfolio. For its fiscal
years ended December 31, 1994, 1995 and 1996, respectively, the Fund paid
investment advisory fees of $732,016, $869,240 and $837,000 (of which
$6,700 was paid to BankBoston following the reorganization with the
BayFunds Money Market Portfolio).
(3) The Prime Money Market Fund changed its fiscal year from December 31 to May
31. The investment advisory fee of $142,000 reflects payments made by the
Fund for the period from January 1, 1997 to May 31, 1997.
The foregoing table does not reflect contributions to the Funds made by
BankBoston in order to assist the Funds in maintaining competitive expense
ratios.
<PAGE>
-29-
For the fiscal year ended May 31, 1995, the Trust paid $199,000 to
Kleinwort Benson under the Advisory Agreement to which Kleinwort Benson is a
party, with respect to Boston 1784 International Equity Fund. For the fiscal
years ended May 31, 1996 and 1997, respectively, the Trust paid $1,222,419 and
$2,111,000 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 continues until November 22, 1998 and indefinitely
thereafter unless terminated.
For the fiscal year ended May 31, 1995, the Trust paid $1,090,000 to
the Administrator under the Administration Agreement. For the fiscal years ended
May 31, 1996 and 1997, respectively, the Trust paid $2,440,000 and $3,912,000 to
the Administrator under the existing Administration Agreement.
SEI Fund Resources is a Delaware business trust whose sole beneficiary
is SEI Investments Management Corporation (formerly known as SEI Financial
Management Corporation). SEI Investments Management Corporation, a wholly owned
subsidiary of SEI Investments Company ("SEI"), was organized as a Delaware
corporation in 1969 and has its principal business offices at 1 Freedom Valley
Drive, Oaks, Pennsylvania 19456. 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
<PAGE>
-30-
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, 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, Marquis Funds(R),
Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The Achievement Funds
Trust, Bishop Street Funds, CrestFunds, Inc., STI Classic Variable Trust,
Monitor Funds, FMB Funds, Inc., TIP Funds, ARK Funds, SEI Asset Allocation
Trust, SEI Institutional Investments Trust, Profit Funds Investment Trust, Santa
Barbara Group of Mutual Funds, Inc., First American Strategy Funds, Inc.,
HighMark Funds, and Expedition Funds.
THE DISTRIBUTOR
SEI Investments Distribution Co. (formerly known as 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 Boston 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 Boston 1784
Tax-Free Money Market Fund, Boston 1784 Prime Money Market Fund, Boston 1784
Institutional Prime Money Market Fund or Boston 1784 Institutional U.S. Treasury
Money Market Fund, or for the distribution of Class A Shares of Boston 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 Boston 1784 U.S. Treasury Money Market Fund; and (iii)
0.75% of the average daily net assets of the Class D shares of Boston 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.
<PAGE>
-31-
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 in March, 1997. 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.
6. FUND TRANSACTIONS; TRADING PRACTICES AND BROKERAGE
FUND TRANSACTIONS
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 BankBoston, and who is appointed
and supervised by the senior officers of BankBoston, or in the case of Boston
1784 International Equity Fund, by portfolio managers who are employees of
BankBoston or of Kleinwort Benson, and who are appointed and supervised by the
senior officers of BankBoston 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
<PAGE>
-32-
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
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.
BankBoston may place a combined order for two or more Funds (or for a
Fund and another account under BankBoston's management) engaged in the purchase
or sale of the same security if, in BankBoston'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 BankBoston 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
<PAGE>
-33-
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
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.
For the fiscal years ended May 31, 1995, 1996 and 1997, the Trust paid
the following aggregate amount of brokerage commissions on behalf of the Funds:
<TABLE>
<CAPTION>
- --------------------------------------------- -------------------- ------------------ --------------------
Brokerage Brokerage Brokerage
Fund Commissions 1995 Commissions 1996 Commissions 1997
- --------------------------------------------- -------------------- ------------------ --------------------
- --------------------------------------------- -------------------- ------------------ --------------------
<S> <C> <C> <C>
Boston 1784 Asset Allocation Fund $ 8,530.40 $ 12,818.55 $ 17,370.50
- --------------------------------------------- -------------------- ------------------ --------------------
Boston 1784 Growth and Income Fund 93,140.79 165,071.38 152,899.49
- --------------------------------------------- -------------------- ------------------ --------------------
Boston 1784 Growth Fund N/A 12,951.00 163,410.76
- --------------------------------------------- -------------------- ------------------ --------------------
Boston 1784 International Equity Fund 178,263.21 659,011.71 823,922.21
- --------------------------------------------- -------------------- ------------------ --------------------
Total $279,934.40 $849,852.64 $1,157,602.96
- --------------------------------------------- -------------------- ------------------ --------------------
</TABLE>
<PAGE>
-34-
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
in a Fund will actually yield in the future. Actual yields will depend on such
variables as asset quality, average asset maturity, the type of instruments the
Fund invests in, changes in interest rates on money market instruments, changes
in the expenses of the Fund and other factors.
Yields are one basis upon which investors may compare these Funds with
other money market funds. However, yields of other money market funds and other
investment vehicles may not be comparable because of the factors set forth above
and differences in the methods used in valuing fund instruments.
<PAGE>
-35-
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 determined by calculating 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.
Total returns calculated for the Florida Tax-Exempt Income Fund, the
Large Cap Equity Fund and the Small Cap Equity Fund for any period which
includes periods prior to the commencement of that Fund's operations reflect the
performance of the corresponding common trust fund managed by BankBoston that
contributed all of its assets to the Fund at the Fund's commencement of
operations. The performance of each common trust fund was calculated in
accordance with recommended standards of the
<PAGE>
-36-
Association for Investment Management and Research. Each common trust fund had
investment objectives, policies and practices materially equivalent to its
corresponding Fund. All total return percentages for periods prior to the
commencement of operations of the Florida Tax-Exempt Income Fund, Large Cap
Equity Fund and Small Cap Equity Fund reflect historical rates of return of the
corresponding common trust fund for those periods adjusted to assume that all
current Fund charges, expenses and fees were then deducted. The common trust
funds were neither registered under the 1940 Act (and therefore were not subject
to certain investment restrictions imposed by the 1940 Act) nor subject to the
requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended, as to the nature of gross income, the amount of distributions and the
composition and holding period of portfolio assets. If the common trust funds
had been registered under the 1940 Act, their investment performance might have
been adversely affected. The prior performance of the common trust funds
represent historical performance for similarly managed accounts and is not
indicative of the corresponding Fund's future performance.
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. The Large Cap Equity
Fund, Small Cap Equity Fund and Florida Tax-Exempt Income Fund are newly
organized and had no operations at May 31, 1997.
<TABLE>
<CAPTION>
REDEEMABLE VALUE OF A
HYPOTHETICAL $1,000
ANNUALIZED TOTAL INVESTMENT AT THE
FUND AND PERIOD RATE OF RETURN END OF THE PERIOD
--------------- ---------------- ---------------------
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM
INCOME FUND
<S> <C> <C>
June 14, 1993 (commencement of 5.91% $1,233.60
operations) to May 31, 1997
One year ended May 31, 1997 7.74% $1,077.40
BOSTON 1784 CONNECTICUT TAX-EXEMPT
INCOME FUND
August 1, 1994 (commencement of 6.66% $1,190.90
operations) to May 31, 1997
One year ended May 31, 1997 7.26% $1,072.60
<PAGE>
-37-
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME
FUND (1)
January 1, 1991 (date of initial public
investment in the common trust fund) to 6.67% $1,513.32
May 31, 1997
Five years ended May 31, 1997 6.08% $1,343.28
Three years ended May 31, 1997 5.77% $1,183.28
One year ended May 31, 1997 6.72% $1,067.20
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT
INCOME FUND
June 14, 1993 (commencement of 5.01% $1,192.80
operations) to May 31, 1997
One year ended May 31, 1997 7.30% $1,073.00
BOSTON 1784 RHODE ISLAND TAX-EXEMPT
INCOME FUND
August 1, 1994 (commencement of 6.46% $1,187.20
operations) to May 31, 1997
One year ended May 31, 1997 7.61% $1,076.10
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM
INCOME FUND
June 7, 1993 (commencement of 4.66% $1,181.30
operations) to May 31, 1997
One year ended May 31, 1997 7.16% $1,071.60
BOSTON 1784 SHORT-TERM INCOME FUND
July 1, 1994 (commencement of
operations) to May 31, 1997 6.17% $1,182.60
One year ended May 31, 1997
6.47% $1,064.70
BOSTON 1784 INCOME FUND
July 1, 1994 (commencement of 7.33% $1,214.40
operations) to May 31, 1997
One year ended May 31, 1997 8.32% $1,083.20
<PAGE>
-38-
BOSTON 1784 ASSET ALLOCATION FUND
June 14, 1993 (commencement of
operations) to May 31, 1997 11.74% $1,557.20
One year ended May 31, 1997 14.89% $1,148.90
BOSTON 1784 GROWTH AND INCOME FUND
June 7, 1993 (commencement of
operations) to May 31, 1997 17.02% $1,899.70
One year ended May 31, 1997 18.33% $1,183.30
BOSTON 1784 GROWTH FUND
March 28, 1996 (commencement of
operations) to May 31, 1997 18.92% $1,225.80
One year ended May 31, 1997 8.77% $1,087.70
BOSTON 1784 SMALL CAP EQUITY FUND (1)
Ten years ended May 31, 1997 13.88% $3,668.38
Five years ended May 31, 1997 19.54% $2,440.99
Three years ended May 31, 1997 24.91% $1,948.91
One year ended May 31, 1997 12.36% $1,123.60
BOSTON 1784 LARGE CAP EQUITY FUND (1)
Ten years ended May 31, 1997 14.34% $3,819.28
Five years ended May 31, 1997 17.80% $2,268.44
Three years ended May 31, 1997 25.46% $1,974.77
One year ended May 31, 1997 27.35% $1,273.50
<PAGE>
-39-
BOSTON 1784 INTERNATIONAL EQUITY FUND
January 3, 1995 (commencement of
operations) to May 31, 1997 14.14% $1,458.30
One year ended May 31, 1997 10.93% $1,109.30
</TABLE>
(1) Without giving effect to fee waivers and reimbursements currently in
effect (a) the annualized total rate of return for Boston 1784 Florida
Tax-Exempt Income Fund for the one, three and five year periods ended May
31, 1997 and for the period from January 1, 1991 (date of initial public
investment in common trust fund) to May 31, 1997, would have been 6.31%,
5.36%, 5.67% and 6.26%, respectively, (b) the annualized total rate of
return for Boston 1784 Small Cap Equity Fund for the one, three five and
ten years ended May 31, 1997 would have been 12.02%, 24.53%, 19.18% and
13.53%, respectively, and (c) the annualized total rate of return for
Boston 1784 Large Cap Equity Fund for the one, three, five and ten years
ended May 31, 1997 would have been 26.98%, 25.10%, 17.45% and 14.01%,
respectively.
The annualized yield of each of the Tax-Exempt, Bond and Stock Funds
for the 30-day period ended on May 31, 1997 was as follows: Boston 1784
Short-Term Income Fund 5.93%; Boston 1784 Income Fund 6.58%; Boston 1784 U.S.
Government Medium-Term Income Fund 5.94%; Boston 1784 Tax-Exempt Medium-Term
Income Fund 4.78%; Boston 1784 Connecticut Tax-Exempt Income Fund 4.71%; Boston
1784 Massachusetts Tax-Exempt Income Fund 4.79%; Boston 1784 Rhode Island
Tax-Exempt Income Fund 4.70%; Boston 1784 Asset Allocation Fund 2.87%; Boston
1784 Growth and Income Fund 0.65%; and Boston 1784 Growth Fund 0.07%.
The annualized tax-equivalent yield of each of the Tax-Exempt Funds for
the 30-day period ended on May 31, 1997 was as follows: Boston 1784 Tax-Exempt
Medium-Term Income Fund 7.91%; Boston 1784 Connecticut Tax-Exempt Income Fund
8.17%, Boston 1784 Massachusetts Tax-Exempt Income Fund 8.96%; and Boston 1784
Rhode Island Tax-Exempt Income Fund 8.73%.
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. The Boston 1784 Institutional
Prime Money Market Fund is newly organized and had no operations at May 31,
1997.
<PAGE>
-40-
<TABLE>
<CAPTION>
REDEEMABLE VALUE OF A
HYPOTHETICAL $1,000
ANNUALIZED TOTAL INVESTMENT AT THE
FUND AND PERIOD RATE OF RETURN END OF THE PERIOD
--------------- ---------------- ---------------------
BOSTON 1784 TAX-FREE MONEY MARKET FUND
<S> <C> <C>
June 14, 1993 (commencement of
operations) to May 31, 1997 3.12% $1,128.40
One year ended May 31, 1997 3.22% $1,032.20
BOSTON 1784 U.S. TREASURY MONEY
MARKET FUND
June 7, 1993 (commencement of 4.38%
operations) to May 31, 1997 $1,184.40
One year ended May 31, 1997 4.86%
$1,048.60
BOSTON 1784 INSTITUTIONAL U.S.
TREASURY MONEY MARKET FUND
June 30, 1993 (commencement of
operations) to May 31, 1997 4.71% $1,198.20
One year ended May 31, 1997 5.16% $1,051.60
BOSTON 1784 PRIME MONEY MARKET FUND
August 1, 1991 (date of initial
public investment) to May 31, 1997 4.28% $1,280.30
For the year ended December 31,
1996 5.02% $1,050.20
For the period from January 1,
1997 to May 31, 1997 2.07% $1,020.70
</TABLE>
<PAGE>
-41-
The annualized yield and tax-equivalent yield of Boston 1784 Tax-Free
Money Market Fund for the seven-day period ended May 31, 1997 were 3.33% and
5.51%, respectively, and the effective compound annualized yield of Boston 1784
Tax-Free Money Market Fund for such period was 3.37%.
The annualized yield of Boston 1784 U.S. Treasury Money Market Fund for
the seven-day period ended May 31, 1997 was 4.98% and the effective compound
annualized yield of Boston 1784 U.S. Treasury Money Market Fund for such period
was 5.10%.
The annualized yield of Boston 1784 Institutional U.S. Treasury Money
Market Fund for the seven-day period ended May 31, 1997 was 5.20% and the
effective compound annualized yield of Boston 1784 Institutional U.S.
Treasury Money Market Fund for such period was 5.34%.
The annualized yield of Boston 1784 Prime Money Market Fund for the
seven-day period ended May 31, 1997 was 5.04% and the effective compound
annualized yield of Boston 1784 Prime Money Market Fund for such period was
5.17%.
8. DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Fund (including shares of
each class of Boston 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 Boston
1784 Prime Money Market Fund, Boston 1784 U.S. Treasury Money Market Fund and
Boston 1784 Tax-Free Money Market Fund, as of 3:00 p.m. ET with respect to the
Boston 1784 Institutional U.S. Treasury Money Market Fund and Boston 1784
Institutional Prime 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 Boston 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
<PAGE>
-41-
existing investors in the Fund would experience a lower yield. The converse
would apply in a period of rising interest rates.
The use by the Money Market Funds of amortized cost and the maintenance
by these Funds of a net asset value at $1.00 are permitted by regulations
promulgated by Rule 2a-7 under the 1940 Act, provided that certain conditions
are met. The regulations also require the Trustees to establish procedures which
are reasonably designed to stabilize the net asset value per share at $1.00 for
these Funds. Such procedures include the determination of the extent of
deviation, if any, of these Funds' current net asset value per share calculated
using available market quotations from these Funds' amortized cost price per
share at such intervals as the Trustees deem appropriate and reasonable in light
of market conditions and periodic reviews of the amount of the deviation and the
methods used to calculate such deviation. In the event that such deviation
exceeds 1/2 of 1%, the Trustees are required to consider promptly what action,
if any, should be initiated, and, if the Trustees believe that the extent of any
deviation may result in material dilution or other unfair results to
shareholders of these Funds, the Trustees are required to take such corrective
action as they deem appropriate to eliminate or reduce such dilution or unfair
results to the extent reasonably practicable. Such actions may include the sale
of fund instruments prior to maturity to realize capital gains or losses or to
shorten average fund maturity; withholding dividends; redeeming shares in kind;
or establishing a net asset value per share by using available market
quotations. In addition, if any of these Funds incurs a significant loss or
liability, the Trustees have the authority to reduce pro rata the number of
shares of that Fund in the account of each shareholder of such Fund and to
offset each such shareholder's pro rata portion of such loss or liability from
that shareholder's accrued but unpaid dividends or from future dividends of the
affected Fund while each other Fund must annually distribute at least 90% of its
investment company taxable income.
In valuing each of the Stock, Bond and Tax-Exempt Funds' assets, bonds
and other fixed income securities are valued on the basis of valuations
furnished by a pricing service, use of which has been approved by the Board of
Trustees of the Trust. In making such valuations, the pricing service utilizes
both dealer-supplied valuations and electronic data processing techniques which
take into account appropriate factors such as institutional-size trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data, without exclusive reliance
upon quoted prices or exchange or over the counter prices, since such valuations
are believed to reflect more accurately the fair value of such securities.
Valuations supplied by the pricing service are subject to review by the Adviser
and, if adjusted pursuant to review by the Adviser, by the Board. An equity
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. Securities which are listed
on the National Association of Securities Dealers' National Market System, for
which there have been sales, shall be valued at the last sale price reported on
such system. If there are no such sales, the value shall be the high, or
"inside" bid, which is the bid supplied by the NASD on its NASDAQ Screen for
such securities in the over-the-counter market. Securities quoted on the NASDAQ
System, but not listed on the National Market System, shall be valued at the
high or "inside" bid. Unlisted equity 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 highest quoted current bid price for such
securities in the over-the-counter market. Securities for which market
quotations are not readily available, whether or not listed, will be
<PAGE>
-43-
valued at their fair value as determined in good faith by the Board of Trustees
of the Trust, or pursuant to procedures adopted by the Board subject to review
by the Board of the resulting valuations. 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 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 Boston 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 Boston 1784 Institutional
U.S. Treasury Money Market Fund or Boston 1784 Institutional Prime Money Market
Fund and holders of Class C or Class D shares of Boston 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.
<PAGE>
-44-
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
No Fund will be subject to any Massachusetts income or excise taxes as
long as it qualifies as a separate regulated investment company under the Code.
Each of the Funds is organized as a series of a Massachusetts business
trust and 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 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 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.
TAXATION OF FUND DISTRIBUTIONS
DISTRIBUTIONS -- GENERAL. 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. It is uncertain at
this time whether all or any part of such capital gains will be eligible to be
taxed at a
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maximum rate below 28%. 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 dividends from those Funds will not 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. Each
Fund will notify shareholders regarding the federal tax status of distributions
after the end of each calendar year.
Distributions of net capital gains and net short-term capital gains
from any Bond Fund or Tax-Exempt Fund, and any distributions from a Stock Fund,
will reduce the distributing Fund's net asset value per share. Shareholders who
buy shares just before a Fund makes such 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.
Distributions of a Fund that are derived from interest on obligations
of the U.S. Government and certain of its agencies and instrumentalities (but
generally not from capital gains realized upon the disposition of such
obligations) may be exempt from state and local taxes. Each Fund intends to
advise shareholders of the extent, if any, to which their respective
distributions consist of such interest. Shareholders are urged to consult their
tax advisers regarding the possible exclusion of such portion of their dividends
for state and local income tax purposes.
DISTRIBUTIONS BY THE TAX-EXEMPT FUNDS, INCLUDING THE TAX-FREE MONEY
MARKET FUND. The portion of each Tax-Exempt Fund's and the Tax-Free Money Market
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 and the Tax-Free Money Market Fund
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 under rules corresponding to those set
forth in the preceding section. The
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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.
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 and otherwise as short-term capital gain or loss; a
long-term capital gain may be eligible for reduced tax rates if the shares were
held for more than 18 months. In the case of the Tax-Exempt Funds and the
Tax-Free Money Market Fund, 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.
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 (or of the Tax-Free Money Market 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 advisers before purchasing shares of a Tax-Exempt Fund or the Tax-Free Money
Market Fund.
ADDITIONAL INFORMATION RELATING TO FUND INVESTMENTS
Except in the case of the Money Market Funds, the Funds' current
dividend and accounting policies will affect the amount, timing, and character
of distributions to shareholders, and may make an economic return of capital
taxable to shareholders. Any investment by a Fund in zero-coupon 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, forward contracts
short sales "against the box" and swaps and related transactions 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
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diminish its risk of loss with respect to other positions in its portfolio may
constitute "straddles," and may be subject to special tax rules that would cause
deferral of Fund losses, adjustments in the holding periods of Fund securities,
and conversion of short-term into long-term capital losses. Certain tax
elections exist for straddles that may alter the effects of these rules. The
Funds will limit their activities in options, futures contracts, forward
contracts, and swaps and related transactions to the extent necessary to meet
the requirements of Subchapter M of the Code.
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 taxes. The Funds (other than Boston 1784
International Equity Fund) do not expect to be able to pass through to
shareholders foreign tax credits or deductions with respect to such foreign
taxes. The United States has entered into tax treaties with many foreign
countries that may entitle the Funds to a reduced rate of tax or an exemption
from tax on such income. The Funds intend to qualify for treaty reduced rates
where available. It is not possible, however, to determine a Fund's effective
rate of foreign tax in advance since the amount of the Fund's assets to be
invested within various countries is not known.
If Boston 1784 International Equity Fund holds more than 50% of its
assets in foreign stock and securities at the close of its taxable year, it may
elect to pass through to its shareholders foreign income taxes paid. If it 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 a Fund does not qualify or
elect to pass through to the Fund's shareholders foreign income taxes paid by
it, its 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. Any Fund making such an
investment also may elect to mark to market its investments in "passive foreign
investment companies" on the last day of each taxable year, which may cause the
Fund to recognize ordinary income prior to the receipt of cash payments with
respect to those investments. In order to distribute that income and avoid a tax
on the Fund, such a Fund may be required to liquidate portfolio securities that
it might otherwise have continued to hold.
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
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to U.S. tax withholding at a rate of 30%, although the 30% rate may be reduced
to the extent provided by an applicable tax treaty. The Funds intend to withhold
tax payments at the rate of 30% (or the lower treaty rate) on taxable dividends
and other payments to Non-U.S. Persons that are subject to such withholding. Any
amounts 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.
BACKUP WITHHOLDING
Each of the Funds is 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.
12. SERVICEMARKS
The servicemark BOSTON 1784 FUNDS(R) is a registered servicemark of,
and this servicemark and the "eagle" logo are used by permission of, BankBoston.
In the event that the Advisory Agreements with BankBoston 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
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 nineteen active series of shares, each of which is a Fund. Boston 1784
U.S. Treasury Money Market Fund offers three classes of shares: Class A, Class C
and Class D. Each class is described in a Prospectus. Call 1-800-BKB-1784 for
information on the other classes of this Fund. 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.
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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
FOR THE INSTITUTIONAL PRIME MONEY MARKET FUND, FLORIDA TAX-EXEMPT INCOME FUND,
SMALL CAP EQUITY FUND AND LARGE CAP EQUITY FUND
Boston 1784 Institutional Prime Money Market Fund, Boston 1784 Florida
Tax-Exempt Income Fund, Boston 1784 Small Cap Equity Fund and Boston 1784 Large
Cap Equity Fund are newly organized and have not yet issued financial
statements.
FOR THE PRIME MONEY MARKET FUND
The Statement of Net Assets at May 31, 1997 and December 31, 1996, the
Statement of Operations for the periods ended May 31, 1997 and December 31,
1996, the Statements of Changes in Net Assets for the periods ended December 31,
1995, December 31, 1996 and May 31, 1997, the Financial Highlights for the
periods ended December 31, 1996 and May 31, 1997, the Notes to the Financial
Statements and the Report of Independent Accountants, each of which is included
in two Annual Reports to Shareholders of the Trust (Accession Numbers
0000935069-97-000021 and 0000935069-97-000119) are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance upon the report of Coopers & Lybrand L.L.P., independent accountants,
as experts in accounting and auditing. The Statement of Changes in Net Assets
for the year ended December 31, 1995 and the financial
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highlights for the periods ended April 30, 1992, December 31, 1992, December 31,
1993, December 31, 1994 and December 31, 1995 are included in the Annual Reports
to Shareholders of the Trust and are incorporated by reference into this
Statement of Additional Information and have been so incorporated in reliance
upon the report of Ernst & Young, LLP, independent auditors, given upon the
authority of said firm as experts in accounting and auditing. A copy of the
Annual Report accompanies this Statement of Additional Information.
FOR THE REMAINDER OF THE FUNDS
The Statement of Net Assets at May 31, 1997, the Statements of
Operations for the period ended May 31, 1997, the Statements of Changes in Net
Assets for the periods ended May 31, 1996 and May 31, 1997, the Financial
Highlights for the periods ended May 31, 1994, May 31, 1995, May 31, 1996 and
May 31, 1997, the Notes to the Financial Statements and the Report of
Independent Accountants, each of which is included in the two Annual Reports to
Shareholders of the Trust (Accession Number 0000935069-97-000119), are
incorporated by reference into this Statement of Additional Information. The
Annual Reports have been so incorporated in reliance upon the report of Coopers
& Lybrand L.L.P., independent accountants, as experts in accounting and
auditing. A copy of each of the Annual Reports accompanies this Statement of
Additional Information.
<PAGE>
APPENDIX A
CERTAIN INFORMATION CONCERNING CONNECTICUT, FLORIDA,
MASSACHUSETTS AND RHODE ISLAND
1. CONNECTICUT
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN
CONNECTICUT MUNICIPAL SECURITIES
The following is a summary of certain information contained in the
Annual Information Statement of the State of Connecticut dated May 7, 1997. The
summary does not purport to be a complete description and is current as of the
date of the corresponding information statement. The Funds are not responsible
for the accuracy or timeliness of this information.
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.
ECONOMIC OVERVIEW
Connecticut's economy is diverse. Manufacturing employment has been on
a downward trend since the mid-1980s, while non-manufacturing employment has
risen significantly. Manufacturing is diversified, with transportation equipment
(primarily aircraft engines, helicopters, and submarines) the dominant industry.
Connecticut is a leading producer of aircraft engines, along with related
components, and submarines. The largest employers in these industries are United
Technologies Corporation, including its Pratt and Whitney Aircraft Division,
with headquarters in East Hartford, and Sikorsky Aircraft Division in Stratford,
as well as General Dynamics Corporation's Electric Boat Division in Groton. The
State is also a leading producer of military and civilian helicopters.
Connecticut's manufacturing employment peaked in 1985 at over 408,000
workers. Since that year, employment in manufacturing has been on a downward
trend, declining 30.1% or a loss of 127,330 jobs by 1995 from 1985 levels. A
number of factors, such as the overvalued dollar of the mid-1980s, heightened
foreign competition, a sharp decrease in defense spending, and improved
productivity played a significant role in affecting the overall level of
manufacturing employment. In Connecticut, the rate of job loss in the
manufacturing sector resulted in a decline of 1.5% or 4,410 jobs from 1994 to
1995.
Over the past several decades the non-manufacturing sector of the
State's economy has risen in economic importance, from just over 50% of total
State employment in 1950 to approximately 82.0% by 1995. This trend has
decreased the State's dependence on manufacturing. The State's non-manufacturing
sector expanded by 2.0% in 1995 as compared to 1994, 1.7% in 1994 as compared to
1993, and 1.4% in 1993 as compared to 1992, following three years of decline
starting in 1990. During the 1990's, Connecticut's growth in non-manufacturing
employment has lagged that of the New England region and the nation as a whole.
The non-manufacturing sector is comprised of industries that typically
provide a service. The four major industries in terms of employment are: trade;
finance,
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insurance and real estate; business and personal services; and government, which
collectively comprise about 90% of employment in the non-manufacturing sector.
After enjoying an extraordinary boom during the mid-1980s, Connecticut,
as well as the rest of the Northeast, experienced an economic slowdown before
the onset of the national recession in the latter half of 1990. Reflecting the
downturn, the unemployment rate in the State rose from a low of 3% in 1988 to
just above the national average of 7.4% during 1992. Since 1992, the
unemployment rate has declined annually to a rate of 5.5% for 1995 and 5.0% for
the first half of 1996.
FISCAL CONDITION IN RECENT YEARS
The State finances most of its operation through its General Fund. The
major components of General Fund revenues are state taxes, including the
personal income tax, the sales and use tax, and the corporation business tax.
Miscellaneous fees, receipts, transfers, and unrestricted federal grants account
for most of the other General Fund revenue. A cumulative budgetary-bases deficit
in the General Fund as of June 30, 1991 in the amount of $965,711,525 was funded
by the issuance of General Obligation Economic Recovery Notes. For the fiscal
years ended June 30, 1992, 1993, 1994, 1995, and 1996, the operating surpluses
of the General Fund were $110.2, $113.5, $19.7, $80.5, and $250.0 million,
respectively. $89.5 half million dollars of the operating surplus was reserved
for payment of principal and interest on the Economic Recovery Notes for the
1996-97 fiscal year, while the remaining $160.5 million of the surplus has been
reserved for transfer to the Budget Reserve Fund, pursuant to the Connecticut
General Statutes.
GENERAL FUND BUDGETS 1996-97, 1997-98, AND 1998-99
The adopted budget for fiscal year 1996-97 anticipated General Fund
revenues of $9,049.7 million and General Fund expenditures of $9,049.4 million,
resulting in a projected surplus of $0.3 million. For fiscal 1997-98 and
1998-99, the proposed budget anticipates General Fund revenues of $9,181.9
million and $9,353.3 million, respectively. General Fund appropriations total
$9,181.5 million and $9,351.2 million in fiscal years 1997-98 and fiscal
1998-99, respectively. For fiscal year 1997-98, General Fund appropriations
would decrease by 0.6% over estimated expenditures for fiscal year 1996-97 and
would increase by 1.8% in fiscal year 1998-99, below the anticipated increase in
inflation. Based upon these levels of appropriations, the proposed budget would
remain within the limits set by the State's Constitutional expending cap: $384.1
million below the fiscal 1997-98 expenditure cap and $307.6 million below the
fiscal 1998-99 expenditure cap.
The proposed budget anticipates significant income tax changes aimed at
increasing overall disposable income and encouraging economic expansion in the
State. The proposed budget enhances the income tax relief enacted during the
1995 legislative session by expanding the taxable income amounts subject to the
lower 3% income tax rate. For income years commencing on and after January 1,
1997, the application of the 3% rate is expanded from the first $9,000 of
taxable income to the first $12,000 of taxable income for joint filers. For
income years commencing on and after January 1, 1998, the application of the 3%
rate is further expanded from the first $12,000 of taxable income to the first
$48,000 of taxable income for joint filers. In addition, for income years
commencing on and after January 1, 1998, all Social Security income would be
exempt from the state's personal income tax.
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The proposed budget anticipates increased education expenditures of $26
million in fiscal year 1997-98 and $37 million in fiscal year 1998-99 to
implement recommendations of the Education Improvement Panel, convened in 1996
for the purpose of making recommendations to improve education in the State
following the State Supreme Court ruling in SHEFF V. O'NEILL that the State's
educational system failed to provide students in the State with equal
educational opportunities. The proposed budget also anticipates increased
expenditures in fiscal year 1998-99 as a result of the transfer of certain
Highway Patrol functions from the Special Transportation Fund to the General
Fund in connection with the implementation of the proposed gasoline tax
reduction.
The proposed budget also anticipates significant reductions in
expenditures from current service levels. Some of the changes, which are
expected to result in significant long term savings to the State, include
restructuring the General Assistance program to eliminate all cash and medical
benefits for employable adults, acceleration of the move to managed care for
those individuals remaining on General Assistance, restructuring the Medicaid
program under a waiver, reducing by 10% the State's block grants to constituent
units of higher education, a comprehensive overhaul of the State's information
technology functions in conjunction with a reorganization of state agencies
across functional lines, implementation of actuarial changes resulting in
decreased expenditures to fund the State Employees' Retirement System unfunded
past service liability, and implementing an early retirement incentive for State
employees and limited co-pays for certain more expensive health care plans. The
proposed budget reflects the Governor's goals to improve the ways in which State
government delivers services, reduces the tax burden, and encourages economic
growth in the State. It was anticipated that the General Assembly would adopt a
biennial budget no later than June 1997.
The Connecticut General Statutes require the Comptroller to report the
State's fiscal position monthly. This required 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 November 1, 1996, letter indicated a projected
General Fund surplus of $41.2 million for fiscal year 1996-97. No assurances can
be given that subsequent projections will not indicate changes in the 1996-97
General Fund result. To the extent there is a deficit at the end of the fiscal
year, it may be funded by a transfer from the $241 million Budget Reserve Fund.
In November 1992, Connecticut voters approved a constitutional
amendment requiring a balanced budget for each year. The amendment provides that
the amount of general budget expenditures authorized for any fiscal year shall
not exceed the estimated amount of revenue for such fiscal year. It also
provides for a limit on budget expenditures. The General Assembly is precluded
from authorizing an increase in general budget expenditures for any fiscal year
above the amount of general budget expenditures for the previous fiscal year by
a percentage which exceeds the greater of the percentage increase in personal
income or the percentage increase in inflation, unless the Governor declares an
emergency or the existence of extraordinary circumstances and at least
three-fifths of the members of each house of the General Assembly vote to exceed
such limit for the purposes of such emergency or extraordinary circumstances.
The limitation on general budget expenditures does not include expenditures for
the payment of bonds, notes or other evidences of indebtedness. There
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is no statutory or constitutional prohibition against bonding for general budget
expenditures.
LITIGATION
The State of Connecticut, its officers and employees, are defendants in
numerous lawsuits. The ultimate disposition of and final consequences of these
lawsuits are not determinable at present. The Attorney General's Office has
reviewed the status of pending lawsuits and reports that in its opinion such
pending litigation will not be determined in the end so as to result,
individually or in the aggregate, in a final judgment against the State which
would materially adversely affect its financial position, except that in the
cases described below the fiscal impact of an adverse decision might be
significant but is not determinable at this time.
The cases described in this section generally do not include any
individual case where the fiscal impact of an adverse judgment is expected to be
less than $15 million, but adverse judgments in a number of such cases could, in
the aggregate and in certain circumstances, have a significant impact.
CONNECTICUT CRIMINAL DEFENSE LAWYERS ASSOCIATION V. FORST is an action
brought in 1989 in Federal District Court alleging a pervasive campaign by the
State and various State Police officials of illegal electronic surveillance,
wiretapping and bugging for a number of years at Connecticut State Police
facilities. The plaintiffs seek compensatory damages, punitive damages, as well
as other damages and costs and attorneys' fees, and temporary and permanent
injunctive relief. In November 1991, the court issued an order which will allow
the plaintiffs to represent a class of all persons who participated in wire or
oral communications to, from, or within State Police facilities between January
1, 1974 and November 9, 1989 and whose communications were intercepted, recorded
and/or used by the defendants in violation of the law. This class includes a
sub-class of the Connecticut State Police Union, current and former Connecticut
State Police officers who are not defendants in this or any consolidated case,
and other persons acting on behalf of the State Police who participated in oral
or wire communications to, from or within State Police facilities between such
dates.
SHEFF V. O'NEILL is a Superior Court action brought in 1989 on behalf
of black and Hispanic school children in the Hartford school district. The
plaintiffs sought a declaratory judgment that the public schools in the greater
Hartford metropolitan area are segregated de facto by race and ethnicity and are
inherently unequal to their detriment. They also sought injunctive relief
against state officials to provide them with an "integrated education." On April
12, 1995, the Superior Court entered judgment for the State. On July 9, 1996,
the State Supreme Court reversed the Superior Court judgment and remanded the
case with direction to render a declaratory judgment in favor of the plaintiffs.
The Court directed the legislature to develop appropriate measures to remedy the
racial and ethnic segregation in the Hartford public schools. The Supreme Court
also directed the Superior Court to retain jurisdiction of this matter.
THE CONNECTICUT TRAUMATIC BRAIN INJURY ASSOCIATION, INC. V. HOGAN is a
Federal District Court civil rights action brought in 1990 on behalf of all
persons with retardation or traumatic brain injury who have been, or may be,
placed in Norwich, Fairfield Hills or Connecticut Valley Hospitals. The
plaintiffs claim that the treatment and training they need is unavailable in
state hospitals for the mentally ill and that placement in those hospitals
violates their constitutional rights. The plaintiffs seek relief which would
require that the plaintiff classmembers be transferred to community
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residential settings with appropriate support services. This case has been
settled as to all persons with mental retardation by their eventual discharge
from Norwich and Fairfield Hills Hospital. The case is still proceeding as to
those persons with traumatic brain injury.
CONNECTICUT HOSPITAL ASSOCIATION V. ROWLAND is an action brought in
1996 in Superior Court challenging the statute which requires payment by a
hospital to the State of the amount which exceeds the net revenue limit of a
hospital authorized by the Office of Health Care Access for the fiscal year 1995
and relevant future years, subject to certain adjustments. The plaintiffs claim
that the statute is unconstitutional and seek to enjoin its enforcement and the
collection of the excess amounts by the State.
Several suits have been filed since 1977 in the Federal District Court
and the Connecticut Superior Court on behalf of alleged INDIAN TRIBES in various
parts of the State, claiming monetary recovery as well as ownership to land in
issue. The land involved is located generally in rural and residential areas.
However, a suit was brought in 1992 involving land within the City of
Bridgeport. The same plaintiff group in that suit subsequently also sued
concerning land in Trumbull and Southbury and has threatened to sue regarding
additional land in other towns in the State.
2. FLORIDA
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN
FLORIDA MUNICIPAL SECURITIES
The following is a summary of certain information contained in the
Preliminary Official Statement Relating to $200,000,000 State of Florida
Department of Transportation, Right-of-Way Acquisition and Bridge Construction
Bonds, Series 1997A, dated June 30, 1997. The summary does not purport to be a
complete description and is current as of the date of the statement. The Funds
are not responsible for the accuracy or timeliness of this information.
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 1995, Florida's per capita income rose an average
of 5.0% per year, while the national per capita income increased an average of
4.9%. Real personal income is estimated to increase 4.2% in 1996-97 and 4.2% in
1997-98 while real personal income per capita in Florida is projected to grow at
2.3% in 1996-97 and 2.4% in 1997-98.
Florida's population growth is one reason why its economy has typically
performed better than the nation as a whole. Since 1987, the United States has
had an average population increase of about 1.0% annually, while Florida's
average annual rate of increase is around 2.2%. Florida has been and continues
to be the fastest growing of the 11 largest states. While annual growth in the
State's population is projected to slow somewhat, it is still expected to grow
by close to 230,000 new residents per year throughout this decade.
Throughout the 1980s, the unemployment rate in Florida had, generally,
tracked below that of the nation. In the 1990s, the trend reversed until 1995
and 1996, when the State's unemployment rate again tracked below the national
average. Since 1987, the average rate of unemployment for Florida is 6.2%, while
the national average is also 6.2%.
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Florida's dependency on the highly cyclical construction and
construction-related manufacturing sectors has declined. This trend is expected
to continue as Florida's economy continues to diversify. Florida, nevertheless,
has a dynamic construction industry, with single and multi-family housing starts
accounting for approximately 8.1% of total U.S. housing starts in 1996, while
the State's population is 5.5% of the nation's population. Total housing starts
were 118,400 in 1996. One driving force behind Florida's construction industry
is of course its rapid growth in population.
Financial operations in Florida are maintained through the use of four
funds types -- the General Revenue Fund, Trust Funds, the Working Capital Fund,
and the Budget Stabilization Fund. In fiscal year 1995-96, an estimated 66% of
total direct revenues to these Funds were derived from 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 beverage tax,
which amounted to 69%, 7%, 4%, and 4%, respectively, of total General Revenue
funds 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 1995-96, appropriations from the General Revenue Fund for
education, health and welfare, and public safety amounted to approximately 51%,
31%, and 14%, respectively, of the total General Revenue funds available.
For fiscal year 1996-97, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available to Florida are $16,617.4
million, a 6.7% increase over 1995-96. With combined General Revenue Fund,
Working Capital Fund, and Budget Stabilization Fund appropriations at $15,537.2
million, unencumbered reserves at the end of 1996-97 are estimated at $1,080.0
million. For fiscal year 1997-98, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available total $17,553.9 million, a 5.6%
increase over fiscal year 1996-97.
The sales and use tax is the greatest single source of tax receipts in
Florida. For the fiscal year ended June 30, 1996, receipts from this source were
$11,461.0 million, an increase of 7.4% from fiscal year 1994-95. 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, 1996 were $1,923.0
million. However, these revenues are almost entirely dedicated trust funds for
specific purposes and are not included in the State General Revenue Fund.
Alcoholic beverage tax revenues totaled $441.5 million for the fiscal year
ending June 30, 1996. The receipts of the corporate income tax for the fiscal
year ended June 30, 1996 were $1,162.7 million, an increase of 9.3% from fiscal
year 1994-1995. Gross receipt tax collections for fiscal year 1995-96 totaled
$543.3 million, an increase of 6.9% over the previous fiscal year. Documentary
stamp tax collections totaled $775.2 million during fiscal year 1995-96,
increasing 11.5% 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 $895.9 million during fiscal year
1995-96, a 9.5% increase from the previous fiscal year. Severance taxes totaled
$77.2 million during fiscal year 1995-96, up 26.1% from the previous fiscal
year. In November, 1986, Florida voters approved a constitutional amendment to
allow Florida to operate a lottery. Fiscal year 1995-96 produced gross revenues
of $2.07 billion of which education received approximately $788.1 million.
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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 years by
the maximum amount of revenue permitted under the cap for the previous year. For
the first year, which was fiscal year 1995-96, the limit was 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.
3. MASSACHUSETTS
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS
IN MASSACHUSETTS MUNICIPAL SECURITIES
The following is a summary of certain information contained in the
Information Statement of the Commonwealth of Massachusetts dated February 13,
1997 and the Commonwealth's Information Statement Supplement dated June 24,
1997. The summary does not purport to be a complete description and is current
as of the date of the corresponding information statement. The Funds are not
responsible for the accuracy or timeliness of this information.
Massachusetts municipal securities may fluctuate in value in response
to a variety of factors, including the economic strength of Massachusetts.
FISCAL YEARS 1992 THROUGH 1997
1992 FISCAL YEAR. Budgeted revenues and other sources for fiscal 1992
were $13.728 billion, including tax revenues of $9.484 billion. Budgeted
revenues and other sources increased by approximately 0.7% from fiscal 1991 to
fiscal 1992, while tax revenues increased by 5.4% for the same period.
Budgeted expenditures were approximately $13.416 billion in fiscal
1992. Final fiscal 1992 budgeted expenditures were approximately $300 million
higher than the initial July 1991 estimates of budgeted expenditures.
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Overall, the budgeted operating funds ended fiscal 1992 with an excess
of revenues and other sources over expenditures and other uses of $312.3 million
and with positive fund balances of $549.4 million. Total fiscal 1992 spending
authority continued into fiscal 1993 amounted to $231.0 million.
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.
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.
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 totaled 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
totaled $15.523 billion, which was $826.5 million or approximately 5.6% higher
than fiscal 1993 budgeted expenditures and other uses.
In June 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation, requiring substantial annual
increases in state appropriations for education purposes from fiscal 1993 base
expenditures of approximately $1.288 billion.
1995 FISCAL YEAR. Fiscal 1995 tax revenue collections totaled $11.163
billion, approximately $12 million above the Department of Revenue's revised
fiscal year 1995 tax revenue estimate of $11.151 billion, and approximately $556
million or 5.2% above fiscal 1994 tax revenues of $10.607 billion. Budgeted
revenues and other sources, including non-tax revenues, collected in fiscal 1995
totaled $16.387 billion, approximately $837 million, or 5.4%, above fiscal 1994
budgeted revenues of $15.550 billion. Budgeted expenditures and other uses of
funds in fiscal 1995 were approximately $16.251 billion, approximately $728
million or 4.7% above fiscal 1994 budgeted expenditures and uses of $15.523
billion. The Commonwealth ended fiscal 1995 with an operating gain of $137
million and an ending fund balance of $726 million.
The final fiscal 1995 supplemental budget modified, with respect to the
fiscal 1995 year-end surplus, the provisions of state law governing deposits to
the Stabilization Fund. As calculated by the Comptroller, the amount of surplus
funds (the sum of the undesignated fund balances at year-end in the three
principle operating funds) for fiscal 1995 was approximately $94.9 million, of
which $55.9 million was available to be carried
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forward as a beginning balance for fiscal year 1996. Of the balance,
approximately $27.9 million was deposited in the Stabilization Fund, and
approximately $11.1 million was deposited in the Cost Relief Fund.
1996 FISCAL YEAR. The budgeted operating funds of the Commonwealth
ended fiscal 1996 with a surplus of revenues and other sources over expenditures
and other uses of $446.4 million, resulting in aggregate ending fund balances in
the budgeted operating funds of the Commonwealth of approximately $1.172
billion. Budgeted revenues and other sources for fiscal 1996 totaled
approximately $17.328 billion, including tax revenues of approximately $12.049
billion. Budgeted revenues and other sources increased by approximately 5.7%
from fiscal 1995 to fiscal 1996, while tax revenues increased by approximately
7.9% for the same period. Budgeted expenditures and other uses in fiscal 1996
totaled approximately $16.881 billion, an increase of approximately $630.6
million, or 3.9%, over fiscal 1995.
Legislation approved by the Governor on July 30, 1996 appropriated $150
million from the Tax Reduction Fund for personal income tax reductions in fiscal
1997, to be implemented by a temporary increase in the amount of the personal
exemptions allowable for the 1996 taxable year. On January 23, 1997, the
Governor filed legislation to appropriate the remaining balance of approximately
$85 million (including interest earnings) in the Tax Reduction Fund for an
additional temporary increase in the amount of personal exemptions during the
1997 taxable year.
The final fiscal 1996 appropriation bills approved by the Governor on
July 30, 1996 and August 10, 1996 contained approximately $246.9 million in
fiscal 1996 appropriations, approximately $38.2 million in fiscal 1997
appropriations and approximately $221.7 million in fiscal 1996 appropriations
continued for use in fiscal 1997. Amounts carried forward from fiscal 1995 and
deposited in the Cost Relief Fund were appropriated in these bills for further
subsidies to local units of government for costs of water pollution abatement
projects.
1997 FISCAL YEAR. The fiscal 1997 budget is based on numerous spending
and revenue estimates, the achievement of which cannot be assured. The
Legislature enacted the fiscal 1997 budget on June 20, 1996, and the Governor
approved it on June 30, 1996. The budget provides for approximately $17.452
billion in fiscal 1997 expenditures. The Executive Office for Administration and
Finance estimates total spending in fiscal 1997 to be approximately $17.704
billion, including $263.2 million in continuing appropriations and reserved
balances from fiscal 1996. The Executive Office for Administration and Finance
estimates fiscal 1997 total budgeted revenues to be approximately $17.394
billion, including approximately $12.307 billion in tax revenues. The tax
revenue estimate amounts to an increase of approximately $257 million, or 2.1%,
over fiscal 1996 tax collections. The current fiscal year 1997 tax revenue
estimate of $12.307 billion was released by the Executive Office for
Administration and Finance with the filing of the Governor's fiscal 1998 budget
proposal. This revised estimate was $184 million higher than the previous
estimate of $12.123 billion released in October 1996. The higher projection is
the result of stronger than anticipated collections through December 1996 and
the assumption that $85 million in tax cuts initially proposed by the Governor
for fiscal 1997 will now occur in fiscal 1998.
Results through May 1997 indicate that fiscal 1997 year-to-date tax
collections have totaled approximately $11.420 billion, an increase of
approximately $791 million, or 7.4%, over the same period in fiscal 1996. On May
20, 1997 the Secretary of Administration and Finance revised the fiscal 1997 tax
revenue estimate included in the
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Governor's budget recommendations filed in January upward by $200 million,
bringing the estimated total for the year to $12.507 billion. The results
through May place fiscal 1997 tax collections approximately $427 million above
the midpoint of the Department of Revenue's benchmark range and approximately
$397 million above the top of that range. Total fiscal 1997 revenues are
projected to total approximately $17.386 billion. Supplemental fiscal 1997
appropriations to date total approximately $135.8 million. Projected total
fiscal 1997 expenditures are approximately $17.702 billion, including
approximately $110 million reserved for contingencies.
CASH FLOWS. On June 11, 1997, the State Treasurer and the Secretary of
Administration and Finance released revised cash flow projections for fiscal
1997 and fiscal 1998.
Fiscal 1997 is projected to end with a cash balance of $162.6 million.
The report states that this projection is based on conservative assumptions and
that, given recent economic performance, actual results may be better. The
projected year-end balance does not include any fiscal 1997 activity that may
occur after June 30, 1997, nor does it include $95.4 million to be transferred
to the Stabilization Fund on account of fiscal 1996. The report notes that
Commonwealth transit notes are not being issued in June 1997, as previously
projected and that the $240 million of transit notes due in June 1997 are being
paid with cash. The projection assumes that $240 million of Commonwealth transit
notes will be issued in August 1997. The projection also assumes that the
Commonwealth will issue $400 million of bond anticipation notes during fiscal
1998 in anticipation of payments to be received from the Massachusetts Turnpike
Authority and the Massachusetts Port Authority in connection with the Central
Artery/Ted Williams Tunnel project, as contemplated by the Metropolitan Highway
system legislation approved by the Governor on March 20, 1997 and the
transportation bond legislation approved by the Governor on May 16, 1997. In
addition, the projection contemplates the issuance of $175 million of grant
anticipation notes during fiscal 1998, in anticipation of future federal funding
for the project. The fiscal 1998 ending cash balance is estimated to be $349.0
million. The cash flow statement for fiscal 1998 projects no need to borrow for
operating needs under the Commonwealth's commercial paper program and notes that
no short-term borrowings have been required during fiscal 1997.
The ending balances projected in the cash flow forecasts for fiscal
1997 and fiscal 1998 are likely to differ from the estimated ending balances for
the Commonwealth's operating budget for those years because of timing
differences and the effect of non-budget items.
THE GOVERNMENT
On March 11, 1997, the Legislature's Committee on Counties approved
legislation that would abolish Middlesex County government and transfer its
functions to the Commonwealth immediately upon final approval of the
legislation. The county's debts and liabilities which are in force on July 1,
1997 would be assumed by the Commonwealth and amortized over a period of up to
25 years from assessments on the cities and towns within the county. The
legislation would also bar the sale of public property to satisfy judgments
against the county. On June 11, 1997, the legislation was approved by the House
Committee on Ways and Means, with an effective date of June 30, 1997. As
approved by the Ways and Means Committee, assessments on cities and towns would
be capped at the level of the county tax paid by such city or town in fiscal
1997. The Ways and Means Committee bill contains an appropriation of
approximately $24.6 million (from unexpended balances of maintenance
appropriations that would
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otherwise revert on June 30, 1997) to provide for payments to vendors of
Middlesex County Hospital and for debt service on bonds and notes issued by
Middlesex County that are overdue or about to be due. The bill would also
establish a task force on the valuation of county assets and liabilities that
would be charged with compiling an inventory and providing for the valuation of
all property of all counties in the Commonwealth for the purposes of considering
the abolition of county government and the transfer of its functions, assets and
liabilities to the Commonwealth. The seven-member task force, which would
consist of four members of the Legislature, the Secretary of Administration and
Finance, the Inspector General and the State Auditor, would be required to file
a report by January 1, 1998.
On May 21, 1997, the Senate approved legislation as part of its fiscal
1998 budget that would abolish the system of county government in all counties
in the Commonwealth as of July 1, 1998. Until that date, the Secretary of
Administration and Finance would be empowered to declare a fiscal emergency in
any county that exhibits fiscal distress, as described in the legislation, and
the Governor would be empowered to appoint a receiver for any such county. All
valid liabilities and debts of the counties in force on June 30, 1998 would
become obligations of the Commonwealth, as would all valid leases and contracts
of the counties in force on June 30, 1997. According to the Senate Committee on
Ways and Means, the counties have an accumulated debt of approximately $45
million and unfunded pension liabilities of $287.9 million.
COMMONWEALTH REVENUES
In order to fund its programs and services, the Commonwealth collects a
variety of taxes and receives revenues from other non-tax sources, including the
federal government and various fees, fines, court revenues, assessments,
reimbursements, interest earnings and transfers from its non-budgeted funds. In
fiscal 1996, approximately 70.3% of the Commonwealth's annual budgeted revenues
were derived from state taxes. In addition, the federal government provided
approximately 16.9% of such revenues, with the remaining 12.8% provided from
departmental revenues and transfers from non-budgeted funds.
The major components of State taxes are the income tax, which accounted
for approximately 55.7% of total tax revenues in fiscal 1996, the sales and use
tax, which accounted for approximately 21.7%, and the business corporations tax,
which accounted for approximately 7.3%. Other tax and excise sources accounted
for the remaining 15.3% of total fiscal 1996 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, businesses, 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, as of January 1,
1996, 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.
Under Chapter 151 of the Acts of 1990 up to 15% of state income tax
receipts are pledged to the payment of debt service on approximately $383.0
million of outstanding Fiscal Recovery Bonds issued pursuant to Chapter 151.
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Partially as a result of income tax rate increases, state income tax
revenues increased by 5.8% from fiscal 1991 to fiscal 1992. Compared to the
prior fiscal year, state income tax revenues increased by 0.7% in fiscal 1993,
5.9% in fiscal 1994, 5.0% in fiscal 1995 and 7.9% in fiscal 1996 and are
projected to decrease by 0.3% in fiscal 1997.
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 a 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.
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. Compared to the prior
fiscal year, business corporation tax revenues increased by 5.1% in fiscal 1992,
14.5% in fiscal 1993, 6.1% in fiscal 1994 and 16.4% in fiscal 1995. Fiscal 1996
tax revenues from business corporations were 3.8% lower than fiscal 1995, due
primarily to an estimated $49 million reduction in the business corporations tax
resulting from the application of the "single sales factor" apportionment
formula for the business corporations tax. The new formula, when fully
implemented, will calculate a firm's taxable income as its net income times the
percentage of its total sales that are in Massachusetts, as opposed to the
current formula that takes other factors, such as payroll and property, into
account.
BANK TAX. Commercial and savings banks are subject to an excise tax of
12.54%. On July 27, 1995, the Governor approved legislation that will reduce the
rate over several years to 10.5%, the same effective rate charged to other
corporations. The Department of Revenue estimates that the tax cut, when fully
implemented in fiscal year 1999, will result in an annual $32.3 million revenue
loss, including the effect of provisions in the proposed legislation that would
apply the tax to out-of-state banks and other financial institutions that are
not currently taxed and that would lead to an estimated $18 million annual gain.
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, tax
revenues from banks increased to approximately $152.9 million, or approximately
154.5% above fiscal 1992. Fiscal 1994 tax revenues from banks were approximately
$199.9 million, or approximately 30.7% above fiscal 1993. Fiscal 1995 tax
revenues from banks were $206 million, or approximately 3.0% above fiscal 1994.
Fiscal 1996 tax revenues from banks were approximately $218.6 million, or
approximately 6.2% higher than fiscal 1995. Fiscal
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1997 bank tax revenues are projected to total approximately $215 million, or
approximately 1.7%, below fiscal 1996.
OTHER TAXES. Other tax revenues of the Commonwealth totaled
approximately $1.637 billion in fiscal 1996, an increase of approximately 2.9%
from fiscal 1995. 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. Fiscal 1997 revenues from other tax revenues
are projected to total approximately $1.713 billion, an increase of
approximately 4.6% from fiscal 1996. Most of this increase is due to the
imposition of an additional 25 cent tax on tobacco products, which is expected
to result in approximately $74 million in additional tax receipts in fiscal
1997.
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.
FEDERAL AND OTHER NON-TAX REVENUES
Federal revenue is collected through reimbursements for the federal
share of entitlement programs such as Medicaid and beginning in Federal Fiscal
Year 1997, through block grants for programs such as Transitional Assistance to
Needy Families ("TANF"), formerly Aid to Families with Dependent Children
("AFDC"). The amount of federal revenue to be received is determined by state
expenditures for these programs. Federal reimbursements in fiscal 1992 decreased
by $383 million from $2.777 billion in fiscal 1991 to $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. Federal reimbursement for fiscal 1994
increased to $2.901 billion and increased further to $2.970 billion in fiscal
1995. Federal reimbursements for fiscal 1996 increased to $3.039 billion but are
expected to decline to $2.903 billion in fiscal 1997 due to one-time federal
reimbursements for fiscal 1996 spending.
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 11.8%
from $1.187 billion in fiscal 1992 to $1.327 billion in fiscal 1993, decreased
10.5% to $1.188 billion in fiscal 1994, increased 7.2% to $1.273 billion in
fiscal 1995 and decreased 5.4% to $1.208 billion in fiscal 1996. Departmental
and other non-tax revenues are projected to increase 3.8% to $1.254 billion in
fiscal 1997.
Interfund transfers and other sources from non-budgeted funds totaled
approximately $1.032 billion in fiscal 1996, an increase of 5.2% compared to
fiscal 1995. 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 $558.0 million, $600.2 million, $667.3 million, $709.5 million and
$727.5 million in fiscal 1992 through 1996, respectively and which are expected
to account for $752.7 million in fiscal 1997.
In fiscal 1991, special laws authorized transfers among the General,
Highway and Local Aid Funds to eliminate certain deficit fund balances.
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.
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On September 29, 1995, the Governor signed a tribal-state compact
between the Wampanoag Tribe of Gay Head and the Commonwealth which establishes
the relationship between the tribe and the Commonwealth with respect to the
operation of a casino in the city of New Bedford. The compact is subject to
approval by the Legislature and by the United States Secretary of the Interior.
The Governor also filed companion legislation that would authorize the licensing
of up to 700 slot machines at each of the four race tracks now licensed in the
state, as well as a casino in Hampden County. On November 9, 1995, the United
States Secretary of the Interior announced that he would not approve the
tribal-state compact between the Wampanoag Tribe of Gay Head and the
Commonwealth until after the Legislature had approved it. The Legislature did
not act on the compact prior to concluding its formal sessions on July 31, 1996.
On January 17, 1997, the Governor re-filed the compact with the Legislature.
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 tax revenues be reduced by the aggregate
amount received by local governmental units from any newly authorized or
increased local option taxes or excises. Any excess in State tax revenue
collections for a given fiscal year over the prescribed limit, as determined by
the State Auditor, is to be applied as a credit against the then current
personal income tax liability of all taxpayers in the Commonwealth in proportion
to the personal income tax liability of all taxpayers in the Commonwealth for
the immediately preceding tax year. Unlike Chapter 29B, as described below, the
initiative petition did not exclude principal and interest payments on
Commonwealth debt obligations from the scope of its tax limit. However, the
preamble contained in Chapter 62F provides that "although not specifically
required by anything contained in this chapter, it is assumed that from
allowable State tax revenues as defined herein the Commonwealth will give
priority attention to the funding of state financial assistance to local
governmental units, obligations under the state governmental pensions systems,
and payment of principal and interest on debt and other obligations of the
Commonwealth."
The legislation enacted in October, 1986, which added Chapter 29B to
the General Laws, also established an allowable state revenue growth factor by
reference to total wages and salaries in the Commonwealth. However, rather than
utilizing a three-year average wage and salary growth rate, as used by Chapter
62F, Chapter 29B utilizes 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.
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Tax revenues in fiscal 1992 through fiscal 1996 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
1997 will not reach the limit imposed by either of these statutes.
4. RHODE ISLAND
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN
RHODE ISLAND MUNICIPAL SECURITIES
The following is a summary of certain information contained in the
Information Statement of the State of Rhode Island and Providence Plantations
dated June 5, 1997. The summary does not purport to be a complete description
and is current as of the date of the information statement. The Funds are not
responsible for the accuracy or timeliness of this information.
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.
OVERVIEW OF THE ECONOMY
POPULATION CHARACTERISTICS
Rhode Island experienced modest population increases between 1980 and
1990. The 1990 United States census count for Rhode Island was 1,005,000, or
5.9% more than the 949,000 counted in 1980. While the Rhode Island population
did not change significantly between 1989 and 1993, it decreased by 1.0% between
1993 and 1996. Bureau of the Census estimates from 1996 show the Rhode Island
population to be 990,000. In contrast, the total United States population
increased by approximately 9.7% between 1980 and 1990, 3.4% between 1990 and
1993, and 2.9% between 1993 and 1996.
PERSONAL INCOME, CONSUMER PRICES AND POVERTY
Per capita personal income levels in Rhode Island have been consistent
with those in the United States since 1970. In addition, Rhode Island has
maintained a poverty rate well below the national average. In 1995, 10.6% of the
Rhode Island population was below the poverty line, while 13.8% of the
population of the United States fell below the poverty line.
EMPLOYMENT
Total employment levels in Rhode Island grew at a rate of 1.0% in 1994,
1.5% in 1995, and 0.3% in 1996. The only employment sector that declined in 1996
was manufacturing, which has experienced declining employment levels since 1985.
The sector employing the greatest number of people in Rhode Island continues to
be the service sector, which contributed approximately one-third of total
non-agricultural employment in 1994.
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ECONOMIC BASE AND PERFORMANCE
Rhode Island has a diversified economic base which includes traditional
manufacturing, high technology, and service industries. A substantial portion of
products produced by these sectors is exported. Like most other historically
industrial states, Rhode Island has seen a shift in employment from
labor-intensive manufacturing industries to technology and service-based
industries.
HUMAN RESOURCES
Skilled human capital is the foundation of economic strength in Rhode
Island. It provides the basis for a technologically dynamic and industrially
diverse regional economy. The Rhode Island population is well-educated with
27.6% of its residents over the age of 25 having received at least an
Associate's degree. In addition, per pupil spending on public elementary and
secondary education in Rhode Island has been significantly higher than the
national average since 1980. For the 1994-95 academic year Rhode Island spent
25% more per pupil than the national average.
ECONOMIC FORECAST
The Revenue Estimating Conference incorporates a range of economic
forecasts and economic information in making revenue estimates. During its May
1997 meeting, forecasts were presented by Data Resources, Inc. (DRI), the New
England Economic Project (NEEP), and Regional Financial Associates. Current
employment and labor force trends were also presented by the Department of Labor
and Training.
While growth will be slower than the past year, there is little
recession risk for fiscal year 1997 and fiscal year 1998, with the risk growing
toward the end of 1998 to approximately 30% based on the DRI/McGraw-Hill
forecast.
EMPLOYMENT. The economists generally agreed that employment would grow
1.1% for fiscal year 1997, an increase over the fiscal year 1996 growth of 0.6%.
Benchmark revisions for fiscal year 1996 employment data had resulted in a
reduction in non-farm employment growth from 1.3% to 0.6%. The revised fiscal
year 1997 forecast reflects significant increases from the December projections
of 0.3% growth for fiscal year 1997.
There is lack of agreement over the forecast employment growth for
fiscal year 1998, however. Both New England Economic Project and Regional
Financial Associates estimate growth of approximately 0.6%, while DRI is more
optimistic with 1.4% job growth. This is a difference between the forecasts of
approximately 3,600 new jobs.
PERSONAL INCOME. Personal income growth for fiscal year 1997 is
forecast to be approximately 4.7% which is less than the 5.7% experience in
fiscal year 1996. Fiscal year 1998 growth varies by forecaster between 4.0 and
4.9%. The difference in the estimates of the three economists is based on the
emphasis of contributing factors. The 4.9% estimate for personal income growth
is based on the assumptions that wage rates (even for unskilled workers) will
continue to grow and remain at the elevated levels and that employment losses in
the manufacturing sector will begin to slow through fiscal year 1998. On the
other hand, the 4.0% forecast is based on the assumption that the manufacturing
employment losses will continue at a fairly constant rate through fiscal year
1998.
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WAGE AND SALARY INCOME. One of the factors contributing to the
differences in personal income growth is differences in estimated wage and
salary income growth. The projection provided by the three economists range from
3.1% to 4.9% for fiscal year 1997 and from 2.5% to 5.6% in fiscal year 1998.
Again, the differences are attributable to the level of anticipated employment
losses in the manufacturing sector and to the anticipated strength of wage
growth throughout the forecast period.
GENERAL FUND REVENUES AND EXPENDITURES
The State draws nearly all of its revenue from a series of non-property
related taxes and excises, principally the personal income tax and general
retail sales and use tax, from federal assistance payments and grants-in-aid,
and from earnings and receipts from certain State-operated programs and
facilities. The State additionally derives revenue from a variety of special
purpose fees and charges which must be used for specific purposes as required by
State law.
MAJOR SOURCES OF STATE REVENUE
TAX REVENUES. Approximately 66.3% of all taxes and departmental
receipts in fiscal year 1996 were derived from the Rhode Island personal income
tax and the sales and use tax. They constituted 59.0% of all general revenues.
PERSONAL INCOME TAX. State law provides for a personal income tax on
residents and non-residents (including estates and trusts) equal to a percentage
of the federal income tax liability attributable to the taxpayer's Rhode Island
income. Effective with the passage of Chapter 6 of the 1991 Rhode Island Public
Laws, the State rate became 27.5 % of the taxpayer's federal income tax
liability for the period January 1, 1991 and thereafter. However, Article 30 of
the 1993 Appropriations Act provided for a second tier rate of 32.0% on the
amount of a taxpayer's federal tax liability which is in excess of fifteen
thousand dollars. This provision remained in effect through tax year 1993,
although the Tax Administrator, using his authority to adjust rates (as
described below), modified the second tier rates in October 1993. This was done
to offset the effects of changes in federal tax law contained in the Omnibus
Budget Reconciliation Act of 1993 (H.R. 2264).
The Rhode Island personal income tax accounted for approximately 32.6%
of the State's fiscal year 1996 general revenues.
BUSINESS CORPORATION TAX. The business tax is imposed on corporations
deriving income from sources within the State or engaging in activities for the
purpose of profit or gain. Article 20 of the 1990 Budget as amended set a rate
of 9.0% effective July 1, 1989. Passage of the fiscal year 1991 Reissuance of
Appropriations Act provided for a surtax of 11.0% on the amount otherwise due
for corporations whose taxable year ends on or after March 31, 1991 and before
January 1, 1993.
The Corporation tax was amended in 1993 to change the carry-back,
carry-forward provisions from 3 years back, 15 years forward to five years
forward. Two reductions to the business corporation tax were enacted as part of
the fiscal year 1994 Budget; the first repealed the 11.0% surtax for
corporations whose taxable years begin on or after January 1, 1994 (an extension
to January 1, 1997 was enacted in 1993), and the second doubled the investment
tax credit from two to four percent for investments made beginning January 1,
1994.
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Corporations dealing in securities on their own behalf, whose gross
receipts from such activities amount to at least 90.0% of their total gross
receipts, have been exempt from the net worth computation but are required to
pay the 9.0% income tax. Regulated investment companies and real estate
investment trusts and personal holding companies pay a tax at the rate of
10(cent) per $100 of gross income or $100, whichever is greater.
SALES AND USE TAX. The State assesses a tax on all retail sales,
subject to certain exceptions, and on hotel and other public accommodation
rentals, as well as upon the storage, use or other consumption of tangible
personal property in the State. The sales and use tax is imposed upon the
retailer at the rate of 7.0% of the gross receipts from taxable sales. Included
as major exemptions from the tax are: (a) food (excluding food sold by
restaurants, drive-ins or other eating places) for human consumption off the
premises of the retailer; (b) clothing; (c) medicines sold on prescription; (d)
fuel used in the heating of homes and residential premises; (e) domestic water
usage; (f) gasoline and other motor fuels otherwise specifically taxed; (g)
sales of tangible property and public utility services when the property or
service becomes a component part of a manufactured product for resale, or when
the property or service is consumed directly in the process of manufacturing or
processing products for resale and such consumption occurs within one year from
the date such property is first used in such production; (h) tools, dies and
molds and machinery and equipment (including replacement parts thereof) used
directly and exclusively in an industrial plant in the actual manufacture,
conversion or processing of tangible personal property to be sold; (i) sales of
air and water pollution control equipment for installation pursuant to an order
by the State Director of Environmental Management; and (j) sales of boats or
vessels to nonresidents for use outside the State.
OTHER TAXES. In addition to the above described taxes, the State
imposes various fees, taxes and excises for the registration of domestic and
foreign corporations, the sale of liquor and other alcoholic beverages, the
registration of motor vehicles and the operation of pari-mutuel betting.
DEPARTMENTAL REVENUES. The largest category of departmental earnings is
the group defined as licenses and fees, due largely to the assessment of the
hospital licensing fee. There was a one year hospital licensing fee, which
yielded $77.3 million in fiscal year 1995. The fiscal year 1996 Appropriations
Act extended the fee one year but at a lower rate generating $37.5 million. The
fiscal year 1997 Appropriations Act extended the fee for an additional year at
the same rate of 2.2%. The fiscal year 1998 budget would extend the fee for an
additional one year. The second largest category of revenue is sales and
services, which includes disproportionate share revenues. Other departmental
revenues include various miscellaneous receipts such as investment earnings on
General Fund balances.
RESTRICTED RECEIPTS. In fiscal year 1996, the State received a total of
$92.8 million in restricted receipts excluding transfers into the General Fund,
based upon audited statements. These reflect various specialized fees and
charges, interest on certain funds and accounts maintained by the State and
private contributions and grants to certain State programs. Such receipts are
restricted under State law to offset State expenditures for the program under
which such receipts are derived.
OTHER SOURCES. The largest component of Other Sources is the transfer
from the State Lottery. The State Lottery Fund was created in 1974 for the
receipt and disbursement of revenues of the State Lottery Commission from sales
of lottery tickets and license fees.
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For fiscal year 1996, Lottery transfers totaled $90.4 million based on
audited statements.
The second largest single component of Other Sources is the gas tax
transfer from the Intermodal Surface Transportation Fund. Gasoline tax receipts
not dedicated for use by transportation agencies became available to the general
fund. This amounted to $38.3 million in fiscal 1996.
Other Miscellaneous Sources in fiscal year 1996 totaled $59.9 million
based upon audited statements. It included $14.6 million in prior year Medical
Assistance recoveries, $14.5 million in DEPCO excess payments, $3.8 million in
settlements for employee medical costs and numerous other recoveries and
adjustments.
FEDERAL RECEIPTS. In fiscal year 1996, the State collected receipts of
$863.5 million from the federal government, representing grants-in-aid and
reimbursements to the State for expenditures for various health, welfare and
educational programs and distribution of various restricted or categorical
grants-in-aid.
Federal grants-in-aid reimbursements are normally conditioned to some
degree, depending on the particular program being funded, on matching resources
by the State ranging from a 50% matching expenditure to in-kind contributions.
The largest categories of federal grants and reimbursements are made for medical
assistance payments for the indigent (Title XIX) and Aid to Families with
Dependent Children (AFDC). The federal participatory rate for these two programs
are recalculated annually, and the major determinant in the rate calculation is
the relative wealth of the State. The federal match rate is 53.9% as of October
1, 1996.
REVENUE ESTIMATES
Current statutes require that a Revenue Estimating Conference convene
no less than three times a year: October, December and May. The following
paragraphs describe the revisions made at the May 1997 Revenue Estimating
Conference to both the enacted estimates and those adopted in December for
fiscal years 1997 and 1998.
FISCAL YEAR 1997. The fiscal year 1997 estimate was revised upward by
$66.1 million over the enacted level and $33.5 million over the revised estimate
made at the December Revenue Estimating Conference. This is a revision of 3.8%
to the enacted estimate and 1.9% over December. The estimate includes
adjustments resulting from passage of the fiscal year 1997 Supplemental
Appropriations Act, 97-H-5248, Substitute A.
The largest revision was a $27.9 million increase in estimated personal
income taxes over the December estimate. This was an increase of $42.2 million
to the enacted estimate. The revisions to the December estimate were: $10.6
million increased for estimated filings, $8.4 million increase in final
payments, $0.2 million decrease in estimated refunds, and an $8.7 million
increase in estimated withholding payments. The Conference adopted estimated
payments of $129.0 million, growth of 12.9% over fiscal year 1996, reflecting
market activity. Refunds are estimated to be 4.3% above fiscal year 1996.
Withholding growth is estimated at 4.9%.
Total general business taxes estimates were within $0.5 million of the
December estimate with gains in Corporate Income Tax ($10.8 million) and Public
Utilities Gross
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Earnings Taxes ($3.3 million) being offset by lower estimates for financial
institutions ($10.9 million), insurance companies ($2.0 million), and bank
deposit taxes ($1.1 million).
Estimated sales tax revenues of $488.5 million reflects 6.4% growth
over fiscal year 1996 receipts. The estimate is $4.1 million over the December
estimate. There was little change to the December estimates for the other sales
and use type taxes.
Other adjustments include: an increase of $1.8 million in inheritance
taxes; a downward revision of $3.0 million for department earnings; and a $3.3
million increase to lottery revenues. The lottery estimate change includes a
$6.9 million increase to the video lottery terminal estimate and a $1.0 million
increase to the KENO estimate offset by a decrease of $4.6 million to the
December estimate for the regular games, including Powerball.
The estimate also contains adjustments to the December estimates that
are included in the Governor's Budget that do not require legislation, a
reclassification in reappropriations of $12.2 million to surplus, plus changes
to current law contained in 97-H-5742, Substitute A.
FISCAL YEAR 1998. The fiscal year 1998 estimate was revised upward by
$34.3 million over the December Conference estimates primarily as a result of
larger fiscal year 1997 estimates. The discussion that follows details the
revisions made based on current law.
Personal income tax revenues are estimated to grow 3.0% to $642.5
million for fiscal year 1998. This is an increase of $25.5 million from the
December estimate. The overall estimate for personal income tax reflects: 2.3%
growth on estimated returns; 2.8% growth on final payments; an increase of 2.9%
to refunds; and, 3.2% growth for withholding receipts. The estimate reflects a
forecast end to the marked stock market growth fueling fiscal year 1997 returns,
and slower growth in withholdings.
Total business taxes are estimated at $193.4 million, which is a
decrease of $4.1 million from the December estimate. The estimate is $25.0
million below the revised fiscal year 1997 estimate, reflecting zero percent
adjusted growth on most sources combined with decreases due to tax law changes
lowering the public utilities gross earnings tax on energy used in
manufacturing, the telephone tax, electric utility restructuring, eliminating
the bank deposits tax on banks, ending the nursing home tax in September, and
the non-recurrence of $7.7 million for financial institutions.
Estimated sales tax revenues of $502.9 million are $2.9 million above
the December estimate reflecting 3.3% adjusted growth over fiscal year 1997.
Estimates for other taxes and departmental earnings were adjusted based upon the
revisions to the fiscal year 1997 estimates. The decrease from fiscal year 1997
to fiscal year 1998 for licenses and fees reflects the end of the tax on
hospitals at the end of fiscal year 1997 under current law.
Lottery estimates were increased $9.8 million solely as a result of
increased video lottery terminal estimates. The Conference members agreed to a
video lottery terminal estimate reflecting 12.5% growth, down from the 30 plus
percent growth of recent periods.
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EXPENDITURES
Expenditures for fiscal year 1997 reflect General Fund appropriations
which were enacted on July 18, 1996, as modified by the Supplemental
Appropriations Bill enacted on May 17, 1997. Revenues for fiscal year 1997
reflect the May 1997 Revenue Estimating Conference consensus estimates. General
Revenues for fiscal year 1998 are predicted upon consensus estimates of the
Revenue Estimating Conference of May 1997, as adjusted by net revenues changes
recommended by the Governor in the amount of $63.7 million. Expenditures for
fiscal year 1998 reflect the Governor's recommended budget submitted to the
Legislature in February 1997.
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.
INDEBTEDNESS
Under the State Constitution, the General Assembly has no power to
incur State debts in excess of $50,000 without the consent of the people, except
in the case of war, insurrection or invasion, or to pledge the faith of the
State to the payment of obligations of others without such consent. By judicial
interpretation, the limitation stated above has been judged to include all debts
of the State for which its full faith and credit are pledged, including general
obligation bonds and notes; bonds and notes guaranteed by the State; and debts
or loans insured by agencies of the State, such as the Industrial-Recreational
Building Authority. However, non-binding agreements of the State to appropriate
monies in aid of obligations of a State agency, such as the provisions of law
governing the capital reserve funds of the Port Authority and Economic
Development Corporation, now known as the Rhode Island Economic Development
Corporation, Housing and Mortgage Finance Corporation, or to appropriate monies
to pay rental obligations under State long-term leases, such as the State's
lease agreements with the Convention Center Authority and the Resource Recovery
Corporation, are not subject to this limitation.
DIRECT DEBT. Direct debt is authorized by the voters as general
obligation bonds and notes. As of June 1, 1997, the State had $699,465,036 of
bonds outstanding and $388,627,176 of authorized but unissued direct debt.
GUARANTEED DEBT. Guaranteed debt of the State includes bonds and notes
issued by or on behalf of certain agencies, commissions, and authorities created
by the General Assembly and charged with enterprise undertakings, for the
payment of which debt the full faith and credit of the State are pledged in the
event that the revenues of such entities may at any time be insufficient. These
include the Blackstone Valley District Commission, the Rhode Island Turnpike and
Bridge Authority, and the Narragansett Bay Water Quality Management District
Commission. As of June 1, 1997, these entities had bonds outstanding of
$54,887,449 and $1,514,000 of authorized but unissued debt.
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
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is the amount available at the end of any fiscal year for future appropriation
by the General Assembly.
The State is required to enact and maintain a balanced budget. In the
event of a budgetary imbalance, the available free surplus will be reduced
and/or additional resources (i.e. taxes, fines, fees, licenses, etc.) will be
required and/or certain of the expenditure controls will be put into effect.
A combination of these measures will be utilized by the State in order
to maintain a balanced budget.
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APPENDIX B
DESCRIPTION OF SECURITIES RATINGS1/
The ratings of Moody's Investors Service, Inc. ("MOODY'S"), Standard &
Poor's Rating Services ("S&P"), and Fitch Investors Service, LLP ("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.
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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.
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Note: Those bonds in the Aa, A and Baa categories which Moody's
believes possess the strongest credit attributes are designated by the symbols
Aa1, A1 and Baa1.
DESCRIPTION OF STANDARD & POOR'S RATING SERVICES
FOUR HIGHEST BOND RATINGS
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest rated issues only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is still strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
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, LLP'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
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likelihood that the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
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 RATING SERVICES
TWO HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES
A S&P note rating reflects the liquidity factors and market access
risks unique to notes. Notes maturing 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. Issues determined to possess
very strong characteristics are 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 RATING SERVICES
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.
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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
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, LLP'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 having an original
maturity not in excess of one year.
PRIME-1 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.
PRIME-2 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 coverage 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 RATING SERVICES
TWO HIGHEST COMMERCIAL PAPER RATINGS
A 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.
<PAGE>
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A-1 A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligations is still strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
DESCRIPTION OF FITCH INVESTORS SERVICE, LLP'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>
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INVESTMENT ADVISERS BOSTON 1784 FUNDS(REGISTERED MARK)
BankBoston, N.A. BOSTON 1784 TAX-FREE MONEY MARKET FUND
100 Federal Street BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
Boston, Massachusetts 02110 BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
BOSTON 1784 PRIME MONEY MARKET FUND
Kleinwort Benson Investment BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
Management Americas Inc. BOSTON 1784 SHORT-TERM INCOME FUND
75 Wall Street BOSTON 1784 INCOME FUND
New York, New York 10005 BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
DISTRIBUTOR BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
SEI Investments Distribution Co. BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
1 Freedom Valley Drive BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
Oaks, Pennsylvania 19456 BOSTON 1784 ASSET ALLOCATION FUND
BOSTON 1784 GROWTH AND INCOME FUND
ADMINISTRATOR BOSTON 1784 GROWTH FUND
BOSTON 1784 SMALL CAP EQUITY FUND
SEI Fund Resources BOSTON 1784 LARGE CAP EQUITY FUND
1 Freedom Valley Drive BOSTON 1784 INTERNATIONAL EQUITY FUND
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103 STATEMENT OF ADDITIONAL INFORMATION
CUSTODIAN
BankBoston, N.A. OCTOBER 1, 1997, AS SUPPLEMENTED
100 Federal Street NOVEMBER 5, 1997 AND DECEMBER 2, 1997
Boston, Massachusetts 02110
</TABLE>
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Boston 1784 Funds(REGISTERED MARK):
[BULLET] are not insured by the FDIC or any other governmental agency;
[BULLET] are not guaranteed by BankBoston, N.A. or any of its affiliates;
[BULLET] are not deposits or obligations of BankBoston, N.A. or any of
its affiliates; and
[BULLET] involve investment risks, including possible loss of principal.
BankBoston, N.A. serves as investment adviser, shareholder servicing agent and
custodian for Boston 1784 Funds. Boston 1784 Funds are distributed by SEI
Investments Distribution Co., a party independent of BankBoston, N.A. and any of
its affiliates. Financial Services Counselors are registered representatives of
BankBoston Investor Services, Inc., (member NASD/SIPC) a wholly-owned subsidiary
of BankBoston, N.A.
