File Nos. 33-58004
811-7474
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ x]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 22 [ x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ x]
Amendment No. 24 [ x]
(Check appropriate box or boxes)
BOSTON 1784 FUNDS
(Exact Name of Registrant as Specified in Charter)
2 Oliver Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 342-5734
ROBERT A. NESHER
C/O SEI INVESTMENTS COMPANY
1 FREEDOM VALLEY DRIVE
OAKS, PENNSYLVANIA 19456
(Name and Address of Agent for Service)
Copies to:
JOHN M. BAKER, SENIOR COUNSEL ROGER P. JOSEPH, ESQ.
BANKBOSTON, N.A. BINGHAM DANA LLP
100 FEDERAL STREET, 01-19-02 150 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02110
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on ________ pursuant to paragraph (b)
[ x ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on ________ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on ________ pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
BOSTON 1784[SERVICE MARK] FUNDS PROSPECTUS
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 International Equity Fund
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
________________, 1998
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TABLE OF CONTENTS
BOSTON 1784 MONEY MARKET FUNDS 2
BOSTON 1784 BOND FUNDS 10
BOSTON 1784 TAX-EXEMPT INCOME FUNDS 18
BOSTON 1784 STOCK FUNDS 28
SHAREHOLDER SERVICES 37
How to reach the Funds 37
Types of accounts 37
How to open an account 38
How to purchase shares 38
How to sell shares 40
Shareholder services and policies 41
PRICING OF FUND SHARES 43
DISTRIBUTIONS 43
FEDERAL TAX CONSIDERATIONS 44
MORE ABOUT BOSTON 1784 FUNDS 46
Money Market Funds 46
Bond Funds 49
Tax-Exempt Funds 52
Stock Funds 55
MANAGEMENT 59
DISTRIBUTION ARRANGEMENTS 60
FINANCIAL HIGHLIGHTS 61
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BOSTON 1784 MONEY MARKET FUNDS
TAX-FREE MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND
INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
PRIME MONEY MARKET FUND
INSTITUTIONAL PRIME MONEY MARKET FUND
This Risk/Return Summary
briefly describes each
Boston 1784 Money Market
Fund and the principal
risks of investing in the
Funds. For further
information on these Funds,
please read the section
entitled MORE ABOUT BOSTON
1784 FUNDS.
[GRAPHIC OMITTED]
WHAT ARE THE FUNDS' GOALS?
TAX-FREE MONEY MARKET FUND
The Tax-Free Money Market Fund's goals are to preserve the principal value of a
shareholder's investment and maintain a high degree of liquidity while providing
current income that is exempt from federal income tax.
U.S. TREASURY MONEY MARKET FUND
The U.S. Treasury Money Market Fund's goals are to preserve the principal value
of a shareholder's investment and maintain a high degree of liquidity while
providing current income.
INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
The Institutional U.S. Treasury Money Market Fund's goals are to preserve the
principal value of a shareholder's investment and maintain a high degree of
liquidity while providing current income.
PRIME MONEY MARKET FUND
The Prime Money Market Fund's goals are to preserve the principal value of a
shareholder's investment and maintain a high degree of liquidity while providing
current income.
INSTITUTIONAL PRIME MONEY MARKET FUND
The Institutional Prime Money Market Fund's goals are to preserve the principal
value of a shareholder's investment and to maintain a high degree of liquidity
while providing current income.
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What is a MONEY MARKET FUND? A MONEY MARKET FUND is a type of mutual fund that
tries to maintain a share price of $1.00 while paying income to its
shareholders. A stable share price protects your investment from loss
("PRESERVATION OF PRINCIPAL"). If you need to sell your shares at any time, you
should receive your initial investment plus any income that you have earned
(thereby providing "LIQUIDITY"). However, a MONEY MARKET FUND does not guarantee
that you will receive your money back.
A MONEY MARKET FUND must follow strict rules as to the investment
quality, maturity, diversity and other features of the securities it purchases
and the average maturity of the securities
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cannot be greater than 90 days. THE MATURITY of a security is the date on which
the principal amount must be repaid.
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[GRAPHIC OMITTED]
WHAT ARE THE FUNDS' MAIN INVESTMENT STRATEGIES?
TAX-FREE MONEY MARKET FUND
The Tax-Free Money Market Fund invests primarily in short-term municipal
securities, which are debt securities issued by states, cities and towns and
other political or public entities or agencies. The interest paid on these debt
securities is free from federal income tax.
The Fund may also enter into repurchase agreements and invest in limited amounts
in securities paying interest that is not free from federal taxes.
U.S. TREASURY MONEY MARKET FUND
The U.S. Treasury Money Market Fund invests primarily in short-term U.S.
government obligations including Treasury securities, U.S. government agency
securities and repurchase agreements secured by U.S. government securities.
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What are U.S. GOVERNMENT OBLIGATIONS? U.S. GOVERNMENT OBLIGATIONS or SECURITIES
are bonds or other debt obligations issued by, or whose principal and interest
are guaranteed by, the U.S. government or one of its agencies or
instrumentalities. U.S. TREASURY SECURITIES and some obligations of U.S.
government agencies and instrumentalities are supported by the "full faith and
credit" of the United States. Other U.S. GOVERNMENT OBLIGATIONS are backed by
the right of the issuer to borrow from the U.S. Treasury, and others only by the
credit of the issuing agency or instrumentality. U.S. GOVERNMENT OBLIGATIONS
generally have less credit risk than other debt obligations.
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INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
The Institutional U.S. Treasury Money Market Fund invests primarily in
short-term U.S. government obligations, including Treasury securities, U.S.
government agency securities and repurchase agreements secured by U.S.
government securities.
PRIME MONEY MARKET FUND
The Prime Money Market Fund invests primarily in high quality short-term debt
obligations, including commercial paper, asset-backed commercial paper,
corporate bonds, U.S. government agency obligations, taxable municipal
securities and repurchase agreements.
INSTITUTIONAL PRIME MONEY MARKET FUND
The Institutional Prime Money Market Fund invests primarily in high quality
short-term debt obligations, including commercial paper, asset-backed commercial
paper, corporate bonds, U.S. government agency obligations, taxable municipal
securities and repurchase agreements.
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[GRAPHIC OMITTED]
WHAT ARE THE MAIN RISKS OF INVESTING IN BOSTON 1784 MONEY MARKET FUNDS?
The principal risks of investing in the Money Market Funds and the circumstances
reasonably likely, in the opinion of the Adviser, to adversely affect your
investment are described below. Please note that there are many other factors
which could adversely affect your investment, and which could prevent a Fund
from achieving its objectives, which are not described here. The principal risks
are:
[BULLET] The rate of income will vary from day to day depending on
short-term interest rates.
[BULLET] It is possible that a major change in interest rates or a default
on a security or a repurchase agreement held by a Fund could cause
the value of your investment to decline.
[BULLET] Each Money Market Fund may invest up to 20% of its total assets in
zero coupon securities called STRIPS, which are the separately
traded interest and principal component parts of U.S. Treasury
securities. The interest-only component is extremely sensitive to
the rate of principal payments on the underlying obligation. The
market value of the principal-only component generally is
unusually volatile in response to changes in interest rates.
[BULLET] An investment in a Fund is not a deposit of BankBoston and is not
insured or guaranteed by the Federal Deposit Insurance Corporation
or any other governmental agency.
[BULLET] Although the Funds seek to preserve the value of your investment
at $1.00 per share, it is possible to lose money by investing in
the Funds.
[GRAPHIC OMITTED]
WHO MAY WANT TO INVEST?
TAX-FREE MONEY MARKET FUND
This Money Market Fund may be appropriate for investors who:
[BULLET] are investing for a short period of time or as part of a savings
plan;
[BULLET] are uncomfortable with an investment that will go up and down in
value;
[BULLET] want to earn income exempt from federal taxes.
It is not an appropriate investment for tax-sheltered accounts such
as IRAs.
U.S. TREASURY MONEY MARKET FUND
This Money Market Fund may be appropriate for investors who:
[BULLET] are investing for a short period of time or as part of a savings
plan;
[BULLET] are uncomfortable with an investment that will go up and down in
value;
[BULLET] want the added safety of U.S. government securities.
INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
This Money Market Fund may be appropriate for institutional investors who:
[BULLET] are investing for a short period of time;
[BULLET] want the added safety of U.S. government securities.
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PRIME MONEY MARKET FUND
This Money Market Fund may be appropriate for investors who:
[BULLET] are investing for a short period of time or as part of a savings
plan;
[BULLET] are uncomfortable with an investment that will go up and down in
value.
[BULLET] are looking for higher returns than are usually available from
treasury money market funds.
INSTITUTIONAL PRIME MONEY MARKET FUND
This Money Market Fund may be appropriate for institutional investors who:
[BULLET] are investing for a short period of time;
[BULLET] are looking for higher returns than are usually available from
treasury money market funds.
NONE OF THE MONEY MARKET FUNDS ALONE PROVIDE A BALANCED INVESTMENT PLAN.
[GRAPHIC OMITTED]
HOW HAVE THE FUNDS PERFORMED?
The Charts and Tables below give an indication of the Funds' risks and
performance. The Charts show changes in the Funds' performance from year to
year. The Tables show how the Funds' average annual returns for the periods
indicated compare to those of a broad measure of market performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT A FUND'S PERFORMANCE IN PAST
YEARS IS NOT NECESSARILY AN INDICATION OF
HOW A FUND WILL DO IN THE FUTURE.
TAX-FREE MONEY MARKET FUND
TOTAL RETURN (PER CALENDAR YEAR)
[BAR GRAPH OMITTED]
1994 1995 1996 1996
2.71% 3.75% 3.25% 3.33%
The total return for the Fund's fiscal year ended May 31, 1998 was 3.33%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
QUARTER ENDING
--------------
Highest 0.96% June 30, 1995
Lowest 0.58% March 31, 1994
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AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
- ----------------------------------------------- --------------- ----------------
Past One Year Past Four Years
- ----------------------------------------------- --------------- ----------------
Tax-Free Money Market Fund 3.33% 3.26%
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IBC/Financial Data Stockbroker and General
Purpose Tax Free Average 3.08% 2.92%
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For up-to-date yield information, please call 1-800-BKB-1784.
U.S. TREASURY MONEY MARKET FUND
TOTAL RETURN (PER CALENDAR YEAR)
[BAR GRAPH OMITTED]
1994 1995 1996 1997
3.72% 5.43% 4.82% 4.96%
The total return for the Fund's fiscal year ended May 31, 1998 was 5.02%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
QUARTER ENDING
--------------
Highest 1.38% June 30, 1995
Lowest 0.64% March 31, 1994
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
- ----------------------------------------------- --------------- ----------------
Past One Year Past Four Years
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U.S. Treasury Money Market Fund 4.96% 4.74%
- ----------------------------------------------- --------------- ----------------
IBC/Financial Data U.S. Government and
Agencies Average 4.94% 4.65%
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For up-to-date yield information, please call 1-800-BKB-1784.
INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
TOTAL RETURN (PER CALENDAR YEAR)
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1994 1995 1996 1997
4.04% 5.69% 5.14% 5.30%
The total return for the Fund's fiscal year ended May 31, 1998 was 5.36%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
QUARTER ENDING
--------------
Highest 1.43% June 30, 1995
Lowest 0.76% March 31, 1994
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
- ----------------------------------------------- --------------- ----------------
Past One Year Past Four Years
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Institutional U.S. Treasury Money Market Fund 5.30% 5.04%
- ----------------------------------------------- --------------- ----------------
IBC/Financial Data Gov't-Only
Institutions-Only Average 5.21% 4.95%
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For up-to-date yield information, please call 1-800-BKB-1784.
PRIME MONEY MARKET FUND
TOTAL RETURN (PER CALENDAR YEAR)
1992 1993 1994 1995 1996 1997
3.48% 2.72% 3.75% 5.49% 5.02% 5.14%
The total return for the Fund's fiscal year ended May 31, 1998 was 5.16%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
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QUARTER ENDING
--------------
Highest 1.39% June 30, 1995
Lowest 0.66% March 31, 1994
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
<TABLE>
<CAPTION>
- ------------------------------------------- --------------- ---------------- ---------------
Past One Year Past Five Years Past Six Years
- ------------------------------------------- --------------- ---------------- ---------------
<S> <C> <C> <C>
Prime Money Market Fund 5.14% 4.36% 4.26%
- ------------------------------------------- --------------- ---------------- ---------------
IBC/Financial Data First Tier Money
Market Average 5.01% 4.32% 4.15%
- ------------------------------------------- --------------- ---------------- ---------------
</TABLE>
For up-to-date yield information, please call 1-800-BKB-1784.
INSTITUTIONAL PRIME MONEY MARKET FUND
The Fund began operations during 1997 and does not have a full calendar year of
investment returns at the date of this Prospectus. The Fund's total return for
the fiscal year ended May 31, 1998 is provided in the "Financial Highlights"
section of this Prospectus.
For up-to-date yield information, please call 1-800-BKB-1784.
[GRAPHIC OMITTED]
WHAT ARE THE FEES AND EXPENSES OF THE FUNDS?
THE TABLES BELOW DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY IF
YOU BUY AND HOLD SHARES OF BOSTON 1784 MONEY MARKET FUNDS.
<TABLE>
<CAPTION>
- ------------------------------------------- ------------ ------------- ------------------ ------------- -------------------
SHAREHOLDER FEES (fees paid directly from TAX-FREE U.S. INSTITUTIONAL PRIME MONEY INSTITUTIONAL
your investment) MONEY TREASURY U.S. TREASURY MARKET FUND PRIME MONEY
MARKET FUND MONEY MONEY MARKET FUND MARKET FUND
MARKET FUND
- ------------------------------------------- ------------ ------------- ------------------ ------------- -------------------
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on NONE NONE NONE NONE NONE
Purchases
- ------------------------------------------- ------------ ------------- ------------------ ------------- -------------------
Maximum Deferred Sales Charge (Load) NONE NONE NONE NONE NONE
- ------------------------------------------- ------------ ------------- ------------------ ------------- -------------------
Maximum Sales Charge (Load) Imposed on NONE NONE NONE NONE NONE
Reinvested Dividends
- ------------------------------------------- ------------ ------------- ------------------ ------------- -------------------
Redemption Fee NONE NONE NONE NONE NONE
- ------------------------------------------- ------------ ------------- ------------------ ------------- -------------------
Exchange Fee NONE NONE NONE NONE NONE
- ------------------------------------------- ------------ ------------- ------------------ ------------- -------------------
- -------------------------------------------- ------------ -------------- ------------------ ------------- ------------------
ANNUAL FUND OPERATING EXPENSES (expenses TAX-FREE U.S. INSTITUTIONAL PRIME MONEY INSTITUTIONAL
that are deducted from Fund assets) as a % MONEY TREASURY U.S. TREASURY MARKET FUND PRIME MONEY
of average net assets MARKET FUND MONEY MARKET MONEY MARKET FUND MARKET FUND
FUND
- -------------------------------------------- ------------ -------------- ------------------ ------------- ------------------
</TABLE>
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<TABLE>
- -------------------------------------------- ------------ -------------- ------------------ ------------- ------------------
<S> <C> <C> <C> <C> <C>
Management Fees .40% .40% .20% .40% .20%
- -------------------------------------------- ------------ -------------- ------------------ ------------- ------------------
Distribution (12b-1) Fees NONE NONE NONE NONE NONE
- -------------------------------------------- ------------ -------------- ------------------ ------------- ------------------
Other Expenses .16% .32% .14% .35% .20%
- -------------------------------------------- ------------ -------------- ------------------ ------------- ------------------
TOTAL ANNUAL FUND OPERATING .56%* .72%* .34% .75%* .40%
EXPENSES
- -------------------------------------------- ------------ -------------- ------------------ ------------- ------------------
</TABLE>
*Each of these Funds' actual Total Annual Fund Operating Expenses for the most
recent fiscal year were less than the amount shown above because of a fee waiver
by the Funds' Adviser. The Adviser waives a portion of its management fees in
order to keep each Funds' total operating expenses at a specified level. The
Adviser may eliminate all or a part of the fee waiver at any time. With the fee
waiver, the Funds' actual Total Annual Fund Operating Expenses were as follows:
Tax-Free Money Market Fund .54%
U.S. Treasury Money Market Fund .65%
Prime Money Market Fund .65%
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
BOSTON 1784 MONEY MARKET FUNDS TO THE COST OF INVESTING IN OTHER
MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN A FUND FOR THE TIME
PERIODS INDICATED AND THEN SELL ALL OF YOUR SHARES AT THE END OF
THOSE PERIODS. THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A
5% RETURN EACH YEAR AND THAT THE FUND'S OPERATING EXPENSES REMAIN
THE SAME AS THOSE SHOWN IN THE TABLE ABOVE. ALTHOUGH YOUR ACTUAL
COSTS AND THE RETURN ON YOUR INVESTMENT MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
- ------------------------ ----------- ------------- ------------------ ----------------- -------------------
TAX-FREE U.S. INSTITUTIONAL PRIME MONEY INSTITUTIONAL
MONEY TREASURY U.S. TREASURY MARKET FUND PRIME MONEY
MARKET MONEY MONEY MARKET FUND MARKET FUND
FUND MARKET FUND
- ------------------------ ----------- ------------- ------------------ ----------------- -------------------
<S> <C> <C> <C> <C> <C>
1 year $57 $74 $35 $77 $41
- ------------------------ ----------- ------------- ------------------ ----------------- -------------------
3 years 179 230 109 240 128
- ------------------------ ----------- ------------- ------------------ ----------------- -------------------
5 years 313 401 191 417 224
- ------------------------ ----------- ------------- ------------------ ----------------- -------------------
10 years 701 894 431 930 505
- ------------------------ ----------- ------------- ------------------ ----------------- -------------------
</TABLE>
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BOSTON 1784 BOND FUNDS
SHORT-TERM INCOME FUND
INCOME FUND
U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
This Risk/Return Summary
briefly describes each
Boston 1784 Bond Fund and
the principal risks of
investing in the Funds. For
further information on
these Funds, please read
the section entitled MORE
ABOUT 1784 FUNDS.
[GRAPHIC OMITTED]
WHAT ARE THE FUNDS' GOALS?
SHORT-TERM INCOME FUND
The Short-Term Income Fund's goal is to provide investors with maximum current
income, and, as a secondary goal, to preserve investors' capital.
INCOME FUND
The Income Fund's goal is to provide investors with maximum current income, and,
as a secondary goal, to preserve investors' capital.
U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
The U.S. Government Medium-Term Income Fund's goal is to provide investors with
current income consistent with preservation of capital.
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What is a BOND? A BOND, which is also called a DEBT SECURITY or DEBT OBLIGATION,
is like a loan. The issuer of the bond, which could be the U.S. government, a
corporation, or a city or state, borrows money from investors and agrees to pay
back the loan amount (the PRINCIPAL) on a certain date (the MATURITY DATE).
Usually, the issuer also agrees to pay interest on certain dates during the
period of the loan. Some bonds, such as ZERO COUPON BONDS, do not pay interest,
but instead pay back more at maturity than the original loan. Most bonds pay a
fixed rate of interest (or income), but some bonds' interest rates may change
based on market or other factors.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
What does it mean to "PRESERVE CAPITAL"? CAPITAL, also called PRINCIPAL, refers
to the amount of money that you invest in a fund. If you choose to have your
dividends and other distributions reinvested in additional shares of a fund, the
amount of the dividends or other distributions will be added to your initial
investment to increase the amount of your CAPITAL. If the price of the fund's
shares or net asset value (NAV) increases because of increases in the value of
the securities in the fund, your CAPITAL will also increase. If, however, the
value of the fund's investments go down and the price of the fund's shares
decreases, you will lose some of your CAPITAL. A fund that seeks to PRESERVE
CAPITAL or PRINCIPAL tries to maintain a stable share price so that you do not
lose money.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
WHAT ARE THE FUNDS' MAIN INVESTMENT STRATEGIES?
SHORT-TERM INCOME FUND
<PAGE>
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The Short-Term Income Fund invests primarily in investment grade debt
securities, such as corporate bonds, notes, mortgage-backed and asset-backed
securities, taxable municipal securities and U.S. Treasury and government agency
obligations.
The Fund may invest in Yankee bonds which are dollar-denominated bonds issued in
the U.S. by foreign borrowers. Yankee bonds may offer higher income than bonds
issued by U.S. borrowers. The Fund may also invest in bonds issued by non-U.S.
issuers and payable in foreign currencies.
Under normal conditions, at least 65% of the securities will be rated A or
better by a rating agency, or be of comparable quality as determined by the
Adviser.
In order to limit fluctuations in share price, the Fund tries to maintain an
average weighted maturity of less than three years under normal circumstances.
INCOME FUND
The Income Fund invests primarily in investment grade debt securities including
U.S. government bonds, corporate bonds and mortgage-backed and asset-backed
securities.
The Fund may invest in Yankee bonds which are dollar-denominated bonds issued in
the U.S. by foreign borrowers. Yankee bonds may offer higher income than bonds
issued by U.S. borrowers. The Fund may also invest in bonds issued by non-U.S.
issuers and payable in foreign currencies.
Under normal conditions, at least 65% of the securities will be rated A or
better by a rating agency, or be of comparable quality as determined by the
Adviser.
The Fund's average weighted maturity is normally expected to be between 7 and 30
years.
U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
The U.S. Government Medium-Term Income Fund invests primarily in short- to
intermediate-term U.S. Treasury and government agency securities and both
government agency and non-government agency mortgage-backed securities.
U.S. government obligations generally have less credit risk than other debt
obligations.
The Fund's average weighted maturity is normally expected to be from 3 to 10
years.
[GRAPHIC OMITTED]
WHAT ARE THE MAIN RISKS OF INVESTING IN BOSTON 1784 BOND FUNDS?
The principal risks of investing in the Bond Funds and the circumstances
reasonably likely, in the opinion of the Adviser, to adversely affect your
investment are described below. As with any non-money market mutual fund, the
share price of each Fund and each Fund's yield will change daily because of
changes in interest rates and other market conditions and factors. You may lose
money if you invest in these Funds. Please note that there are many other
circumstances which could adversely affect your investment, and which could
prevent a Fund from achieving its objectives, that are not described here. The
principal risks of investing in the Bond Funds are:
[BULLET] Interest Rate Risk: In general, bond prices rise when interest
rates fall and fall when interest rates rise. Longer term bonds
and zero coupon bonds are generally more sensitive to interest
rate changes than shorter term bonds. Generally, the longer the
average maturity of the bonds in a Fund, the more the Fund's
share price will fluctuate in response to interest rate changes.
<PAGE>
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[BULLET] Credit Risk: It is possible that some of the issuers will not
make payments on debt securities held by a Fund, or there could
be defaults on repurchase agreements held by a Fund. Or, an
issuer may suffer adverse changes in financial condition that
could lower the credit quality of a security, leading to greater
volatility in the price of the security and in shares of a Fund.
A change in the quality rating of a bond can affect the bond's
liquidity and make it more difficult for the Fund to sell.
[BULLET] Prepayment Risk: The issuers of securities held by a Fund may be
able to prepay principal due on the securities, particularly
during periods of declining interest rates. Securities subject to
prepayment risk generally offer less potential for gains when
interest rates decline, and may offer a greater potential for
loss when interest rates rise. In addition, rising interest rates
may cause prepayments to occur at a slower than expected rate,
thereby effectively lengthening the maturity of the security, and
making the security more sensitive to interest rate changes.
Prepayment risk is a major risk of mortgage-backed securities.
[BULLET] Special Risks Associated with Mortgage-Backed Securities: The
Fund will receive payments on its mortgage-backed securities that
are part interest and part return of principal. These payments
may vary based on the rate at which homeowners pay off their
loans. When a homeowner makes a prepayment, the Fund receives a
larger portion of its principal investment back, which means that
there will be a decrease in monthly interest payments. Some
mortgage securities may have structures that make their reaction
to interest rates and other factors difficult to predict, making
their prices very volatile.
[BULLET] Foreign Securities: Investments in foreign securities may
involve risks in addition to those of U.S. investments, including
increased political and economic risk and exposure to currency
fluctuations.
[BULLET] An investment in a Fund is not a deposit of BankBoston and is not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
[GRAPHIC OMITTED]
WHO MAY WANT TO INVEST?
SHORT-TERM INCOME FUND
This Bond Fund may be appropriate for investors who are:
[BULLET] seeking current income;
[BULLET] seeking a higher yield than a money market fund or a bank savings
account;
[BULLET] seeking more price stability than a longer-term bond fund but are
able to tolerate some fluctuations in the value of their
investment.
INCOME FUND
This Bond Fund may be appropriate for investors who are:
[BULLET] seeking a higher level of current income than is available from
shorter-term securities;
[BULLET] able to tolerate the greater price fluctuations associated with
longer term securities and higher levels of income.
U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
This Bond Fund may be appropriate for investors who are:
[BULLET] seeking higher levels of current income than is available from
shorter-term securities or money market funds;
[BULLET] seeking the added measure of protection against credit risk
provided by U.S. government securities;
<PAGE>
-13-
[BULLET] able to tolerate the fluctuations in price associated with medium
term securities.
NONE OF THE BOND FUNDS ALONE PROVIDE A BALANCED INVESTMENT PLAN.
[GRAPHIC OMITTED]
HOW HAVE THE FUNDS PERFORMED?
The Charts and Tables below give an indication of the Funds' risks and
performance. The Charts show changes in the Funds' performance from year to
year. The Tables show how the Funds' average annual returns for the periods
indicated compare to those of a broad measure of market performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A FUND'S PERFORMANCE IN
PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A FUND WILL DO IN THE FUTURE.
SHORT-TERM INCOME FUND
TOTAL RETURN (PER CALENDAR YEAR)
[BAR GRAPH OMITTED]
1995 1996 1997
11.36% 4.25% 6.30%
The total return for the Fund's fiscal year ended May 31, 1998 was 6.98%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
QUARTER ENDING
--------------
Highest 3.31% June 30, 1995
Lowest -0.27% March 31, 1996
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
- ----------------------------------------------- --------------- ----------------
Past One Year Past Three Years
- ----------------------------------------------- --------------- ----------------
Short-Term Income Fund 6.30% 7.26%
- ----------------------------------------------- --------------- ----------------
Lehman Brothers Mutual Fund
1-5 Year Corporate Government Bond Index 7.12% 8.18%
- ----------------------------------------------- --------------- ----------------
For up-to-date yield information, please call 1-800-BKB-1784.
<PAGE>
-14-
INCOME FUND
TOTAL RETURN (PER CALENDAR YEAR)
[BAR GRAPH OMITTED]
1995 1996 1997
17.98% 2.60% 7.85%
The total return for the Fund's fiscal year ended May 31, 1998 was 8.88%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
QUARTER ENDING
--------------
Highest 6.34% June 30, 1995
Lowest -2.42% March 31, 1996
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
- --------------------------------------- ---------------- ------------------
Past One Year Past Three Years
- --------------------------------------- ---------------- ------------------
Income Fund 7.85% 9.29%
- --------------------------------------- ---------------- ------------------
Lehman Brothers Aggregate Bond Index 9.68% 10.42%
- --------------------------------------- ---------------- ------------------
For up-to-date yield information, please call 1-800-BKB-1784.
U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
TOTAL RETURN (PER CALENDAR YEAR)
<PAGE>
-15-
[BAR GRAPH OMITTED]
1994 1995 1996 1997
- -3.78% 15.89% 1.98% 8.08%
The total return for the Fund's fiscal year ended May 31, 1998 was 8.56%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
QUARTER ENDING
--------------
Highest 5.51% June 30, 1995
Lowest -2.93% March 31, 1994
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
- ----------------------------------------------- ---------------- ---------------
Past One Year Past Four Years
- ----------------------------------------------- ---------------- ---------------
U.S. Government Medium-Term Income Fund 8.08% 5.29%
- ----------------------------------------------- ---------------- ---------------
Lehman Brothers Intermediate U.S. Government
Bond Index 7.72% 5.95%
- ----------------------------------------------- ---------------- ---------------
For up-to-date yield information, please call 1-800-BKB-1784.
<PAGE>
-16-
[GRAPHIC OMITTED]
WHAT ARE THE FEES AND EXPENSES OF THE FUNDS?
THE TABLES BELOW DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF BOSTON 1784 BOND FUNDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------- ------------- -----------------
SHAREHOLDER FEES (fees paid directly from your investment) SHORT-TERM INCOME FUND U.S. GOVERNMENT
INCOME MEDIUM-TERM
FUND INCOME FUND
- ------------------------------------------------------------ ---------- ------------- -----------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases NONE NONE NONE
- ------------------------------------------------------------ ---------- ------------- -----------------
Maximum Deferred Sales Charge (Load) NONE NONE NONE
- ------------------------------------------------------------ ---------- ------------- -----------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends NONE NONE NONE
- ------------------------------------------------------------ ---------- ------------- -----------------
Redemption Fee NONE NONE NONE
- ------------------------------------------------------------ ---------- ------------- -----------------
Exchange Fee NONE NONE NONE
- ------------------------------------------------------------ ---------- ------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------- ---------- ------------- -----------------
ANNUAL FUND OPERATING EXPENSES (expenses SHORT-TERM INCOME FUND U.S. GOVERNMENT
that are deducted from Fund assets) as a % INCOME MEDIUM-TERM
of average net assets FUND INCOME FUND
- -------------------------------------------------------------------- ---------- ------------- -----------------
<S> <C> <C> <C>
Management Fees .50% .74% .74%
- -------------------------------------------------------------------- ---------- ------------- -----------------
Distribution (12b-1) Fees .25% .25% .25%
- -------------------------------------------------------------------- ---------- ------------- -----------------
Other Expenses .18% .16% .18%
- -------------------------------------------------------------------- ---------- ------------- -----------------
TOTAL ANNUAL FUND OPERATING EXPENSES .93%* 1.15%* 1.17%*
- -------------------------------------------------------------------- ---------- ------------- -----------------
</TABLE>
*Each of these Funds' actual Total Annual Fund Operating Expenses for the most
recent fiscal year were less than the amount shown above because of fee waivers
by the Funds' Adviser and Distributor. The Adviser waives a portion of its
management fees in order to keep the Funds' total operating expenses at a
specified level and the Distributor waives its entire Distribution Fee. The
Adviser and the Distributor may eliminate all or a part of the fee waivers at
any time. With these fee waivers, the Funds' Actual Total Annual Operating
Expenses were as follows:
Short-Term Income Fund .65%
Income Fund .80%
U.S. Government Medium-Term Income Fund .80%
<PAGE>
-17-
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN BOSTON
1784 BOND FUNDS TO THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN A FUND FOR THE TIME PERIODS
INDICATED AND THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE
EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE
FUND'S OPERATING EXPENSES REMAIN THE SAME AS THOSE SHOWN IN THE TABLE ABOVE.
ALTHOUGH YOUR ACTUAL COSTS AND THE RETURN ON YOUR INVESTMENT MAY BE HIGHER OR
LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
- -------------------------- ------------------------- ------------------------- -------------------------
SHORT-TERM INCOME FUND INCOME FUND U.S. GOVERNMENT
MEDIUM-TERM INCOME FUND
- -------------------------- ------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
1 year $95 $117 $119
- -------------------------- ------------------------- ------------------------- -------------------------
3 years 296 365 372
- -------------------------- ------------------------- ------------------------- -------------------------
5 years 515 633 644
- -------------------------- ------------------------- ------------------------- -------------------------
10 years 1,143 1,398 1,420
- -------------------------- ------------------------- ------------------------- -------------------------
</TABLE>
<PAGE>
-18-
BOSTON 1784 TAX-EXEMPT INCOME FUNDS
TAX-EXEMPT MEDIUM-TERM INCOME FUND
CONNECTICUT TAX-EXEMPT INCOME FUND
FLORIDA TAX-EXEMPT INCOME FUND
MASSACHUSETTS TAX-EXEMPT INCOME FUND
RHODE ISLAND TAX-EXEMPT INCOME FUND
This Risk/Return Summary
briefly describes each
Boston 1784 Tax-Exempt
Income Fund and the
principal risks of
investing in the Funds. For
further information on
these Funds, please read
the section entitled MORE
ABOUT BOSTON 1784 FUNDS.
[GRAPHIC OMITTED]
WHAT ARE THE FUNDS' GOALS?
TAX-EXEMPT MEDIUM-TERM INCOME FUND
The Tax-Exempt Medium-Term Income Fund's goal is to provide investors with
current income, exempt from federal income tax, consistent with preservation of
capital.
CONNECTICUT TAX-EXEMPT INCOME FUND
The Connecticut Tax-Exempt Income Fund's goal is to provide investors with
current income exempt from both federal and Connecticut personal income tax.
Preservation of capital is a secondary goal.
FLORIDA TAX-EXEMPT INCOME FUND
The Florida Tax-Exempt Income Fund's goal is to provide investors with 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
goal.
MASSACHUSETTS TAX-EXEMPT INCOME FUND
The Massachusetts Tax-Exempt Income Fund's goal is to provide investors with
current income, exempt from both federal and Massachusetts personal income tax,
consistent with preservation of capital.
RHODE ISLAND TAX-EXEMPT INCOME FUND
The Rhode Island Tax-Exempt Income Fund's goal is to provide investors with
current income exempt from Federal income tax and Rhode Island personal income
and business corporation taxes. Preservation of capital is a secondary goal.
[GRAPHIC OMITTED]
WHAT ARE THE FUNDS' MAIN INVESTMENT STRATEGIES?
- --------------------------------------------------------------------------------
What are MUNICIPAL SECURITIES? MUNICIPAL SECURITIES are DEBT OBLIGATIONS of
states, cities, towns, and other political subdivisions, agencies or public
authorities that pay interest that is exempt from federal income tax. MUNICIPAL
SECURITIES also include debt obligations of other
<PAGE>
-19-
qualifying issuers such as Puerto Rico, Guam, the Virgin Islands and Native
American Tribes. MUNICIPAL SECURITIES are often issued to raise money for public
services and projects such as schools, hospitals and public transportation
systems. Some MUNICIPAL SECURITIES (for example, INDUSTRIAL DEVELOPMENT BONDS)
may be backed by private companies and used to provide financing for corporate
facilities or other private projects. In most states, MUNICIPAL SECURITIES
issued by entities within the state are also exempt from that state's taxes.
MUNICIPAL SECURITIES may be in the form of BONDS, NOTES and COMMERCIAL PAPER,
may have a fixed or floating rate of interest, or be issued as ZERO COUPON
BONDS.
- --------------------------------------------------------------------------------
TAX-EXEMPT MEDIUM-TERM INCOME FUND
The Tax-Exempt Medium-Term Income Fund invests primarily in a diversified
portfolio of municipal securities.
The Fund may also invest in limited amounts in debt securities that pay interest
that is not exempt from federal tax, such as U.S. government obligations,
corporate bonds, money market instruments and repurchase agreements.
The Fund may, from time to time, invest as a hedging strategy, in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts in an effort to offset
unfavorable changes in the value of securities held by the Fund for investment
purposes.
In an effort to preserve capital and lessen credit risk, the Fund invests
primarily in investment grade securities, and generally invests in securities
rated A or better. Certain securities held by the Fund may be covered by
municipal bond insurance. The average weighted maturity of the debt securities
in the Fund is normally expected to be from 5 to 10 years.
- --------------------------------------------------------------------------------
What are INVESTMENT GRADE SECURITIES? INVESTMENT GRADE SECURITIES are securities
that have been determined by a rating agency to have a medium to high
probability of being paid, although there is always a risk of default.
INVESTMENT GRADE SECURITIES are rated BBB, A, AA OR AAA by Standard & Poor's
Corporation or BAA, A, AA, OR AAA by Moody's Investors Service.
- --------------------------------------------------------------------------------
CONNECTICUT TAX-EXEMPT INCOME FUND
The Connecticut Tax-Exempt Income Fund invests primarily in municipal securities
that pay interest that is exempt from federal income tax and Connecticut
personal income tax. Issuers of these securities are generally located in
Connecticut.
The Fund may also invest in limited amounts in municipal securities that are
exempt from federal income tax, but not exempt from Connecticut taxes, as well
as taxable debt securities such as U.S. government obligations, corporate bonds,
money market instruments and repurchase agreements.
The Fund may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts in an effort to offset
unfavorable changes in the value of securities held by the Fund for investment
purposes.
The Fund invests primarily in investment grade securities and generally invests
in securities rated A or better. Certain securities held by the Fund may be
covered by municipal bond insurance. The average weighted maturity of the debt
securities held by the Fund is normally expected to be from 5 to 10 years.
FLORIDA TAX-EXEMPT INCOME FUND
<PAGE>
-20-
The Florida Tax-Exempt Income Fund invests primarily in municipal securities
that pay interest that is exempt from federal income tax and that are exempt
from Florida intangible personal property tax. Issuers of these securities are
generally located in Florida.
The Fund may also invest in limited amounts in municipal securities that are
exempt from federal income tax, but not exempt from Florida taxes, as well as
taxable debt securities such as U.S. government obligations, corporate bonds,
money market instruments and repurchase agreements.
The Fund may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts in an effort to offset
unfavorable changes in the value of securities held by the Fund for investment
purposes.
The Fund invests primarily in investment grade securities and generally invests
in securities rated A or better. Certain securities held by the Fund may be
covered by municipal bond insurance. The average weighted maturity of the debt
securities held by the Fund is normally expected to be from 5 to 10 years.
MASSACHUSETTS TAX-EXEMPT INCOME FUND
The Massachusetts Tax-Exempt Income Fund invests primarily in municipal
securities that pay interest that is exempt from federal income tax and
Massachusetts personal income tax. Issuers of these securities are generally
located in Massachusetts.
The Fund may also invest in limited amounts in municipal securities that are
exempt from federal income tax, but not exempt from Massachusetts taxes, as well
as taxable debt securities such as U.S. government obligations, corporate bonds,
money market instruments and repurchase agreements.
The Fund may, from time to time, invest as a hedging strategy, in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts in an effort to offset
unfavorable changes in the value of securities held by the Fund for investment
purposes.
The Fund invests primarily in investment grade securities and generally invests
in securities rated A or better. Certain securities held by the Fund may be
covered by municipal bond insurance. The average weighted maturity of the debt
securities held by the Fund is normally expected to be from 5 to 10 years.
RHODE ISLAND TAX-EXEMPT INCOME FUND
The Rhode Island Tax-Exempt Income Fund invests primarily in municipal
securities that pay interest that is exempt from federal income tax, and Rhode
Island personal income and business corporation taxes. Issuers of these
securities are generally located in Rhode Island.
The Fund may also invest in limited amounts in municipal securities that are
exempt from federal income tax, but not exempt from Rhode Island taxes, as well
as taxable debt securities such as U.S. government obligations, corporate bonds,
money market instruments and repurchase agreements.
The Fund may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts in an effort to offset
unfavorable changes in the value of securities held by the Fund for investment
purposes.
The Fund invests primarily in investment grade securities and generally invests
in securities rated A or better. Certain securities held by the Fund may be
covered by municipal bond insurance. The
<PAGE>
-21-
average weighted maturity of the debt securities held by the Fund is normally
expected to be from 5 to 10 years.
[GRAPHIC OMITTED]
WHAT ARE THE MAIN RISKS OF INVESTING IN BOSTON 1784 TAX-EXEMPT INCOME FUNDS?
The principal risks of investing in the Tax-Exempt Income Funds and the
circumstances reasonably likely, in the opinion of the Adviser, to adversely
affect your investment are described below. As with any non-money market mutual
fund, the share price of each Fund and each Fund's yield will change daily based
on changes in interest rates and other market conditions and factors. You may
lose money if you invest in these Funds. Please note that there are many other
circumstances which could adversely affect your investment, and which could
prevent a Fund from achieving its objectives, that are not described here. The
principal risks of investing in the Tax-Exempt Income Funds are:
[BULLET] Interest Rate Risk: In general, the prices of municipal securities
and other debt securities rise when interest rates fall and fall
when interest rates rise. Longer term obligations and zero coupon
bonds are usually more sensitive to interest rate changes than
shorter term obligations. Generally, the longer the average
maturity of the bonds in a Fund, the more the Fund's share price
will fluctuate in response to interest rate changes.
[BULLET] Credit Risk: Although the Funds invest primarily in investment
grade securities, these securities may have some credit risk. It
is possible that some of the issuers will not make payments on the
municipal or other debt securities held by the Fund or there could
be defaults on repurchase agreements held by a Fund. Or, an issuer
may suffer adverse changes in its financial condition that could
lower the credit quality of a security, leading to greater
volatility in the price of the security and in shares of the Fund.
An adverse change in the quality rating of a bond can affect the
bond's liquidity and make it more difficult for the Fund to sell.
[BULLET] Municipal Market Risk: There are special factors which may affect
the value of municipal securities, and as a result, a Fund's share
price. These factors include political or legislative changes,
uncertainties related to the tax status of the securities or the
rights of investors in the securities.
[BULLET] Prepayment Risk: The issuers of securities held by a Fund may be
able to prepay principal due on the securities, particularly
during periods of declining interest rates. Securities subject to
prepayment risk generally offer less potential for gains when
interest rates decline, and may offer a greater potential for loss
when interest rates rise. In addition, rising interest rates may
cause prepayments to occur at a slower than expected rate, thereby
effectively lengthening the maturity of the security, and making
the security more sensitive to interest rate changes.
[BULLET] Lack of Diversification: The Connecticut, Florida, Massachusetts
and Rhode Island Funds are not diversified, which means that they
may invest a relatively high percentage of their assets in the
obligations of a limited number of issuers. As a result, these
Funds may be more susceptible to any single economic, political or
regulatory occurrence. These Funds are also particularly
susceptible to events affecting issuers in their particular
states. You should consider the greater risk of investing in these
single state funds compared to more diversified mutual funds.
<PAGE>
-22-
[BULLET] Futures and Options on Futures: Although the Tax-Exempt Income
Funds will use futures and options on futures for hedging purposes
only, the hedging strategy may not be successful if the portfolio
manager is unable to accurately predict movements in the prices of
individual securities held by a Fund, or if the strategy does not
correlate well with the Fund's investments. The use of futures and
options on futures, which are commonly referred to as derivatives,
may produce a loss for the Fund, even when used only for hedging
purposes.
[BULLET] When Issued Securities: Each of the Funds may enter into
agreements to purchase debt securities before the securities have
been issued. The Fund takes a risk that the market value of these
securities will decline before the securities are delivered to the
Fund.
[BULLET] An investment in the Fund is not a deposit of BankBoston and is
not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
[GRAPHIC OMITTED]
WHO MAY WANT TO INVEST?
TAX-EXEMPT MEDIUM-TERM INCOME FUND
This Tax-Exempt Income Fund may be appropriate for investors who are:
[BULLET] seeking current income that is exempt from federal income tax;
[BULLET] seeking a higher tax-equivalent yield than is available from
shorter-term tax-exempt securities or money market funds;
[BULLET] able to tolerate moderate risk and some fluctuation in share
price.
CONNECTICUT TAX-EXEMPT INCOME FUND
This Tax-Exempt Income Fund may be appropriate for investors who are:
[BULLET] seeking current income that is exempt from federal income tax and
Connecticut personal income tax;
[BULLET] seeking a higher tax-equivalent yield than is available from
shorter-term tax-exempt securities or money market funds;
[BULLET] able to tolerate moderate risk and some fluctuation in share
price.
FLORIDA TAX-EXEMPT INCOME FUND
This Tax-Exempt Income Fund may be appropriate for investors who are:
[BULLET] seeking current income that is exempt from federal income tax
through an investment that is exempt from Florida intangible
personal property tax;
[BULLET] seeking a higher tax-equivalent yield than is available from
shorter term tax-exempt securities or money market funds;
[BULLET] able to tolerate moderate risk and some fluctuation in share
price.
MASSACHUSETTS TAX-EXEMPT INCOME FUND
This Tax-Exempt Income Fund may be appropriate for investors who are:
[BULLET] seeking current income that is exempt from federal income tax and
Massachusetts personal income tax;
[BULLET] seeking a higher tax-equivalent yield than is available from
shorter term tax-exempt securities or money market funds;
[BULLET] able to tolerate moderate risk and some fluctuation in share
price.
RHODE ISLAND TAX-EXEMPT INCOME FUND
This Tax-Exempt Income Fund may be appropriate for investors who are:
[BULLET] seeking current income that is exempt from federal income tax and
Rhode Island personal income and business corporation taxes;
[BULLET] seeking higher levels of tax-equivalent yield than is available
from shorter
<PAGE>
-23-
term tax-exempt securities or money market funds;
[BULLET] able to tolerate moderate risk and some fluctuation in share
price.
THE TAX-EXEMPT FUNDS ARE NOT AN APPROPRIATE INVESTMENT FOR
TAX-SHELTERED ACCOUNTS SUCH AS IRAS. NONE OF THESE FUNDS ALONE
PROVIDE A BALANCED INVESTMENT PLAN.
[GRAPHIC OMITTED]
HOW HAVE THE FUNDS PERFORMED?
The Charts and Tables below give an indication of the Funds' risks and
performance. The Charts show changes in the Funds' performance from year to
year. The Tables show how the Funds' average annual returns for the periods
indicated compare to those of a broad measure of market performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT A FUND'S PERFORMANCE IN PAST
YEARS IS NOT NECESSARILY AN INDICATION OF
HOW A FUND WILL DO IN THE FUTURE.
TAX-EXEMPT MEDIUM-TERM INCOME FUND
TOTAL RETURN (PER CALENDAR YEAR)
1994 1995 1996 1997
- -3.02% 14.31% 4.20% 9.10%
The total return for the Fund's fiscal year ended May 31, 1998 was 9.24%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
QUARTER ENDING
--------------
Highest 5.39% March 31, 1995
Lowest -4.20% March 31, 1994
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
- ----------------------------------------------- ---------------- ---------------
Past One Year Past Four Years
- ----------------------------------------------- ---------------- ---------------
Tax-Exempt Medium-Term Income Fund 9.10% 5.96%
- ----------------------------------------------- ---------------- ---------------
Lehman Brothers 7-Year Municipal Bond Index 7.69% 5.69%
- ----------------------------------------------- ---------------- ---------------
<PAGE>
-24-
For up-to-date yield information, please call 1-800-BKB-1784.
CONNECTICUT TAX-EXEMPT INCOME FUND
TOTAL RETURN (PER CALENDAR YEAR)
1995 1996 1997
14.66% 3.63% 8.53%
The total return for the Fund's fiscal year ended May 31, 1998 was 9.29%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
QUARTER ENDING
--------------
Highest 5.91% March 31, 1995
Lowest -1.25% March 31, 1996
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
- ----------------------------------------------- --------------- ----------------
Past One Year Past Three Years
- ----------------------------------------------- --------------- ----------------
Connecticut Tax-Exempt Income Fund 8.53% 8.85%
- ----------------------------------------------- --------------- ----------------
Lehman Brothers 7-Year Municipal Bond Index 7.69% 8.67%
- ----------------------------------------------- --------------- ----------------
For up-to-date yield information, please call 1-800-BKB-1784.
FLORIDA TAX-EXEMPT INCOME FUND
The Fund began operations during 1997 and as a result, does not have a full
calendar year of investment returns at the date of this Prospectus. The Fund's
total return for the fiscal year ended May 31, 1998 is provided in the
"Financial Highlights" section of this Prospectus.
For up-to-date yield information, please call 1-800-BKB-1784.
MASSACHUSETTS TAX-EXEMPT INCOME FUND
TOTAL RETURN (PER CALENDAR YEAR)
<PAGE>
-25-
1994 1995 1996 1997
- -5.45% 13.73% 3.32% 8.89%
The total return for the Fund's fiscal year ended May 31, 1998 was 8.91%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
QUARTER ENDING
--------------
Highest 5.45% March 31, 1995
Lowest -5.15% March 31, 1994
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
- ----------------------------------------------- ---------------- ---------------
Past One Year Past Four Years
- ----------------------------------------------- ---------------- ---------------
Massachusetts Tax-Exempt Income Fund 8.89% 4.88%
- ----------------------------------------------- ---------------- ---------------
Lehman Brothers 7-Year Municipal Bond Index 7.69% 5.69%
- ----------------------------------------------- ---------------- ---------------
For up-to-date yield information, please call 1-800-BKB-1784.
RHODE ISLAND TAX-EXEMPT INCOME FUND
TOTAL RETURN (PER CALENDAR YEAR)
1995 1996 1997
14.13% 4.65% 8.28%
The total return for the Fund's fiscal year ended May 31, 1998 was 8.28%.
<PAGE>
-26-
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
QUARTER ENDING
--------------
Highest 5.66% March 31, 1995
Lowest -0.98% March 31, 1996
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
- ----------------------------------------------- --------------- ----------------
Past One Year Past Three Years
- ----------------------------------------------- --------------- ----------------
Rhode Island Tax-Exempt Income Fund 8.28% 8.95%
- ----------------------------------------------- --------------- ----------------
Lehman Brothers 7-Year Municipal Bond Index 7.69% 8.67%
- ----------------------------------------------- --------------- ----------------
For up-to-date yield information, please call 1-800-BKB-1784.
[GRAPHIC OMITTED]
WHAT ARE THE FEES AND EXPENSES OF THE FUNDS?
THE TABLES BELOW DESCRIBE THE
FEES AND EXPENSES THAT YOU
MAY PAY IF YOU BUY AND
HOLD SHARES OF BOSTON 1784
TAX-EXEMPT INCOME FUNDS
<TABLE>
<CAPTION>
- ----------------------------------------- ----------- ----------------- ------------------ -------------------- ---------------
SHAREHOLDER FEES (fees paid directly TAX-EXEMPT CONNECTICUT FLORIDA MASSACHUSETTS RHODE ISLAND
from your investment) MEDIUM-TERM TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT INCOME TAX-EXEMPT
INCOME INCOME FUND INCOME FUND FUND INCOME FUND
FUND
- ----------------------------------------- ----------- ----------------- ------------------ -------------------- ---------------
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge (Load) NONE NONE NONE NONE NONE
Imposed on Purchases
- ----------------------------------------- ----------- ----------------- ------------------ -------------------- ---------------
Maximum Deferred Sales Charge NONE NONE NONE NONE NONE
(Load)
- ----------------------------------------- ----------- ----------------- ------------------ -------------------- ---------------
Maximum Sales Charge (Load) NONE NONE NONE NONE NONE
Imposed on Reinvested Dividends
- ----------------------------------------- ----------- ----------------- ------------------ -------------------- ---------------
Redemption Fee NONE NONE NONE NONE NONE
- ----------------------------------------- ----------- ----------------- ------------------ -------------------- ---------------
Exchange Fee NONE NONE NONE NONE NONE
- ----------------------------------------- ----------- ----------------- ------------------ -------------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------- ------------ ----------------- ------------------ -------------------- --------------
ANNUAL FUND OPERATING EXPENSES TAX-EXEMPT CONNECTICUT FLORIDA MASSACHUSETTS RHODE ISLAND
(expenses that are deducted from Fund MEDIUM-TERM TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT INCOME TAX-EXEMPT
assets) as a % of average net assets INCOME FUND INCOME FUND INCOME FUND FUND INCOME FUND
- ----------------------------------------- ------------ ----------------- ------------------ -------------------- --------------
<S> <C> <C> <C> <C> <C>
Management Fees .74% .74% .74% .74% .74%
- ----------------------------------------- ------------ ----------------- ------------------ -------------------- --------------
Distribution (12b-1) Fees .25% .25% .25% .25% .25%
- ----------------------------------------- ------------ ----------------- ------------------ -------------------- --------------
</TABLE>
<PAGE>
-27-
<TABLE>
- ----------------------------------------- ------------ ----------------- ------------------ -------------------- --------------
<S> <C> <C> <C> <C> <C>
Other Expenses .18% .18% .20% .19% .22%
- ----------------------------------------- ------------ ----------------- ------------------ -------------------- --------------
TOTAL ANNUAL FUND OPERATING 1.17%* 1.17%* 1.19%* 1.18%* 1.21%*
EXPENSES
- ----------------------------------------- ------------ ----------------- ------------------ -------------------- --------------
</TABLE>
*Each of these Funds' actual Total Annual Fund Operating Expenses for the most
recent fiscal year were less than the amount shown above because of fee waivers
by the Funds' Adviser and Distributor. The Adviser waives a portion of its
management fees in order to keep the Funds' total operating expenses at a
specified level and the Distributor waives its entire Distribution Fee. The
Adviser and the Distributor may eliminate all or a part of the fee waivers at
any time. With these fee waivers, the Funds' actual Total Annual Operating
Expenses were as follows:
Tax-Exempt Medium-Term Income Fund .80%
Connecticut Tax-Exempt Income Fund .80%
Florida Tax-Exempt Income Fund .80%
Massachusetts Tax-Exempt Income Fund .80%
Rhode Island Tax-Exempt Income Fund .80%
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN BOSTON
1784 TAX-EXEMPT INCOME FUNDS TO THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN A FUND FOR THE TIME PERIODS
INDICATED AND THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE
EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE
FUND'S OPERATING EXPENSES REMAIN THE SAME AS THOSE SHOWN IN THE TABLE ABOVE.
ALTHOUGH YOUR ACTUAL COSTS AND THE RETURN ON YOUR INVESTMENT MAY BE HIGHER OR
LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
- ------------------------ ------------- ---------------- ------------------ -------------------- -------------------
TAX-EXEMPT CONNECTICUT FLORIDA MASSACHUSETTS RHODE ISLAND
MEDIUM-TERM TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT INCOME TAX-EXEMPT INCOME
INCOME FUND INCOME FUND INCOME FUND FUND FUND
- ------------------------ ------------- ---------------- ------------------ -------------------- -------------------
<S> <C> <C> <C> <C> <C>
1 year $119 $119 $121 $120 $123
- ------------------------ ------------- ---------------- ------------------ -------------------- -------------------
3 years 372 372 378 375 384
- ------------------------ ------------- ---------------- ------------------ -------------------- -------------------
5 years 644 644 654 649 665
- ------------------------ ------------- ---------------- ------------------ -------------------- -------------------
10 years 1,420 1,420 1,443 1,432 1,466
- ------------------------ ------------- ---------------- ------------------ -------------------- -------------------
</TABLE>
<PAGE>
-28-
BOSTON 1784 STOCK FUNDS
ASSET ALLOCATION FUND
GROWTH AND INCOME FUND
GROWTH FUND
INTERNATIONAL EQUITY FUND
This Risk/Return Summary
briefly describes each
Boston 1784 Stock Fund and
the principal risks of
investing in the Funds. For
further information on
these Funds, please read
the section entitled MORE
ABOUT BOSTON 1784 FUNDS.
[GRAPHIC OMITTED]
WHAT ARE THE FUNDS' GOALS?
ASSET ALLOCATION FUND
The Asset Allocation Fund's goal is to provide investors with 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.
GROWTH AND INCOME FUND
The Growth and Income Fund's primary goal is to provide investors with long-term
growth of capital with a secondary goal of income.
GROWTH FUND
The Growth Fund's primary goal is to provide investors with capital
appreciation. Dividend income, if any, is incidental to this goal.
INTERNATIONAL EQUITY FUND
The International Equity Fund's goal is to provide investors with long-term
growth of capital.
- --------------------------------------------------------------------------------
What is CAPITAL APPRECIATION? A fund that seeks CAPITAL APPRECIATION or GROWTH
OF CAPITAL seeks to increase the value of your investment. CAPITAL, also called
PRINCIPAL, refers to the amount of money that you invest in a fund. If the price
of the fund's shares or net asset value (NAV) goes up due to an increase in the
value of the securities in the fund, your CAPITAL will also grow or appreciate.
If, however, the price of the fund's shares decreases due to a decline in the
value of securities in the fund, you will lose some of your CAPITAL. If you
choose to have your dividends and other distributions reinvested in additional
shares of a fund, the amount of the dividends or other distributions will be
added to your initial investment and increase the amount of your CAPITAL.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
WHAT ARE THE FUNDS' MAIN INVESTMENT STRATEGIES?
ASSET ALLOCATION FUND
The Asset Allocation Fund invests in a carefully balanced mix of equity and debt
securities and money market instruments.
<PAGE>
-29-
The Fund's equity securities include the stock of large U.S. companies, and from
time to time, mid-sized domestic companies and large, multi-national companies
based outside of the United States.
The Fund's debt securities include investment grade debt obligations such as
U.S. government securities, corporate bonds and mortgage-backed and asset-backed
securities.
The Fund's portfolio managers decide what percentage of the Fund's assets will
be invested in debt, equity and money market securities based on the managers'
judgment of various economic factors. The Fund expects that normally:
[BULLET] 30% to 70% of its assets will be invested in equity securities;
[BULLET] 30% to 60% of its assets will be invested in intermediate and
long-term debt obligations;
[BULLET] up to 40% of its assets may be invested in short-term debt and
money market instruments.
GROWTH AND INCOME FUND
The Growth and Income Fund invests primarily in the common stock of established
U.S. and foreign companies where the Adviser believes there is opportunity for
growth.
When investing in U. S. companies, the Fund principally invests in companies
with a market capitalization of at least $1 billion, although the Fund also
invests in companies with smaller capitalizations.
When investing in foreign companies, the Fund may also invest in smaller
companies and companies located in developing countries.
In addition to common stocks, the Fund may invest in other securities including
convertible debt securities and preferred stock. The Fund may engage in foreign
currency hedging transactions in an attempt to minimize the effects of currency
fluctuations on the Fund.
- --------------------------------------------------------------------------------
What is CAPITALIZATION? CAPITALIZATION or MARKET CAPITALIZATION is the total
value of a company's stock in the marketplace or on a stock exchange. For
example, a company that has issued one million shares that are currently selling
for $50 per share would have a CAPITALIZATION of $50,000,000.
- --------------------------------------------------------------------------------
GROWTH FUND
The Growth Fund invests primarily in the common stock of U.S. and foreign
companies which the Adviser believes have above-average growth potential.
When investing in U. S. companies, the Fund principally invests in companies
with a market capitalization of at least $250 million, although the Fund also
invests in companies with smaller capitalizations. Companies with
capitalizations of less than $1 billion are generally considered to have small
capitalizations.
When investing in foreign companies, the Fund may also invest in smaller
companies and in companies located in developing countries.
In addition to common stocks, the Fund may invest in other securities including
convertible debt securities and preferred stock. The Fund may engage in foreign
currency hedging transactions in an attempt to minimize the effects of currency
fluctuations on the Fund.
INTERNATIONAL EQUITY FUND
<PAGE>
-30-
The International Equity Fund invests primarily in stocks and other equity
interests issued by foreign companies. The Fund seeks to invest in a number of
countries with different economic characteristics and may invest in developing
countries.
The Fund may also invest in other securities, including non-convertible debt
securities and money market instruments. The Fund may engage in foreign currency
hedging transactions in an attempt to minimize the effects of currency
fluctuations on the Fund.
[GRAPHIC OMITTED]
WHAT ARE THE MAIN RISKS OF INVESTING IN BOSTON 1784 STOCK FUNDS?
The principal risks of investing in the Stock Funds and the circumstances
reasonably likely, in the opinion of the Adviser, to adversely affect your
investment are described below. As with any non-money market mutual fund, the
share price of each Fund will change daily based on market conditions and other
factors. You may lose money if you invest in these Funds. Please note that there
are many other circumstances which could adversely affect your investment, and
which could prevent a Fund from achieving its objectives, that are not described
here. The principal risks of investing in the Stock Funds are:
[BULLET] Market Risk: This is the risk that the price of a security will
rise or fall due to changing economic, political or market
conditions, or due to a company's individual situation.
[BULLET] Smaller Companies: The securities of smaller companies may have
more risks than those of larger companies--they may be more
susceptible to market downturns, and their prices may be more
volatile.
[BULLET] Foreign Securities: Investments in foreign 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.
[BULLET] 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.
<PAGE>
-31-
[BULLET] Enforcing legal rights may be difficult, costly and slow
in foreign countries, and there may be special problems
enforcing claims against foreign governments. In
addition, foreign 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.
[BULLET] Foreign markets may be less liquid and more volatile
than U.S. markets, and may offer less protection to
investors such as the Funds. Equity securities traded in
certain foreign countries may trade at high price
earnings multiples that are unsustainable.
[BULLET] Since foreign securities often trade in currencies
other than the U.S. dollar, changes in currency exchange
rates will affect a Fund's net asset value, the value of
dividends and interest earned, and gains and losses
realized on the sale of securities. An increase in the
U.S. dollar relative to these other currencies will
adversely affect the value of the Fund.
[BULLET] The International Equity Fund, the Growth Fund and the
Growth and Income Fund may invest in issuers located in
developing countries.
[BULLET] Developing countries are generally defined as
countries in the initial stages of their
industrialization cycles with low per capita
income.
[BULLET] All of the risks of investing in foreign
securities are heightened by investing in
developing countries.
[BULLET] The markets of developing countries have been
more volatile than the markets of developed
countries with more mature economies; these
markets often have provided higher rates of
return, and greater risks, to investors.
<PAGE>
-32-
[BULLET] Interest Rate Risk: In general, the prices of debt
securities rise when interest rates fall and the prices
of debt securities fall when interest rates rise. Longer
term obligations are usually more sensitive to interest
rate changes.
[BULLET] Credit Risk: It is possible that some issuers will not
make payments on debt obligations held by a Fund. Or, an
issuer may suffer adverse changes in financial condition
that could lower the credit quality of a security,
leading to greater volatility in the price of the
security and in shares of the Fund. A change in the
quality rating of a bond can also affect the bond's
liquidity and make it more difficult for the Fund to
sell.
[BULLET] Prepayment Risk: The issuers of securities held by a
Fund may be able to prepay principal due on the
securities, particularly during periods of declining
interest rates. Securities subject to prepayment risk
generally offer less potential for gains when interest
rates decline, and may offer a greater potential for
loss when interest rates rise. In addition, rising
interest rates may cause prepayments to occur at a
slower than expected rate, thereby effectively
lengthening the maturity of the security, and making the
security more sensitive to interest rate changes.
Prepayment risk is a major risk of mortgage-backed
securities.
[BULLET] Special characteristics of convertible securities:
convertible securities are subject to the market risk of
stocks, while also subject to interest rate risk and the
credit risk of the issuers. Call provisions may allow
the issuer to repay the debt before it matures.
[BULLET] An investment in a Fund is not a deposit of BankBoston
and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.
[GRAPHIC OMITTED]
WHO MAY WANT TO INVEST?
ASSET ALLOCATION FUND
The Asset Allocation Fund may be appropriate for long-term investors who
are:
[BULLET] seeking a balanced investment program;
[BULLET] seeking protection against inflation;
[BULLET] able to tolerate a substantial loss in the value of their
investment.
GROWTH AND INCOME FUND
This Stock Fund may be appropriate for long-term investors who are:
[BULLET] seeking high long-term growth;
[BULLET] able to tolerate a substantial loss in the value of their
investment.
GROWTH FUND
This Stock Fund may be appropriate for long-term investors who are:
[BULLET] seeking high long-term growth;
[BULLET] able to tolerate a substantial loss in the value of their
investment;
[BULLET] able to tolerate the additional risks of investing in smaller
companies;
[BULLET] not seeking income.
INTERNATIONAL EQUITY FUND
This Stock Fund may be appropriate for long-term investors who are:
[BULLET] seeking high long-term growth;
[BULLET] looking for exposure in the international markets and able to
tolerate the additional risks associated with these markets;
[BULLET] able to tolerate a substantial loss in the value of their
investments;
[BULLET] not seeking income.
NONE OF THE STOCK FUNDS ALONE PROVIDE A BALANCED INVESTMENT PLAN.
[GRAPHIC OMITTED]
HOW HAVE THE FUNDS PERFORMED?
The Charts and Tables below give an indication of the Funds' risks and
performance. The Charts show changes in the Funds' performance from year to
year. The Tables show how the Funds' average annual returns for the periods
indicated compare to those of a broad measure of market performance.
<PAGE>
-33-
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A FUND'S PERFORMANCE IN
PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A FUND WILL DO IN THE FUTURE.
ASSET ALLOCATION FUND
TOTAL RETURN (PER CALENDAR YEAR)
1994 1995 1996 1997
- -0.65% 29.55% 10.48% 20.74%
The total return for the Fund's fiscal year ended May 31, 1998 was 20.51%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
QUARTER ENDING
--------------
Highest 10.79% June 30, 1997
Lowest -3.33% March 31, 1994
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
- ----------------------------------------- ------------------- ------------------
Past One Year Past Four Years
- ----------------------------------------- ------------------- ------------------
Asset Allocation Fund 20.74% 14.47%
- ----------------------------------------- ------------------- ------------------
S&P 500 Composite Index 33.36% 22.94%
- ----------------------------------------- ------------------- ------------------
Lehman Brothers Aggregate Bond Index 9.68% 6.93%
- ----------------------------------------- ------------------- ------------------
The table above compares the average annual returns of the Fund, which holds a
mix of stocks, bonds and other debt securities, to an unmanaged stock index and
an unmanaged bond index for the periods indicated.
<PAGE>
-34-
GROWTH AND INCOME FUND
TOTAL RETURN (PER CALENDAR YEAR)
1994 1995 1996 1997
- -0.18% 30.56% 23.63% 19.66%
The total return for the Fund's fiscal year ended May 31, 1998 was 26.71%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
QUARTER ENDING
--------------
Highest 13.03% June 30, 1997
Lowest -3.63% June 30, 1994
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
- --------------------------------------- ------------------- --------------------
Past One Year Past Four Years
- --------------------------------------- ------------------- --------------------
Growth and Income Fund 19.66% 17.84%
- --------------------------------------- ------------------- --------------------
S&P 500 Composite Index 33.36% 22.94%
- --------------------------------------- ------------------- --------------------
GROWTH FUND
TOTAL RETURN (PER CALENDAR YEAR)
[BAR GRAPH OMITTED]
1997
13.92%
The total return for the Fund's fiscal year ended May 31, 1998 was 12.64%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
<PAGE>
-35-
QUARTER ENDING
--------------
Highest 14.46% September 30, 1997
Lowest -7.07% December 31, 1997
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDING DECEMBER 31, 1997)
----------------------------------------------- -------------------
Past One Year
----------------------------------------------- -------------------
Growth Fund 13.92%
----------------------------------------------- -------------------
Russell 2000 Index 22.36%
----------------------------------------------- -------------------
INTERNATIONAL EQUITY FUND
TOTAL RETURN (PER CALENDAR YEAR)
1995 1996 1997
13.34% 13.68% -0.92%
The total return for the Fund's fiscal year ended May 31, 1998 was 6.19%.
Fund's Highest and Lowest Return
(for a calendar quarter during years covered by the
Bar Chart)
QUARTER ENDING
--------------
Highest 12.12% June 30, 1997
Lowest -9.42% December 31, 1997
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDING DECEMBER 31, 1997)
-------------------------------------- ------------------- --------------------
Past One Year Past Three Years
-------------------------------------- ------------------- --------------------
International Equity Fund -0.92% 8.47%
-------------------------------------- ------------------- --------------------
Morgan Stanley EAFE Index 1.78% 7.91%
-------------------------------------- ------------------- --------------------
[GRAPHIC OMITTED]
WHAT ARE THE FEES AND EXPENSES OF THE FUNDS?
THE TABLES BELOW DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF BOSTON 1784 STOCK FUNDS
<TABLE>
<CAPTION>
- ------------------------------------- ---------------- --------------- ------------ ----------------
SHAREHOLDER FEES (fees ASSET GROWTH AND GROWTH INTERNATIONAL
paid directly from your ALLOCATION FUND INCOME FUND EQUITY FUND
investment) FUND
- ------------------------------------- ---------------- --------------- ------------ ----------------
<PAGE>
-36-
- ------------------------------------- ---------------- --------------- ------------ ----------------
<S> <C> <C> <C> <C>
Maximum Sales Charge NONE NONE NONE NONE
(Load) Imposed on
Purchases
- ------------------------------------- ---------------- --------------- ------------ ----------------
Maximum Deferred Sales Charge NONE NONE NONE NONE
(Load)
- ------------------------------------- ---------------- --------------- ------------ ----------------
Maximum Sales Charge NONE NONE NONE NONE
(Load) Imposed on Reinvested
Dividends
- ------------------------------------- ---------------- --------------- ------------ ----------------
Redemption Fee NONE NONE NONE NONE
- ------------------------------------- ---------------- --------------- ------------ ----------------
Exchange Fee NONE NONE NONE NONE
- ------------------------------------- ---------------- --------------- ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------- --------------- -------------- ----------- --------------------
ANNUAL FUND ASSET GROWTH AND GROWTH INTERNATIONAL
OPERATING EXPENSES (expenses that ALLOCATION INCOME FUND FUND EQUITY FUND
are deducted from Fund assets) as FUND
a % of average net assets
- ----------------------------------- --------------- -------------- ----------- --------------------
<S> <C> <C> <C> <C>
Management Fees .74% .74% .74% 1.00%
- ----------------------------------- --------------- -------------- ----------- --------------------
Distribution (12b-1) Fees .25% .25% .25% .25%
- ----------------------------------- --------------- -------------- ----------- --------------------
Other Expenses .38% .20% .14% .27%
- ----------------------------------- --------------- -------------- ----------- --------------------
TOTAL ANNUAL FUND OPERATING 1.37%* 1.19%* 1.13%* 1.52%*
EXPENSES
- ----------------------------------- --------------- -------------- ----------- --------------------
</TABLE>
*Each of these Fund's actual Total Annual Fund Operating Expenses for the most
recent fiscal year were less than the amount shown above because the Funds'
Distributor waives its entire Distribution Fee. The Distributor may eliminate
all or a part of the fee waiver at any time. With the fee waiver, the Funds'
actual Total Annual Fund Operating Expenses were as follows:
Asset Allocation Fund 1.12%
Growth and Income Fund .94%
Growth Fund .88%
International Equity Fund 1.27%
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
BOSTON 1784 STOCK FUNDS TO THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN A FUND FOR THE TIME PERIODS
INDICATED AND THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE
EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE
FUND'S OPERATING EXPENSES REMAIN THE SAME AS THOSE SHOWN IN THE TABLE ABOVE.
ALTHOUGH YOUR ACTUAL COSTS AND THE RETURN ON YOUR INVESTMENT MAY BE HIGHER OR
LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
- --------- ------------------- -------------------- ---------- ------------------
ASSET ALLOCATION GROWTH AND INCOME GROWTH INTERNATIONAL
FUND FUND FUND EQUITY FUND
- --------- ------------------- -------------------- ---------- ------------------
<PAGE>
- -37-
- --------- ------------------- -------------------- ---------- ------------------
1 year $139 $121 $115 $155
- --------- ------------------- -------------------- ---------- ------------------
3 years 434 378 359 480
- --------- ------------------- -------------------- ---------- ------------------
5 years 750 654 622 829
- --------- ------------------- -------------------- ---------- ------------------
10 years 1,646 1,443 1,375 1,813
- --------- ------------------- -------------------- ---------- ------------------
<PAGE>
-38-
SHAREHOLDER SERVICES
This section describes how to do business with the Funds and the services that
are available to shareholders.
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 9 a.m. to 4 p.m. (Eastern time).
BY REGULAR MAIL Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
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 an
account application. To obtain an application, call 1-800-BKB-1784.
[BULLET] INDIVIDUAL OR JOINT OWNERSHIP. Individual accounts are owned by
one person. Joint accounts have two or more owners.
[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 an account
maintained by a custodian 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.
[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.
[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.
[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.
<PAGE>
-39-
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
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 buying and
selling shares, and may charge fees. Contact your financial institution for more
information.
HOW TO PURCHASE SHARES
Shares of the Funds are sold on a continuous basis and may be purchased from the
Distributor or a broker-dealer or financial institution that has an agreement
with the Distributor. Purchases may be made Monday through Friday, except on
certain holidays.
Each Fund's share price, called net asset value 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. For information on how
shares are priced, please see "Pricing of Fund Shares" below.
For the U.S. Treasury Money Market Fund, Institutional U.S. Treasury Money
Market Fund, and the Institutional Prime Money Market Fund, the Distributor must
receive payment by wire transfer or other immediately available funds by the
close of business on the day your order is received and accepted. For the other
Money Market Funds, your investment is considered received when your check is
converted into immediately available 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 U.S. Treasury
Money Market Fund, Institutional U.S. Treasury Money Market Fund and
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 "Telephone Transfer
Authorization" section on the application and attach a check or savings
withdrawal slip from your bank account which you have "voided" by the word
"VOID" across the front.
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 Electronic Transfer" 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.
<PAGE>
-40-
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 your investment is in 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 above under "How To Open An
Account".
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 deduct money from 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 Boston 1784 Fund account. Each time you wish to send a
wire, you must call 1-800-BKB-1784 before you send money to receive
wiring instructions
AUTOMATIC INVESTMENT PROGRAM. Automatic investing is an easy way to add to your
account on a regular basis. Boston 1784 Funds offer an automatic investment plan
to help you achieve your financial goals as simply and conveniently as possible.
Please note that minimum purchase amounts apply. Call 1-800-BKB-1784 for
information.
PAYING FOR SHARES. Please note the following:
[BULLET] Purchases may be made by check, wire transfer and electronic
transfer.
[BULLET] All purchases must be made in U.S. dollars.
[BULLET] Checks must be drawn on U.S. banks and must be payable to Boston
1784 Funds. Checks that are not made payable directly to Boston 1784 Funds
("third party checks") are not accepted.
[BULLET] Cash and credit card checks are not accepted.
[BULLET] If a check does not clear your bank, the Funds reserve the right
to cancel the purchase.
[BULLET] If the Funds are unable to debit your predesignated bank account
on the day you purchase shares, 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 changes 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
<PAGE>
-41-
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
Selling your shares in a Fund is called a "redemption" because the Fund buys
back its shares. On any business day, you may sell (redeem) all or a portion of
your shares. If the shares being sold were recently 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 the Funds receive your redemption request in good order. You
may gain or lose money when you redeem your shares. Please note that 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 please send your request
in writing to one of the addresses listed above under "How To Open An Account"
and include the following information (please refer to "Signature guarantees"
below if your redemption request is over $100,000):
[BULLET] the name of the Fund(s),
[BULLET] the account number(s),
[BULLET] the amount of money or number of shares being redeemed, the
name(s) on
[BULLET] the account, the signature(s) of all registered account owners,
and
[BULLET] your daytime telephone number.
Signature requirements vary based on the type of account you have:
[BULLET] INDIVIDUAL, JOINT TENANTS, TENANTS IN COMMON: Written instructions
must be signed by each shareholder exactly as the names appear on the
account.
[BULLET] UGMA OR UTMA: Written instructions must be signed by the custodian
as it appears on the account.
[BULLET] SOLE PROPRIETOR, GENERAL PARTNER: Written instructions must be
signed by an authorized individual as it appears on the account.
[BULLET] CORPORATION, ASSOCIATION: Written instructions must be signed by
the person(s) authorized to act on the account. A certified copy of the
corporate resolution, authorizing the signer to act, must accompany the
request.
[BULLET] TRUST: Written instructions must be signed by the trustee(s). If
the name of the current trustee(s) does not appear on the account, a
certified certificate of incumbency dated within 60 days must also be
submitted.
[BULLET] RETIREMENT: Written instructions must be signed by the account
owner. Call 1-800-BKB-1784 for more information.
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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 of over $100,000 be in writing with signatures
guaranteed (see below). 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) on our
records at the address on our records within seven days after
receipt of a valid redemption request.
BY WIRE. If you have selected this option on your application, your
redemption proceeds will be wired directly into your
designated bank account normally on the next business day
after receipt of your redemption request is received (the same
business day for the Money Market Funds). 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 ELECTRONIC
TRANSFER. If you have established this option, your redemption proceeds
will be transferred electronically to your predesignated bank
account. To establish this option on an existing account,
please call 1-800-BKB-1784 to request the appropriate form.
SIGNATURE GUARANTEES. In addition to the signature requirements described above,
a signature guarantee is required if:
[BULLET] You would like the check made payable to anyone other than the
shareholder(s) on our records.
[BULLET] You would like the check mailed to an address other than the
address on our records.
[BULLET] You would like the check mailed to an address on our records that
has changed in the past 30 days.
[BULLET] Your redemption request is over $100,000.
The Fund may also require signature guarantees 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 fund in the Boston 1784 Funds family. To make exchanges, please
follow the procedures under "How
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To Sell Shares". 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 change 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' policy is to pay redemption proceeds in cash,
but the Funds reserve the right to change this policy and to pay in kind in
certain cases by delivering to you investment securities equal to the redemption
price. In these cases, you might have to pay brokerage costs when converting the
securities to cash. The right of any shareholder to receive 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
allows mutual funds to delay 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 OWNERSHIP. The Funds keep a record of the ownership of their shares and
share certificates are not issued.
INVOLUNTARY REDEMPTIONS. If your account balance falls below the minimum
required investment as a result of selling or exchanging shares, you will be
given 60 days to re-establish the minimum balance. If you do not, your account
may be closed and the proceeds sent to you.
TELEPHONE TRANSACTIONS. You may buy, sell or exchange shares 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 that may result from acting on wire or telephone instructions that it
reasonably believes to be genuine. The Funds and their agents will each follow
reasonable procedures to confirm that instructions received by telephone are
genuine, which may include taping telephone conversations. It may be difficult
to reach the Funds by telephone during periods of unusual market activity.
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.
NAME/ACCOUNT OWNERSHIP CHANGES.. To change the name on an account, the shares
are generally transferred to a new account. In some cases, certain legal
documents may be required. For more information, call 1-800-BKB-1784. If your
shares are held by a financial institution, contact that financial institution
for ownership changes.
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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 about
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 twice each year to all shareholders.
CHECKWRITING. You may sign up for checkwriting privileges if you own shares of
Boston 1784 Tax-Free Money Market Fund, Boston 1784 U.S. Treasury Money Market
Fund, Boston 1784 Prime Money Market Fund and Boston 1784 Short-Term Income
Fund. Checks may be written for a minimum of $250 each check. Call
1-800-BKB-1784 for more information.
Please note that you may not use a check to close your account.
PRICING OF FUND SHARES
Each Funds' net asset value per share or NAV is calculated on each day the New
York Stock Exchange is open, except for Columbus Day and Veteran's Day. The NAV
is the value of a single share of a Fund.
Bond Funds, Tax-Exempt Income Funds and Stock Funds.
Each of these Funds' NAV is calculated at the close of business of the New York
Stock Exchange, normally 4:00 p.m. Eastern time. The NAV is generally based on
the market value of the securities held in the Fund, or, if market values are
not available, the fair value of securities is determined using procedures that
the Board of Trustees has approved.
Foreign securities are valued based on quotations from the primary market in
which they are traded, and are converted from the local currency into U.S.
dollars using current exchange rates. Foreign securities may trade in their
primary markets on weekends or other days when the Fund does not price its
shares. Therefore, the NAV of Funds holding foreign securities may change on
days when shareholders will not be able to buy or sell their Fund shares.
Money Market Funds.
The U.S. Treasury Money Market Fund, Institutional U.S. Treasury Money Market
Fund and Institutional Prime Money Market Fund calculate NAV at 3:00 p.m.
Eastern time (12 noon on days when the financial markets close early). The
Tax-Free Money Market Fund and Prime Money Market Fund calculate NAV at 12 noon.
In determining each Money Market Fund's NAV, securities are valued at amortized
cost, which is approximately equal to market value.
DISTRIBUTIONS
As a Fund shareholder, you are entitled to your share of the Fund's net income
and gains on its investments. Each Fund passes substantially all of its earnings
along to its investors as distributions. When a Fund earns dividends from stocks
and interest from bonds and other debt securities and distributes these earnings
to shareholders, it is called a DIVIDEND DISTRIBUTION. A Fund realizes capital
gains when it sells securities for a higher price than it paid. When these gains
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are distributed to shareholders, it is called a CAPITAL GAIN DISTRIBUTION.
Dividend distributions may be made several times a year, while capital gain
distributions are generally made annually.
MONEY MARKET FUNDS
Your dividend distributions are declared each day, starting on the day you
purchase your shares. They are paid to your account on the first business day of
each month that you are a shareholder. You will not receive a dividend for the
day on which you sell shares.
BOND FUNDS AND TAX-EXEMPT INCOME FUNDS
Your dividend distributions are declared each day, starting the day after you
purchase your shares, although they are paid to your account on the first
business day of each month that you are a shareholder.
STOCK FUNDS
If you are a shareholder in the Asset Allocation Fund or Growth and Income Fund,
your dividend distributions, if any, will be paid quarterly, generally on the
last day of March, June, September and December.
If you are a shareholder in the Growth Fund, your dividend distributions, if
any, will be paid semi-annually, generally on the last day of June and December.
If you are a shareholder in the International Equity Fund, your dividend
distributions, if any, will be paid annually, generally on the last day of
December.
ALL FUNDS
You will receive distributions from a Fund in additional shares of that Fund
unless you choose to receive your distributions in cash. If you wish to change
the way in which you receive dividends, you should call 1-800-BKB-1784 for
instructions.
If you have elected to receive dividends and/or distributions in cash, and the
postal or other delivery service returns your check to the Funds as
undeliverable, you will not receive interest on amounts represented by the
uncashed checks.
FEDERAL TAX CONSIDERATIONS
Your investment in a Fund will have tax consequences that you should consider.
Some of the more common federal tax consequences are described here, but you
should consult your tax adviser about your own particular situation.
<PAGE>
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TAXES ON DISTRIBUTIONS
You will generally have to pay federal income tax on all Fund distributions
except for certain dividend distributions from the Tax Exempt Funds and the
Tax-Free Money Market Fund. Your distributions will be taxed in the same manner
whether you receive the distributions in cash or additional shares of the Fund.
Distributions that are derived from net long-term capital gains generally will
be taxed as long-term capital gains. The rate of tax will generally depend on
how long the Fund held the securities on which it realized the gains. All other
distributions, including short-term capital gains, generally will be taxed as
ordinary income.
The Money Market Funds (other than the Tax-Free Money Market Fund) and the Bond
Funds expect that their distributions will consist primarily of ordinary income.
The Growth Fund, the Growth and Income Fund and the International Equity Fund
expect that their distributions will consist primarily of net long-term capital
gains.
The Tax-Exempt Funds and the Tax-Free Money Market Fund may make distributions
called "exempt-interest dividends" that are exempt from federal income tax.
Exempt-interest dividends will not necessarily be exempt from state and local
income taxes. These Funds may also make taxable distributions (including all
capital gains distributions). You generally are required to report all Fund
distributions, including exempt-interest dividends, on your federal income tax
return.
TAXES ON SALE OR EXCHANGE
If you sell your shares of a Fund (including a Tax-Exempt Fund), or exchange
them for shares of another Fund, you generally will be subject to tax on any
taxable gain. Your taxable gain is computed by subtracting your tax basis in the
shares from the redemption proceeds (in the case of a sale) or the value of the
shares received (in the case of an exchange). Because your tax basis depends on
the original purchase price and on the price at which any dividends may have
been reinvested, you should be sure to keep your account statements so that you
or your tax preparer will be able to determine whether a sale or exchange will
result in a taxable gain.
"BUYING A DIVIDEND"
If you buy shares in a Stock Fund just before the Fund makes any distribution,
or if you buy shares in any Bond Fund or Tax-Exempt Fund just prior to a capital
gain distribution, you will receive some of the purchase price back in the form
of a taxable distribution.
LOAN INTEREST. If you borrow money to purchase or hold shares of a Tax-Exempt
Fund or of the Tax-Free Money Market Fund, interest on your loan will not be
deductable.
TAX WITHHOLDING. If you are not a U.S. citizen or resident, or if you are
subject to "backup withholding," the Funds may be required to withhold a portion
of your distributions and, in some cases, redemption proceeds, as a payment of
federal income tax.
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MORE ABOUT BOSTON 1784 FUNDS
MONEY MARKET FUNDS
Boston 1784 Funds currently offer five 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
INVESTMENT OBJECTIVES OR GOALS
The investment objective of each Money Market Fund is to preserve principal
value and maintain a high degree of liquidity while providing current income. In
addition, the BOSTON 1784 TAX-FREE MONEY MARKET FUND'S objective is tO provide
current income exempt from federal income taxes.
PRINCIPAL INVESTMENT STRATEGIES
The principal investment strategies of the Money Market Funds are described
below. These are the strategies that, in the opinion of the Adviser, are most
likely to be important in trying to achieve each Fund's investment objective. Of
course, there can be no assurance that any Fund will achieve its investment
objective. Please note that each Fund may also use strategies and invest in
securities that are not described below but which are described in the Statement
of Additional Information.
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What are MONEY MARKET INSTRUMENTS? A MONEY MARKET INSTRUMENT is a short-term IOU
issued by banks or other U.S. corporations, or the U.S. government or state or
local governments. MONEY MARKET INSTRUMENTS have maturity dates of 13 months or
less. MONEY MARKET INSTRUMENTS may include certificates of deposit, bankers'
acceptances, variable rate demand notes, fixed-term obligations, commercial
paper, asset-backed commercial paper and repurchase agreements.
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Each Money Market Fund has specific investment policies and procedures designed
to maintain a constant net asset value of $1.00 per share. Each Fund complies
with industry regulations that apply to money market funds. These regulations
require that each Fund's investments mature or be deemed to mature within 397
days from the date purchased and that the average maturity of each Fund's
investments (on a dollar-weighted basis) be 90 days or less. In addition, all of
the Funds' investments must 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 securities such as money market
instruments may, in many circumstances, result in a lower yield than would be
available from investments in securities with a lower quality or a longer term.
Each Money Market Fund may invest more than 25% of its assets in money market
instruments issued by banks, including foreign branches of U.S. banks and U.S.
branches of foreign banks, and in U.S. government obligations. The Tax-Free
Money Market Fund may also invest more than 25% of its assets in tax-exempt
securities issued by governments or political subdivisions of governments.
TAX-FREE MONEY MARKET FUND
The TAX-FREE MONEY MARKET FUND invests primarily in short-term municipal money
market instruments that are issued by states, territories and possessions of the
United States (including the
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District of Columbia) and their political subdivisions, agencies and
instrumentalities. These securities pay interest that is exempt from federal
income tax, including the alternative minimum tax.
The Fund attempts to generate a relatively high tax-exempt yield by investing in
municipal money market instruments that are issued in states that have little or
no income tax. The Fund invests in both "general obligation" securities which
are backed by the full faith, credit and taxing power of the issuer and in
"revenue" securities which are payable only from revenues from a specific
project or another specific revenue source. Normally, at least 80% of the Fund's
net assets are invested in these municipal money market instruments.
The Fund may also invest in taxable money market instruments, particularly if
the after tax return on those securities is greater than the return on municipal
money market instruments. Under normal circumstances, not more than 20% of the
Fund's assets are invested in taxable instruments.
U.S. TREASURY MONEY MARKET FUND AND INSTITUTIONAL U.S. TREASURY MONEY MARKET
FUND
The U.S. TREASURY MONEY MARKET FUND and INSTITUTIONAL U.S. TREASURY MONEY MARKET
FUND invest primarily in money market instruments issued by the U.S. Treasury,
including bills, notes and bonds, and repurchase agreements secured by U.S.
Treasury securities. Under normal circumstances, at least 65% of these Funds'
assets are invested in these securities. The Funds invest the rest of their
assets in U.S. government obligations issued by agencies or instrumentalities,
including mortgage-backed securities.
When selecting securities for these Funds, the portfolio managers use a
"top-down" approach, looking first at general economic factors and market
conditions, then at individual securities. The portfolio managers look for value
while adhering to the credit and other restrictions on money market funds.
ALTHOUGH THE FUNDS INVEST IN U.S. GOVERNMENT OBLIGATIONS, AN INVESTMENT IN THE
FUNDS IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
PRIME MONEY MARKET FUND AND INSTITUTIONAL PRIME MONEY MARKET FUND
The PRIME MONEY MARKET FUND and INSTITUTIONAL PRIME MONEY MARKET FUND invest
primarily in a variety of high quality money market instruments.
The portfolio managers employ a "top-down" approach when selecting securities
for these Funds, looking for value while adhering to the quality and other
restrictions on money market funds.
PORTFOLIO MANAGERS OF BOSTON 1784 MONEY MARKET FUNDS
JAMES L. BOSLAND, Director of Liquid Funds and Senior Fund Manager, has been the
manager of the Tax-Free Money Market Fund since it began operations in June
1993. Mr. Bosland, who has 11 years of investment management experience in
tax-exempt and short-term securities, has been with BankBoston since 1989.
EMMETT M. WRIGHT, Senior Fund Manager, has been the manager of the U.S. Treasury
Money Market Fund and the Institutional U.S. Treasury Money Market Fund since
they began operations.
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Mr. Wright, who has more than six years of investment management and research
analysis experience, was an Associate Fund Manager at BankBoston from 1993 to
1994 and has been a Fund Manager at BankBoston since 1994.
LISA W. LEBOEUF, Fund Manager, has been a co-manager of the U.S. Treasury Money
Market Fund and the Institutional U.S. Treasury Money Market Fund since January
1997. Ms. LeBoeuf, who has seven years experience in investment management, has
been with BankBoston since 1978.
MARY K. WERLER, Senior Fund Manager, and LISA W. LEBOEUF, Fund Manager, have
been co-managers of the Prime Money Market Fund since December 1996 and
co-managers of the Institutional Prime Money Market Fund since it began
operations in November 1997. Ms. Werler, who has more than eleven years of
investment management experience, has been a Fund Manager at BankBoston since
1993. From 1987 to 1993, Ms. Werler was an Associate Portfolio Manager with
Keystone Investment Co. Ms. LeBoeuf's investment experience is described above.
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MORE ABOUT BOSTON 1784 FUNDS
BOND FUNDS
Boston 1784 Funds currently offer three Bond Funds:
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
BOSTON 1784 U.S. SHORT-TERM INCOME FUND
BOSTON 1784 INCOME FUND
INVESTMENT OBJECTIVES
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 SHORT-TERM INCOME FUND and BOSTON 1784 INCOME FUND is
to maximize current income. Preservation of capital is a secondary objective for
both of these Funds.
PRINCIPAL INVESTMENT STRATEGIES
The principal investment strategies of the Bond Funds are described below. These
are the strategies that, in the opinion of the Adviser, are most likely to be
important in trying to achieve each Fund's investment objective. Of course,
there can be no assurance that any Fund will achieve its investment objective.
Please note that each Fund may also use strategies and invest in securities that
are not described below, but which are described in the Statement of Additional
Information.
Investors should note that 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 instruments and other short-term securities. These investments may result
in a lower yield than would be available from investments with a lower quality
or longer term and may prevent a Fund from achieving its investment objective.
Each Fund is actively managed, and the portfolio managers may trade securities
frequently, resulting, from time to time, in an annual portfolio turnover rate
of over 100%. Trading securities may produce capital gains, which are taxable to
shareholders when distributed. Active trading may also increase the amount of
mark-ups and fees to broker-dealers that the Fund pays when it buys and sells
securities. The "Financial Highlights" section of this Prospectus shows each
Fund's historical portfolio turnover rate.
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What is a MORTGAGE-BACKED SECURITY? Home mortgage loans are typically grouped
together into "POOLS" by banks and other lending institutions, and interests in
these POOLS are then sold to investors, allowing the bank or other lending
institution to have more money available to loan to home buyers. When homeowners
make interest and principal payments, these payments are passed on to the
investors in the pool. Most of these pools are guaranteed by U. S. government
agencies or by government sponsored private corporations--familiarly called
"GINNIE MAES", "FANNIE MAES" and "FREDDIE MACS".
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U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
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The U.S. GOVERNMENT MEDIUM-TERM INCOME FUND invests primarily in U.S. government
obligations and repurchase agreements secured by U.S. government obligations.
Under normal circumstances, at least 65% of the Fund's assets are invested in
these securities
The Fund invests in both U.S. Treasury obligations and obligations such as
mortgage-backed securities issued or guaranteed by the U.S. government or its
agencies. The Fund also invests in non-government agency mortgage-backed
securities. ALTHOUGH THE FUND INVESTS PRIMARILY IN U.S. GOVERNMENT OBLIGATIONS,
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
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What is a "TOP-DOWN" APPROACH? Managers of mutual funds use different styles
when selecting securities to be purchased. When using a "TOP-DOWN" APPROACH, the
portfolio manager looks first at broad market factors, and on the basis of those
market factors, chooses certain sectors or industries within the overall market.
The manager then looks at individual companies within those sectors or
industries.
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When selecting securities for the Fund, the portfolio managers use a "top-down"
economic analysis to determine economic outlook, and the direction in which
inflation and interest rates are expected to move, before selecting individual
securities for the Fund. The portfolio managers also analyze the yield curve
under multiple market conditions to help define maturity and duration selection.
The Fund's average weighted maturity is normally expected to be from three to
ten years.
SHORT-TERM INCOME FUND and INCOME FUND
The SHORT-TERM INCOME FUND and INCOME FUND invest primarily in debt securities,
such as U.S. government obligations, corporate bonds, notes, mortgage- and
asset-backed securities, and taxable municipal securities. Under normal
circumstances, at least 80% of each Fund's assets are invested in these
securities. Both Funds may invest up to 30% of their assets in securities of
non-U.S. issuers, including Yankee Bonds, which are dollar denominated bonds
issued in the U.S. by foreign borrowers, and issuers in developing countries.
The Boston 1784 SHORT-TERM INCOME FUND and BOSTON 1784 INCOME FUND generally
invest in investment grade securities. Under normal circumstances, the Funds
expect to invest at least 65% of their assets in securities rated A or better by
Standard & Poor's or Moody's or of comparable quality as determined by the
Adviser. These ratings are described in the Statement of Additional Information.
Higher quality securities tend to have lower yields than lower quality
securities.
When managing the SHORT-TERM INCOME FUND, the portfolio manager's emphasis is on
keeping fluctuations in the price of Fund shares at a minimum. For this reason,
the Fund's average weighted maturity is normally expected to be not more than
three years and the Fund generally maintains an average maturity of between 1.8
years and 2.3 years. Short-term debt securities tend to fluctuate less in price,
but also tend to have lower yields, than longer-term securities of comparable
quality.
The portfolio managers of the SHORT-TERM INCOME FUND and INCOME FUND use a
"top-down" approach to select securities. They review economic outlook,
inflation expectation and interest rates to help identify sector weightings,
define maturity and duration selection before choosing individual securities.
The portfolio managers look at the diversification of the portfolios, and the
marketability and liquidity of the individual securities they select. Although
the Funds are actively managed, the portfolio managers attempt to manage the
Funds so as to minimize capital gains distributions.
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The INCOME FUND's average weighted maturity is expected to be from seven to
thirty years under normal circumstances. While longer-term securities tend to
have higher yields than short-term securities, their prices tend to fluctuate
more as a result of interest rate changes and other factors.
PORTFOLIO MANAGERS OF BOSTON 1784 BOND FUNDS
MARY K. WERLER, Senior Fund Manager, has been the manager of the Short-Term
Income Fund since the Fund began operations in July 1994. Ms. Werler, who has
more than eleven years of investment management experience, has been a Fund
Manager at BankBoston since 1993. From 1987 to 1993, Ms. Werler was an Associate
Portfolio Manager with Keystone Investment Co.
EMMETT M. WRIGHT, Senior Fund Manager, has been the manager of the U.S.
Government Medium-Term Income Fund and co-manager of the Income Fund since
September 1995. Mr. Wright, who has more than six years of investment management
and research analysis experience, was an Associate Fund Manager at BankBoston
from 1993 to 1994 and has been a Fund Manager at BankBoston since 1994.
TODD A. FINKELSTEIN, Senior Fund Manager, has been the co-manager of the Income
Fund since January 1998. Mr. Finkelstein, who has over 13 years of investment
management experience, has been at BankBoston since 1996. From 1994 to 1996, Mr.
Finkelstein was a Vice President and Portfolio Manager at BayBank Investment
Management. Prior to 1994, Mr. Finkelstein was a Vice President and fixed income
manager at BA Capital Management.
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MORE ABOUT BOSTON 1784 FUNDS
TAX-EXEMPT INCOME FUNDS
Boston 1784 Funds currently offer five 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
INVESTMENT OBJECTIVES
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 BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND seeks current income exempt
from both federal and Connecticut personal income tax, consistent with
preservation of capital.
The BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND Seeks 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.
PRINCIPAL INVESTMENT STRATEGIES
The principal investment strategies of the Tax-Exempt Income Funds are described
below. These are the strategies that, in the opinion of the Adviser, are most
likely to be important in trying to achieve each Fund's investment objective. Of
course, there can be no assurance that any Fund will achieve its investment
objective. Please note that each Fund may also use strategies and invest in
securities that are not described below, but which are described in the
Statement of Additional Information.
Each Tax-Exempt Income Fund invests primarily in municipal securities. The Funds
may invest in "general obligation" bonds, which are backed by the full faith,
credit and taxing power of the issuer, and in "revenue" bonds, which are payable
only from the revenues generated by a specific project or another specific
revenue source. The Funds may also invest in limited amounts in other mutual
funds or investment companies that invest primarily in municipal securities.
Each of the Tax-Exempt Income Funds also may invest in debt securities that pay
interest that is not exempt from federal or state taxes or is subject to the
alternative minimum tax, such as U.S. government obligations, corporate bonds,
bank obligations, money market instruments, commercial paper and repurchase
agreements. Under normal circumstances, not more than 20% of each Fund's assets
are invested in these securities.
<PAGE>
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Each of the Tax-Exempt Income Funds invests in investment grade securities,
which means that they are considered to have a medium to high probability of
being paid. However, all of these securities, and especially those in the lowest
categories of investment grade in which the Funds may invest, have credit risk.
In adverse economic or other circumstances, issuers of these lower graded
securities are more likely to have difficulty making principal and interest
payments than issuers of higher grade securities. For this reason, the
Tax-Exempt Income Funds generally look for securities rated A or better. In
addition, some of the bonds held in the Funds may be covered by municipal bond
insurance, in which case an insurer may make principal and interest payments on
the securities if the issuer fails to do so.
Each of the Tax-Exempt Income Funds may, from time to time, invest as a hedging
strategy in a limited amount of futures contracts or options on futures
contracts. The Funds may only use futures contracts and options on futures
contracts, commonly referred to as derivatives, in an effort to offset
unfavorable changes in the value of securities held by the Funds for investment
purposes.
Investors should note that 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,
and more taxable income, and may prevent a Fund from achieving its investment
objective.
Each of the Tax-Exempt Income Funds is actively managed, although the portfolio
managers attempt to minimize portfolio turnover. However, it is possible that a
Fund's annual portfolio turnover rate could exceed 100%. Trading securities may
produce capital gains, which are taxable to shareholders when distributed.
Active trading may also increase the amount of mark-ups and fees to
broker-dealers that the Fund pays when it buys and sells securities. The
"Financial Highlights" section of this Prospectus shows each Fund's historical
portfolio turnover rate.
TAX-EXEMPT MEDIUM-TERM INCOME FUND
The TAX-EXEMPT MEDIUM-TERM INCOME FUND invests primarily in municipal
securities. Unlike the other Boston 1784 Tax-Exempt Income Funds, this Fund does
not invest primarily in the securities of a particular state, but instead
invests in a broadly diversified portfolio. Under normal circumstances, at least
80% of the Fund's net assets are invested in municipal securities or in mutual
funds or other investment companies that invest in municipal securities. The
Fund's average weighted maturity is normally expected to be from five to ten
years.
When selecting securities for the Tax-Exempt Medium-Term Income Fund, the
portfolio manager seeks to maximize current income while achieving a competitive
total rate of return. The portfolio manager evaluates the suitability of
available bonds according to such factors as creditworthiness, maturity,
liquidity, interest rate, taxability and portfolio diversification. The
portfolio manager conducts research on potential and current securities holdings
in the Funds to determine whether a Fund should purchase or retain the asset.
This is a continuing process, the focus of which changes according to market
conditions, the availability of various permitted investments, and cash flows
both into and out of the Fund. The portfolio manager seeks to diversify the
assets held in the Funds among various issuers, industry sectors and bond
structures.
CONNECTICUT TAX-EXEMPT INCOME FUND, FLORIDA TAX-EXEMPT INCOME FUND,
MASSACHUSETTS TAX-EXEMPT INCOME FUND and RHODE ISLAND TAX-EXEMPT INCOME FUND
<PAGE>
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The CONNECTICUT TAX-EXEMPT INCOME FUND, FLORIDA TAX-EXEMPT INCOME FUND,
MASSACHUSETTS TAX-EXEMPT INCOME FUND and RHODE ISLAND TAX-EXEMPT INCOME FUND
invest primarily in State municipal securities. State municipal securities pay
interest that is exempt from that state's personal income tax or, in Florida,
exempt from Florida's intangible personal property tax. Each of these Funds also
may invest in municipal securities that pay interest that is not exempt from
state income tax. Under normal circumstances, at least 80% of each Fund's net
assets are invested in municipal securities, or in mutual funds or other
investment companies that invest in municipal securities and at least 65% of
each Fund's assets are invested in State municipal securities. Each Fund's
average weighted maturity is expected to be from five to ten years under normal
circumstances.
The CONNECTICUT TAX-EXEMPT INCOME FUND, FLORIDA TAX-EXEMPT INCOME FUND,
MASSACHUSETTS TAX-EXEMPT INCOME FUND and RHODE ISLAND TAX-EXEMPT INCOME FUND are
non-diversified, meaning that they may invest a relatively high percentage of
their assets in the obligations of a limited number of issuers. As a result,
each Fund may be more susceptible to any single economic, political or
regulatory occurrence. Each Fund is particularly susceptible to events affecting
issuers in its particular state.
When selecting securities for these Funds, the portfolio managers evaluate the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity, interest rate, taxability and portfolio diversification.
The portfolio managers conduct research on potential and current securities
holdings in the Funds to determine whether a Fund should purchase or retain the
asset. This is a continuing process, the focus of which changes according to
market conditions, the availability of various permitted investments, and cash
flows both into and out of the Fund. The portfolio managers seek to diversify
the assets held in the Funds among various issuers, industry sectors and bond
structures.
PORTFOLIO MANAGERS OF BOSTON 1784 TAX-EXEMPT INCOME FUNDS
DAVID H. THOMPSON, Director of Fund Management, has been the manager of the
Tax-Exempt Medium-Term Income Fund since the Fund began operations in June 1993
and the manager of the Connecticut Tax-Exempt Income Fund and the Rhode Island
Tax-Exempt Income Fund since September 1995. Mr. Thompson, who has more than 27
years of experience in investment management, research analysis and securities
trading, has been the Director of Fund Management at BankBoston since 1985.
CARL W. PAPPO has been Assistant Fund Manager of the Tax-Exempt Medium-Term
Income Fund, Connecticut Tax-Exempt Income Fund and Rhode Island Tax-Exempt
Income Fund since 1996. Mr. Pappo, who has six years investment management
experience, traded fixed income securities at BayBank Investment Management
prior to joining the BankBoston investment management team.
DAVID H. THOMPSON, Director of Fund Management, and SUSAN A. SANDERSON, Senior
Fund Manager, have been the co-managers of the Florida Tax-Exempt Income Fund
since the Fund began operations in June 1997. Mr. Thompson's investment
experience is described above. Ms. Sanderson, who has more than 15 years of
experience in investment management and securities trading, has been a Fund
Manager at BankBoston since 1991.
SUSAN A. SANDERSON, Senior Fund Manager, has been the manager of the
Massachusetts Tax-Exempt Income Fund since the Fund began operations in June
1993. Ms. Sanderson's investment experience is described above.
<PAGE>
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MORE ABOUT BOSTON 1784 FUNDS
STOCK FUNDS
Boston 1784 Funds currently offer four Stock Funds:
BOSTON 1784 ASSET ALLOCATION FUND
BOSTON 1784 GROWTH AND INCOME FUND
BOSTON 1784 GROWTH FUND
BOSTON 1784 INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVES
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.
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 is capital appreciation.
Dividend income, if any, is incidental to this objective.
The investment objective of BOSTON 1784 INTERNATIONAL EQUITY FUND is long-term
growth of capital. Dividend income, if any, is incidental to this objective.
PRINCIPAL INVESTMENT STRATEGIES
The principal investment strategies used by the Stock Funds are described below.
These are the strategies that, in the opinion of the Adviser, are most likely to
be important in trying to achieve each Fund's investment objective. Of course,
there can be no assurance that any Fund will achieve its investment objective.
Please note that each Fund may also use strategies and invest in securities that
are not described below but which are described in the Statement of Additional
Information.
Investors should note that 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 and
do not have the potential for capital appreciation that equity securities have,
and may prevent a Fund from achieving its investment objective.
Each of the Stock Funds is actively managed, although the portfolio managers
attempt to minimize portfolio turnover. However, it is possible that a Fund's
annual portfolio turnover rate could exceed 100%. The sale of securities may
produce capital gains, which, when distributed, are taxable to shareholders.
Active trading may also increase the amount of commissions or mark-ups to
broker-dealers the Fund pays when the Fund buys and sells securities. The
"Financial Highlights" section of this Prospectus shows each Fund's historical
portfolio turnover rate.
ASSET ALLOCATION FUND
<PAGE>
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The ASSET ALLOCATION FUND allocates its assets between equity securities, debt
securities and short-term or money market instruments. Normally, 30% to 70% of
the Fund's assets are invested in equity securities, 30% to 60% are invested in
intermediate and long-term debt securities and 0% to 40% are invested in
short-term debt securities or money market instruments. The portfolio managers
determine the mix of investments between equity and debt securities based on
current economic and market conditions and the underlying value of the
securities.
The equity portion of the Fund is primarily invested in the stock of large U.S.
companies that the portfolio managers believe offer the prospect for
above-average earnings growth and are available at reasonable prices. From time
to time the Fund may also invest in mid-sized U.S. companies and in large,
multi-national companies based outside of the U.S. The Fund's equity securities
include common stock, warrants to purchase common stock, debt securities
convertible into common stock, convertible and non-convertible preferred stock
and depositary receipts.
When selecting equity securities for the Fund, the portfolio managers place
particular emphasis on industry selection, seeking stocks in industries that are
outperforming the market, and may overweight the portfolio relative to the S&P
500 in these industries. The Fund may similarly be underweighted relative to the
S&P 500 in certain industries.
When selecting debt securities for the Fund, the portfolio managers use a
"top-down" approach, first by a broad economic analysis, then as to sectors to
identify those believed to outperform the market over a particular holding
period, and then as to individual securities. The Fund's debt securities include
investment grade corporate debt securities and debt obligations issued or
guaranteed as to the payment of principal and interest by the U.S. government or
by foreign governments. The Fund also invests in mortgage-backed and
asset-backed securities rated A or better by Standard & Poor's or Moody's or of
comparable quality as determined by the Adviser.
The Fund will use short-term debt and money market instruments, including
short-term U.S. government and corporate obligations, commercial paper, bank
obligations and repurchase agreements in varying degrees as a risk management
tool.
GROWTH AND INCOME FUND AND GROWTH FUND
The GROWTH AND INCOME FUND invests primarily in common stock (including
depositary receipts) of U.S. and foreign issuers. Under normal circumstances,
it is expected that at least 80% of the Fund's assets will be invested in these
securities.
The GROWTH AND INCOME FUND emphasizes the stock of U.S. companies with market
capitalizations of at least $1 billion. The portfolio managers may also select
stocks in mid-size U.S. companies, and securities of foreign companies,
including smaller capitalization companies and companies in developing markets.
The portfolio managers look for high quality growth companies with strong
potential for revenue and earnings increases. The Fund also may invest in other
securities such as convertible and non-convertible debt securities, preferred
stock, warrants, and money market instruments.
The GROWTH FUND invests primarily in common stock (including depositary
receipts) of U.S. and foreign issuers. Under normal circumstances, it is
expected that at least 80% of the Fund's assets will be invested in these
securities. The Fund emphasizes securities of U.S. companies with a market
capitalization of at least $250 million that the portfolio managers believe have
above-average growth potential. The Fund also may invest in securities of
smaller, lesser-known companies and in companies in developing countries. While
some of the Fund's investments may pay dividends, current income is not a
consideration in selecting investments.
<PAGE>
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The GROWTH FUND may also invest in convertible and non-convertible debt
securities, preferred stocks and money market instruments. Under normal
circumstances, not more than 20% of the Fund's assets are invested in these
securities.
The portfolio managers of the GROWTH FUND and GROWTH AND INCOME FUND use a
"bottom-up" approach when selecting securities for the Funds. They look for
companies that they believe are in dynamic high growth sectors of the world
economy, and that are thought to have dominant or strong competitive positions
within their sectors. They also look for companies thought to have quality
management and that are expected to have strong earnings growth potential. In
looking for companies with a higher growth rate than the general market, the
Funds may invest in securities with a higher price earnings ratio than the
general market.
- --------------------------------------------------------------------------------
What is a "BOTTOM-UP" APPROACH? When portfolio managers use a "BOTTOM-UP"
APPROACH, they look primarily at individual companies against the context of
broader market factors.
- --------------------------------------------------------------------------------
Both the GROWTH FUND and GROWTH AND INCOME FUND may engage in foreign currency
hedging transactions in an attempt to minimize the effects of currency
fluctuations on the Fund. The Funds' attempt to minimize the effects of currency
fluctuations through the use of foreign currency hedging transactions may not be
successful or the Funds' hedging transactions may cause the Funds to be unable
to take advantage of a favorable change in the value of foreign currencies.
INTERNATIONAL EQUITY FUND
The INTERNATIONAL EQUITY FUND invests primarily in equity securities of foreign
issuers, including securities of issuers in developing countries.
The Fund's portfolio is diversified as to both country and industry exposure, in
an attempt to limit the impact of an economic downturn in any particular country
or industry sector. The Fund emphasizes equity securities of issuers with market
capitalizations of at least $100 million that the portfolio managers believe are
financially sound, have a track record of growth in earnings and have
above-average growth potential.
The portfolio managers screen a large universe of securities as potential
investments and then identify companies with suitable market capitalization,
liquidity and balance sheet structure whose earnings growth rates have exceeded
national averages. The portfolio is then structured to reflect the relative
attractiveness of the economies of various countries, and to provide industry
diversification. While some of the Fund's investments may pay dividends, current
income is not a consideration in selecting investments.
The Fund may engage in foreign currency hedging transactions in an attempt to
minimize the effects of currency fluctuations on the Fund. The Funds' attempt to
minimize the effects of currency fluctuations through the use of foreign
currency hedging transactions may not be successful or the Funds' hedging
transactions may cause the Funds to be unable to take advantage of a favorable
change in the value of foreign currencies. The Fund may also invest in
convertible and non-convertible bonds and other debt securities and money market
instruments.
The costs attributable to foreign investing, such as the costs of maintaining
custody of securities in foreign countries, frequently are higher than those
involved in U.S. investing. As a result, the operating expense ratios of the
Funds may be higher than those of investment companies investing only in U.S.
securities.
PORTFOLIO MANAGERS OF THE BOSTON 1784 STOCK FUNDS
EMMETT M. WRIGHT, Senior Fund Manager, and MICHAEL PELOSI, Senior Fund Manager,
have been co-managers of the Asset Allocation Fund since October 1997. Mr.
Wright, who has more than six years of investment management and research
analysis experience, was an Associate Fund Manager at BankBoston from 1993 to
1994 and has been a Fund Manager at BankBoston since 1994. Mr. Pelosi, who has
more than fifteen years experience in investment management research analysis
and securities trading at BankBoston, has been a Portfolio Manager since 1988.
EUGENE D. TAKACH, Senior Fund Manager, and THEODORE E. OBER, Senior Fund
Manager, have been the co-managers of the Growth and Income Fund and the Growth
Fund since the Funds began operations. Mr. Takach, who has more than 30 years
experience in investment management,
<PAGE>
-59-
research analysis and securities trading, has been a Portfolio Manager at
BankBoston since 1971. Mr. Ober, who has more than ten years experience in
investment management and research analysis, has been a Research Analyst, Fund
Manager and Senior Fund Manager at BankBoston since 1987.
KENTON J. IDE, Director of Investments for BankBoston's Private Bank, and JULIET
COHN, Senior Portfolio Manager at Kleinwort, have been co-managers of the
International Equity Fund since the Fund began operations in January 1995. Mr.
Ide, who has more than twenty years experience in investment management and
research analysis, has been with BankBoston since early 1993. From 1983 to 1993,
Mr. Ide was a Senior Vice President with the Private Client Group of Boston Safe
Deposit and Trust Company. Ms. Cohn, who has more than fifteen years experience
in investment management, has been with Kleinwort since 1987.
<PAGE>
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MANAGEMENT
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, 1998, BankBoston's Private Bank was responsible for the investment
management of approximately $[ ] billion of individual, institutional, endowment
and corporate assets, including nearly $[ ] billion in assets of the Funds, in
money market, equity, and fixed income securities. BankBoston's Private Bank has
earned national recognition and respect as an investment manager. BankBoston's
legal name is BankBoston, National Association and its address is 100 Federal
Street, Boston, Massachusetts 02110.
Kleinwort Benson Investment Management Americas Inc. ("Kleinwort") serves as
investment adviser to the International Equity Fund with BankBoston. Kleinwort
provides an investment program in accordance with BankBoston's analysis of
market developments in South America. Investment decisions are joint. Kleinwort,
75 Wall Street, New York, New York 10005, is the U.S.-registered investment
management subsidiary of the London-based Kleinwort Benson Group plc, a merchant
banking group whose origins date back to 1792, which in turn is an indirect
wholly-owned subsidiary of Dresdner Bank AG. Since it began operations in 1980,
Kleinwort has managed investment accounts, primarily for institutions in North
America, comprised of equity, fixed income and balanced portfolios. Kleinwort
and its affiliates manage approximately $65 billion of assets.
Management Fees
The following chart shows the investment management fees paid by each Fund
during the last fiscal year. The Institutional Prime Money Market Fund and the
Florida Tax-Exempt Income Fund began operations during the past fiscal year and
the fees shown are those currently in effect.
- --------------------------------------------------------------------------------
Management 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
Institutional Prime Money Market Fund .20
Short-Term Income Fund .47
Income Fund .64
U.S. Government Medium-Term Income Fund .62
Tax-Exempt Medium-Term Income Fund .62
Connecticut Tax-Exempt Income Fund .62
Florida Tax-Exempt Income Fund .61
Massachusetts Tax-Exempt Income Fund .61
Rhode Island Tax-Exempt Income Fund .58
Asset Allocation Fund .74
Growth and Income Fund .74
Growth Fund .74
International Equity Fund 1.00
<PAGE>
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BankBoston waives its investment management fees if necessary, to limit the
total operating expenses of a Fund to a specified level. BankBoston also may
contribute to the Funds from time to time to help them maintain competitive
expense ratios. These arrangements are voluntary and may be terminated at any
time. The fees without waivers are shown in the fee table in the Risk/Return
Summary.
Year 2000
The "Year 2000" issue stems from the use of a two-digit format to define the
year in certain date-sensitive application systems rather than the use of a
four-digit format. As a result, date-sensitive software programs could recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in major systems or process failures or the generation of erroneous data, which
would lead to disruptions in the Funds' business operations.
The Funds have no application systems of their own and are entirely dependent on
their service providers' systems and software. The Funds are working with their
service providers (including their investment advisers, administrator, transfer
agent, and custodian) to identify and remedy any Year 2000 issues. However, the
Funds cannot guarantee that all Year 2000 issues will be identified and
remedied, and the failure to successfully identify and remedy all Year 2000
issues could result in an adverse impact on the Funds.
DISTRIBUTION ARRANGEMENTS
Boston 1784 Funds do not charge any sales loads, deferred sales loads or other
fees in connection with the purchase of shares.
Each Fund, other than the Money Market Funds, has adopted a plan under Rule
12b-1. The plan allows a Fund to use part of the Fund's assets (up to .25% of
its average daily net assets) for the sale and distribution of its shares,
including advertising, marketing and other promotional activities. Because these
fees are paid out of Fund assets, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.
The Fund's Distributor currently waives these fees on a voluntary basis. This
fee waiver may be terminated in whole or in part at any time.
<PAGE>
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FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand a Fund's
financial performance for the past 5 years [or, if shorter, the period of the
Fund's operations]. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned [or lost] on an investment in each Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
Coopers & Lybrand L.L.P., independent accountants, whose report, along with the
Funds' financial statements, are included in the Funds' Annual Reports which are
available upon request.
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
ASSET NET NET RATIO
VALUE DISTRIBUTIONS ASSET ASSETS RATIO OF NET
BEGINNING NET FROM NET VALUE END OF EXPENSES INCOME
OF INVESTMENT INVESTMENT END TOTAL OF PERIOD TO AVERAGE TO AVERAGE
PERIOD INCOME INCOME OF PERIOD RETURN (000) NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 TAX-FREE MONEY MARKET FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the year ended May 31, 1998 $1.00 [ ] [ ] $1.00 [ %] [$ ] [ %] [ %]
For the year ended May 31, 1997 $1.00 0.03 (0.03) $1.00 3.22% $845,612 0.54% 3.17%
For the year ended May 31, 1996 $1.00 0.03 (0.03) $1.00 3.55% $549,628 0.54% 3.49%
For the year ended May 31, 1995 $1.00 0.03 (0.03) $1.00 3.29% $539,412 0.50% 3.28%
For the period ended May 31, 1994 (1) $1.00 0.02 (0.02) $1.00 2.31%* $407,448 0.27% 2.39%
- -------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
For the year ended May 31, 1998 $1.00 [ ] [ ] $1.00 [ %] [$ ] [ %] [ %]
For the year ended May 31, 1997 $1.00 0.05 (0.05) $1.00 4.86% $390,294 0.64% 4.76%
For the year ended May 31, 1996 $1.00 0.05 (0.05) $1.00 5.16% $ 78,999 0.64% 5.02%
For the year ended May 31, 1995 $1.00 0.05 (0.05) $1.00 4.81% $ 55,068 0.60% 5.13%
For the period ended May 31, 1994 (2) $1.00 0.03 (0.03) $1.00 2.64%* $ 5,593 0.65% 2.91%
- -------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
For the year ended May 31, 1998 $1.00 [ ] [ ] $1.00 [ %] [$ ] [ %] [ %]
For the year ended May 31, 1997 $1.00 0.05 (0.05) $1.00 5.16% $2,591,487 0.33% 5.05%
For the year ended May 31, 1996 $1.00 0.05 (0.05) $1.00 5.45% $644,733 0.32% 5.29%
For the year ended May 31, 1995 $1.00 0.05 (0.05) $1.00 5.05% $395,585 0.30% 5.12%
For the period ended May 31, 1994 (3) $1.00 0.03 (0.03) $1.00 2.99%* $181,568 0.22% 3.16%
- -------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 PRIME MONEY MARKET FUND
For the year ended May 31, 1998 $1.00 [ ] [ ] $1.00 [ %] [$ ] [ %] [ %]
For the period ended May 31, 1997 (4) $1.00 0.02 (0.02) $1.00 2.07%* $123,099 0.65% 4.98%
For the year ended
December 31, 1996 (5) $1.00 0.05 (0.05) $1.00 5.02% $ 93,229 0.66% 4.85%
For the year ended December 31, 1995 $1.00 0.05 (0.05) $1.00 5.49% $156,532 0.62% 5.40%
For the year ended December 31, 1994 $1.00 0.04 (0.04) $1.00 3.75% $136,923 0.65% 3.64%
For the year ended December 31, 1993 $1.00 0.03 (0.03) $1.00 2.72% $168,909 0.59% 2.68%
For the period ended
December 31, 1992 (6) $1.00 0.02 (0.02) $1.00 2.13%* $242,935 0.59% 3.13%
For the period ended
April 30, 1992 (7) $1.00 0.03 (0.03) $1.00 3.55% $280,931 0.48% 4.61%
- -------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
For the year period ended
May 31, 1998 (8) $1.00 [ ] [ ] $1.00 [ %] [$ ] [ %] [ %]
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIO RATIO OF
OF EXPENSES NET INCOME
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS
(EXCLUDING (EXCLUDING
WAIVERS) WAIVERS)
- -----------------------------------------------------------------------------------
BOSTON 1784 TAX-FREE MONEY MARKET FUND
<S> <C> <C>
For the year ended May 31, 1998 [ %] [ %]
For the year ended May 31, 1997 0.56% 3.15%
For the year ended May 31, 1996 0.60% 3.43%
For the year ended May 31, 1995 0.61% 3.17%
For the period ended May 31, 1994 (1) 0.71% 1.95%
- -----------------------------------------------------------------------------------
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
For the year ended May 31, 1998 [ %] [ %]
For the year ended May 31, 1997 0.72% 4.68%
For the year ended May 31, 1996 0.75% 4.91%
For the year ended May 31, 1995 0.92% 4.81%
For the period ended May 31, 1994 (2) 6.42% (2.86)%
- -----------------------------------------------------------------------------------
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
For the year ended May 31, 1998 [ %] [ %]
For the year ended May 31, 1997 0.34% 5.04%
For the year ended May 31, 1996 0.39% 5.22%
For the year ended May 31, 1995 0.41% 5.01%
For the period ended May 31, 1994 (3) 0.55% 2.83%
- -----------------------------------------------------------------------------------
BOSTON 1784 PRIME MONEY MARKET FUND
For the year ended May 31, 1998 [ %] [ %]
For the period ended May 31, 1997 (4) 0.75% 4.88%
For the year ended
December 31, 1996 (5) 0.66% 4.85%
For the year ended December 31, 1995 0.62% 5.40%
For the year ended December 31, 1994 0.69% 3.60%
For the year ended December 31, 1993 0.70% 2.57%
For the period ended
December 31, 1992 (6) 0.64% 3.08%
For the period ended
April 30, 1992 (7) 0.63% 4.46%
- -----------------------------------------------------------------------------------
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
For the year period ended
May 31, 1998 (8) [ %] [ %]
- ------------------------------------------------------------------------------------
<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 ($1,101) was distributed to Federated Administrative
Services. All ratios for the period have been annualized.
(8) The Institutional Prime Money Market Fund commenced operations on November
__, 1997. All ratios for the period have been annualized..
</FN>
</TABLE>
<PAGE>
-63-
BOND FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
ASSET REALIZED AND NET NET
VALUE UNREALIZED DISTRIBUTIONS ASSET ASSETS
BEGINNING NET GAINS OR FROM NET DISTRIBUTIONS VALUE END
OF INVESTMENT (LOSSES) INVESTMENT FROM CAPITAL END TOTAL OF PERIOD
PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD RETURN (000)
- -----------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 SHORT-TERM INCOME FUND
<S> > <C> <C> <C> <C> <C> <C> <C> <C>
For the year ended May 31, 1998 [$ ] [ ] [ ] [ ] -- [$ ] [ %] [$ ]
For the year ended May 31, 1997 $ 9.93 0.58 0.05 (0.58) -- $ 9.98 6.47% $194,033
For the year ended May 31, 1996 $10.09 0.60 (0.12) (0.60) (0.04) $ 9.93 4.87% $ 86,383
For the period ended
May 31, 1995 (1) $10.00 0.56 0.09 (0.56) -- $10.09 6.74%* $ 52,581
- -----------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 INCOME FUND
For the year ended May 31, 1998 [$ ] [ ] [ ] [ ] -- [$ ] [ %] [$ ]
For the year ended May 31, 1997 $ 9.90 0.63 0.17 (0.63) (0.08) $ 9.99 8.32% $334,778
For the year ended May 31, 1996 $10.39 0.65 (0.37) (0.65) (0.12) $ 9.90 2.64% $235,022
For the period ended
May 31, 1995 (1) $10.00 0.62 0.39 (0.62) -- $10.39 10.69* $196,515
- -----------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
For the year ended May 31, 1998 [$ ] [ ] [ ] [ ] -- [$ ] [ %] [$ ]
For the year ended May 31, 1997 $ 9.31 0.59 0.06 (0.59) -- $ 9.37 7.16% $209,141
For the year ended May 31, 1996 $ 9.57 0.61 (0.26) (0.61) -- $ 9.31 3.65% $167,494
For the year ended May 31, 1995 $ 9.36 0.58 0.21 (0.58) -- $ 9.57 8.79% $130,081
For the period 3nded
May 31, 1994 (2) $10.00 0.59 (0.64) (0.59) -- $ 9.36 (0.65)%*$ 92,387
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIO RATIO OF
RATIO OF EXPENSES NET INCOME
RATIO OF NET TO AVERAGE TO AVERAGE
OF EXPENSES INCOME NET ASSETS NET ASSETS PORTFOLIO
TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
- ---------------------------------------------------------------------------------------------
BOSTON 1784 SHORT-TERM INCOME FUND
<S> <C> <C> <C> <C> <C>
For the year ended May 31, 1998 [ %] [ %] [ %] [ %] [ %]
For the year ended May 31, 1997 0.65% 5.78% 0.93% 5.50% 128.11%
For the year ended May 31, 1996 0.63% 5.87% 1.06% 5.44% 95.06%
For the period ended
May 31, 1995 (1) 0.48% 6.31% 1.27% 5.52% 84.54%
- ---------------------------------------------------------------------------------------------
BOSTON 1784 INCOME FUND
For the year ended May 31, 1998 [ %] [ %] [ %] [ %] [ %]
For the year ended May 31, 1997 0.80% 6.31% 1.15% 5.96% 78.63%
For the year ended May 31, 1996 0.80% 6.17% 1.20% 5.77% 100.51%
For the period ended
May 31, 1995 (1) 0.55% 7.01% 1.23% 6.33% 80.53%
- ---------------------------------------------------------------------------------------------
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
For the year ended May 31, 1998 [ %] [ %] [ %] [ %] [ %]
For the year ended May 31, 1997 0.79% 6.30% 1.16% 5.93% 98.22%
For the year ended May 31, 1996 0.80% 6.23% 1.24% 5.79% 158.66%
For the year ended May 31, 1995 0.80% 6.24% 1.27% 5.77% 142.14%
For the period 3nded
May 31, 1994 (2) 0.31% 6.08% 1.35% 5.04% 144.77%
- ---------------------------------------------------------------------------------------------
<FN>
* Returns are for the period indicated and have not been annualized.
(1) The Short-Term Income and Income Funds commenced operations on July 1,
1994. All ratios for the period have been annualized.
(2) The U.S. Government Medium-Term Income Fund commenced operations on June 7,
1993. All ratios for the period have been annualized.
</FN>
</TABLE>
TAX-EXEMPT FUNDS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
ASSET REALIZED AND NET NET
VALUE UNREALIZED DISTRIBUTIONS ASSET ASSETS
BEGINNING NET GAINS OR FROM NET DISTRIBUTIONS VALUE END
OF INVESTMENT (LOSSES) INVESTMENT FROM CAPITAL END TOTAL OF PERIOD
PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD RETURN (000)
- ----------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the year ended May 31, 1998 [$ ] [ ] [ ] [ ] -- [$ ] [ %] [$ ]
For the year ended May 31, 1997 $ 9.99 0.50 0.19 (0.50) -- $10.18 7.74% $250,526
For the year ended May 31, 1996 $10.14 0.51 (0.09) (0.51) (0.06) $ 9.99 4.31% $196,787
For the period ended May 31, 1995 $ 9.90 0.48 0.24 (.048) -- $10.14 7.58% $176,345
FOR THE PERIOD ENDED
MAY 31, 1994 (1) $10.00 0.49 (0.10) (.049) -- $ 9.90 3.93%* $ 36,365
- ----------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
For the year ended May 31, 1998 [$ ] [ ] [ ] [ ] -- [$ ] [ %] [$ ]
For the year ended May 31, 1997 $10.17 0.51 0.21 (0.51) -- $10.38 7.26% $103,104
For the year ended May 31, 1996 $10.27 0.53 (0.10) (0.53) -- $10.17 4.20% $ 81,441
For the period ended
May 31, 1995 (2) $10.00 0.45 0.27 (0.45) -- $10.27 7.45%* $ 61,369
- ----------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
For the period ended May 31, 1998 $10.00 0.20 0.20 (0.20) (0.02) $10.18 4.02% $ 47,815
(Unaudited)(3)
- ----------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
For the year ended May 31, 1998 [$ ] [ ] [ ] [ ] -- [$ ] [ %] [$ ]
For the year ended May 31, 1997 $ 9.78 0.47 0.23 (0.47) -- $10.01 7.30% $147,459
For the year ended May 31, 1996 $ 9.90 0.48 (0.12) (0.48) -- $ 9.78 3.64% $106,619
For the period ended May 31, 1995 $ 9.81 0.47 0.09 (0.47) -- $ 9.90 6.00% $ 82,058
FOR THE PERIOD ENDED
MAY 31, 1994(4) $10.00 0.50 (0.19) (.050) -- $ 9.81 3.04%* $ 49,662
- ----------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
For the year ended May 31, 1998 [$ ] [ ] [ ] [ ] -- [$ ] [ %] [$ ]
For the year ended May 31, 1997 $10.06 0.50 0.25 (0.50) -- $10.31 7.61% $53,752
For the year ended May 31, 1996 $10.13 0.53 (0.07) (0.53) -- $10.06 4.65% $37,904
For the period ended
May 31, 1995 (5) $10.00 0.45 0.13 (0.45) -- $10.13 6.09%* $32,495
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIO RATIO OF
RATIO OF EXPENSES NET INCOME
RATIO OF NET TO AVERAGE TO AVERAGE
OF EXPENSES INCOME NET ASSETS NET ASSETS PORTFOLIO
TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
- ----------------------------------------------------------------------------------------------------------------
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
<S> <C> <C> <C> <C> <C>
For the year ended May 31, 1998 [ %] [ %] [ %] [ %] [ %]
For the year ended May 31, 1997 0.80% 4.92% 1.17% 4.55% 33.24%
For the year ended May 31, 1996 0.79% 4.90% 1.21% 4.48% 37.35%
For the period ended May 31, 1995 0.80% 5.02% 1.26% 4.56% 74.74%
FOR THE PERIOD ENDED
MAY 31, 1994 (1) 0.32% 5.06% 1.61% 3.77% 98.83%
- ----------------------------------------------------------------------------------------------------------------
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
For the year ended May 31, 1998 [ %] [ %] [ %] [ %] [ %]
For the year ended May 31, 1997 0.76% 4.94% 1.17% 4.53% 4.28%
For the year ended May 31, 1996 0.75% 5.02% 1.29% 4.48% 20.41%
For the period ended
May 31, 1995 (2) 0.52% 5.44% 1.40% 4.56% 35.56%
- ----------------------------------------------------------------------------------------------------------------
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
For the period ended May 31, 1998 0.80% 4.64% 1.19% 4.25% 2.90%
(Unaudited)(3)
- ----------------------------------------------------------------------------------------------------------------
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
For the year ended May 31, 1998 [ %] [ %] [ %] [ %] [ %]
For the year ended May 31, 1997 0.79% 4.74% 1.18% 4.35% 9.47%
For the year ended May 31, 1996 0.80% 4.73% 1.28% 4.25% 47.00%
For the period ended May 31, 1995 0.80% 4.93% 1.35% 4.38% 34.59%
FOR THE PERIOD ENDED
MAY 31, 1994(4) 0.33% 5.10% 1.41% 4.02% 13.99%
- ----------------------------------------------------------------------------------------------------------------
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
For the year ended May 31, 1998 [ %] [ %] [ %] [ %] [ %]
For the year ended May 31, 1997 0.79% 4.88% 1.21% 4.46% 8.18%
For the year ended May 31, 1996 0.77% 5.16% 1.35% 4.58% 19.68%
For the period ended
May 31, 1995 (5) 0.54% 5.56% 1.60% 4.50% 57.51%
- ----------------------------------------------------------------------------------------------------------------
<FN>
* Returns are for the period indicated and have not been annualized.
(1) The Tax-Exempt Medium-Term Income Fund commenced operations on June 14,
1993. All ratios for the period have been annualized.
(2) The Connecticut-Tax-Exempt Income Fund commenced operations on August 1,
1994. All ratios for the period have been annualized.
(3) The Florida Tax-Exempt Income Fund commenced operations on June 30, 1997.
All ratios for the period have been annualized.
(4) The Massachusetts Tax-Exempt Income Fund commenced operations on June 14,
1993. All ratios for the period have been annualized.
(5) The Rhode Island Tax-Exempt Income Fund commenced operations on August 1,
1994. All ratios for the period have been annualized.
</FN>
</TABLE>
<PAGE>
-64-
STOCK FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
ASSET REALIZED AND NET NET
VALUE UNREALIZED DISTRIBUTIONS ASSET ASSETS
BEGINNING NET GAINS OR FROM NET DISTRIBUTIONS VALUE END
OF INVESTMENT (LOSSES) INVESTMENT FROM CAPITAL END TOTAL OF PERIOD
PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD RETURN (000)
- -----------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 ASSET ALLOCATION FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the year ended May 31, 1998 [$ ] [ ] [ ] [ ] -- [$ ] [ %] [$ ]
For the year ended May 31, 1997 $12.31 0.34 1.44 (0.33) (0.36) $13.40 14.89% $35,522
For the year ended May 31, 1996 $10.99 0.31 1.61 (0.31) (0.29) $12.31 17.83% $16,831
For the period ended May 31, 1995 $ 9.84 0.28 1.15 (0.27) (0.01) $10.99 14.84% $ 8,622
For the period ended
May 31, 1994 (1) $10.00 0.19 (0.20) (0.15) (0.00) $ 9.84 (0.15)%* $ 6,928
- -----------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 GROWTH AND INCOME FUND
For the year ended May 31, 1998 [$ ] [ ] [ ] [ ] -- [$ ] [ %] [$ ]
For the year ended May 31, 1997 $15.23 0.12 2.63 (0.11) (0.33) $17.54 18.33% $457,952
For the year ended May 31, 1996 $12.16 0.10 3.08 (0.11) (0.00) $15.23 26.32% $303,463
For the period ended May 31, 1995 $10.57 0.11 1.67 (0.10) (0.09) $12.16 17.09% $229,200
For the period ended
May 31, 1994(2) $10.00 0.12 0.56 (0.11) (0.00) $10.57 6.80%* $121,717
- -----------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 GROWTH FUND
For the year ended May 31, 1998 [$ ] [ ] [ ] [ ] -- [$ ] [ %] [$ ]
For the year ended May 31, 1997 $11.27 0.02 0.96 (0.05) (0.00) $12.20 8.77% $261,487
For the year ended May 31, 1996(3) $10.00 0.02 1.25 (0.00) (0.00) $11.27 12.70%* $ 46,026
- -----------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 INTERNATIONAL EQUITY FUND
For the year ended May 31, 1998 [$ ] [ ] [ ] [ ] -- [$ ] [ %] [$ ]
For the year ended May 31, 1997 $12.05 0.07 1.23 (0.09) (0.06) $13.20 10.93% $503,048
For the year ended May 31, 1996 $10.41 0.11 1.85 (0.27) (0.05) $12.05 19.08% $362,460
For the period ended
May 31, 1995(4) $10.00 0.06 0.35 (0.00) (0.00) $10.41 4.73%* $148,439
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIO RATIO OF
RATIO OF EXPENSES NET INCOME
RATIO OF NET TO AVERAGE TO AVERAGE
OF EXPENSES INCOME NET ASSETS NET ASSETS PORTFOLIO
TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
- ---------------------------------------------------------------------------------------------
BOSTON 1784 ASSET ALLOCATION FUND
For the year ended May 31, 1998 [ %] [ %] [ %] [ %] [ %]
<S> <C> <C> <C> <C> <C>
For the year ended May 31, 1997 1.07% 2.87% 1.37% 2.57% 23.60%
For the year ended May 31, 1996 1.25% 2.86% 1.90% 2.21% 39.56%
For the period ended May 31, 1995 1.25% 2.88% 2.51% 1.62% 67.23%
For the period ended
May 31, 1994 (1) 1.25% 2.61% 3.61% 0.26% 28.19%
- ---------------------------------------------------------------------------------------------
BOSTON 1784 GROWTH AND INCOME FUND
For the year ended May 31, 1998 [ %] [ %] [ %] [ %] [ %]
For the year ended May 31, 1997 0.92% 0.77% 1.19% 0.50% 15.35%
For the year ended May 31, 1996 0.94% 0.78% 1.24% 0.48% 39.50%
For the period ended May 31, 1995 0.94% 1.05% 1.23% 0.76% 38.94%
For the period ended
May 31, 1994(2) 0.35% 1.23% 1.36% 0.22% 31.55%
- ---------------------------------------------------------------------------------------------
BOSTON 1784 GROWTH FUND
For the year ended May 31, 1998 [ %] [ %] [ %] [ %] [ %]
For the year ended May 31, 1997 0.77% 0.17% 1.15% (0.21)% 57.46%
For the year ended May 31, 1996(3) 0.20% 1.75% 1.73% 0.22% 0.00%
- ---------------------------------------------------------------------------------------------
BOSTON 1784 INTERNATIONAL EQUITY FUND
For the year ended May 31, 1998 [ %] [ %] [ %] [ %] [ %]
For the year ended May 31, 1997 1.27% 0.41% 1.52% 0.16% 22.88%
For the year ended May 31, 1996 1.13% 0.76% 1.61% 0.28% 15.55%
For the period ended
May 31, 1995(4) 0.89% 2.06% 1.70% 1.25% 11.03%
- ---------------------------------------------------------------------------------------------
<FN>
* Returns are for the period indicated and have not been annualized.
(1) The Asset Allocation Fund commenced operations on June 14, 1993. All ratios
for the period have been annualized.
(2) The Growth and Income fund commenced operations on June 7, 1993. All ratios
for the period have been annualized.
(3) The Grown Fund commenced operations on March 28, 1996. All ratios for the
period have been annualized.
(4) The International Equity Fund commenced operations on January 3, 1995. All
ratios for the period have been annualized.
</FN>
</TABLE>
<PAGE>
-65-
The Statement of Additional Information includes additional information about
the Funds.
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' annual reports,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Funds' performance during the last fiscal year.
You can obtain a free copy of the Funds' Statement of Additional Information
and/or free copies of the Funds' most recent annual or semi-annual report by
calling 1-800-BKB-1784. The material you request will be sent by first-class
mail, or other means designed to ensure equally prompt delivery, within three
business days of receipt of the request.
You may also call 1-800-BKB-1784 to request other information about the Funds or
to make shareholder inquiries.
The Statement of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by reference.
Information about the Funds (including the Statement of Additional Information)
can be reviewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. Information on the operation of the public
reference room may be obtained by calling the Commission at 1-800-SEC-0330.
Copies of this information may be obtained, upon payment of a duplicating fee,
by writing the Public Reference Section of the Commission, Washington, D.C.
20549-6009.
Reports and other information about the Funds are also available on the
Commission's Internet site at http://www.sec.gov.
Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
1-800-BKB-1784
http://www.boston1784funds.com
File No. 811-7474
<PAGE>
Statement of
Additional Information
______________, 1998
BOSTON 1784 FUNDS [service 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 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 ____________,
1998. You may obtain a Prospectus without charge by calling 1-800-BKB-1784.
Certain financial information which is included in the Annual Reports
to Shareholders of Boston 1784 Funds is incorporated by reference into this
Statement of Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
TABLE OF CONTENTS
PAGE
1. Trust History 2
2. Description of the Trust and its Investments and Risks 2
Classification 2
Investment Strategies and Risks 3
Fund Policies 21
Temporary Defensive Position 25
Portfolio Turnover 25
3. Management 26
Trustees 26
Management Information 26
Compensation 29
4. Control Persons and Principal Holders of Securities 30
Principal Holders 30
5. Investment Advisory and Other Services 30
Investment Advisers 30
Distributor 32
Administrator 33
Dividend Disbursing Agent and Transfer Agent 34
Custodian 35
Counsel and Independent Accountant 35
6. Brokerage Allocation and Other Practices 35
Brokerage Transactions 35
Brokerage Selection 36
7. Description of Shares; Voting Rights and Liabilities 38
8. Purchase, Redemption and Pricing of Shares 39
Determination of Net Asset Value 39
Purchase and Redemption of Shares 40
Systematic Withdrawal Plan 41
Redemption in Kind 42
9. Taxes 43
Tax Status of the Funds 43
Taxation of Fund Distributions 43
Disposition of Shares 44
Additional Information for Shareholders of the
Tax-Exempt Funds 44
Additional Information Relating to Fund Investments 44
Additional Information Relating to Foreign Investments 45
Foreign Shareholders 46
Backup Withholding 46
10. Performance Information 46
Calculation of Yield 46
Calculation of Total Return 48
11. Financial Statements 53
Appendix A: Certain Information concerning Connecticut, Florida,
Massachusetts and Rhode Island
Appendix B: Description of Securities Ratings
Appendix C: Taxable Equivalent Yields
<PAGE>
-2-
1. TRUST HISTORY
BOSTON 1784 FUNDS[SERVICE 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.
2. DESCRIPTION OF THE TRUST AND ITS INVESTMENTS AND RISKS
CLASSIFICATION
The 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. Boston 1784 Funds currently has seventeen active series.
Each Fund (other than the state Tax-Exempt Funds) is a diversified mutual fund.
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 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.
<PAGE>
-3-
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.
INVESTMENT STRATEGIES AND RISKS
The principal investment policies and strategies of each of the Funds
are described in the Prospectus by which shares of that Fund are offered. The
permitted investments and investment techniques described below, in alphabetical
order, supplements the information contained in the Prospectus.
Each Tax-Exempt Fund has a fundamental policy of investing at least 80
percent 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.
Appendix C describes the yield investors need to achieve from a taxable
investment to equal the yield from a tax-exempt investment. The taxable
equivalent yields tables do not predict the yield of any Fund.
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are securities, typically issued
by a U.S. financial institution, that evidence ownership interests in a security
or a pool of securities issued by a foreign issuer. European Depositary Receipts
("EDRs"), which are sometimes referred to as Continental Depositary Receipts
("CDRs"), are securities, typically issued by a non-U.S. financial institution,
that evidence ownership interests in a security or a pool of securities issued
by either a U.S. or foreign issuer. ADRs, EDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holdings of an unsponsored depositary receipt
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generally bear all the costs of the unsponsored facility and the depositary of
an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass voting rights through to the holders of the receipts in respect to the
deposited 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.
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. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (E.G., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. A Fund
will not pay any additional or separate fees for credit support. The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security.
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
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institutions. The Funds have established certain minimum credit quality
standards for bank obligations in which they invest.
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.
BANKERS' ACCEPTANCES
A banker's acceptance is a bill of exchange or time draft drawn on and
accepted by a commercial bank. It is used by corporations to finance the
shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT
A certificate of deposit is a negotiable interest-bearing instrument
with a specific maturity. Cerificates 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.
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.
COMMON AND PREFERRED STOCK
Common stocks are generally more volatile than other securities.
Preferred stocks share some of the characteristics of both debt and equity
investments and are generally preferred over common stocks with respect to
dividends and in liquidation.
CONVERTIBLE SECURITIES
Convertible securities have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of convertible securities tends to move together with the market value of
the underlying stock. The value of convertible securities is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions. Convertible securities include both debt obligations and preferred
stock.
CURRENCY SWAPS
Currency swaps involve the exchange of rights to make or receive
payments in specified currencies. Currency swaps usually involve the delivery of
the entire principal value of one designated currency. Therefore, the entire
principal value of a currency swap is subject to the risk that the other party
to the swap will default on its contractual delivery obligations. The use of
currency swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser or Advisers to a Fund are incorrect in
their forecasts of market values and currency exchange rates, the investment
performance of the Fund would be less favorable than it would have been if this
investment technique were not used.
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FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Since investments in foreign companies usually involve currencies of
foreign countries, the value of the assets of a Fund with investments in foreign
companies as measured in U.S. dollars may be affected favorably or unfavorably
by changes in foreign currency exchange rates and exchange control regulations.
Although such Fund's assets are valued daily in terms of U.S. dollars, the Fund
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. A Fund may conduct its foreign currency exchange transactions
on a spot basis or for settlement on a future date (i.e., a "forward foreign
currency" contract or "forward" contract). A Fund may convert currency on a spot
basis from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency 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.
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A Fund generally does not enter into a forward contract with a term
greater than one year. At the maturity of a forward contract, the Fund either
sells the security and makes delivery of the foreign currency, or it retains the
security and terminates its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency.
If a Fund retains the security and engages in an offsetting
transaction, the Fund incurs a gain or loss (as described below) to the extent
that there has been movement in forward contract prices. If the Fund engages in
an offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline during the period
between the date the Fund enters into a forward contract for the sale of the
foreign currency and the date it enters into an offsetting contract for the
purchase of foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of the currency 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.
FOREIGN 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
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
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requirements of the U.S. securities laws. Foreign issuers are generally not
bound by uniform accounting, auditing and financial reporting requirements
comparable to those applicable to domestic issuers. Investments in foreign
securities also involve the risk of possible adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation, limitation
on the removal of funds or other assets of a Fund, political or financial
instability or diplomatic and other developments which would affect such
investments. Further, economies of particular countries or areas of the world
may differ favorably or unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for
foreign securities would be on exchanges or in over-the-counter markets located
outside the U.S. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the U.S., and
securities of some foreign issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of comparable
U.S. companies. Foreign security trading practices, including those involving
securities settlement where a Fund's assets may be released prior to receipt of
payment, may expose a Fund to increased risk in the event of a failed trade or
the insolvency of a foreign broker-dealer. In addition, foreign brokerage
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 percent 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.
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.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
Each Fund may invest up to 25 percent of its assets in forward
commitments or commitments to purchase securities 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 the
commitment and delivery and payment normally take
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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.
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 percent 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
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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.
GUARANTEED INVESTMENT CONTRACTS (GIC)
A GIC is a contract between an insurance company and, generally, an
institutional investor that guarantees the investor a specified interest rate
for a specific period and the return of the investor's principal. Each Fund will
not invest more than 20% of its total assets in GICs.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by
the lending bank or agent for a syndicate of lending banks, and sold by the
lending bank or syndicate member. The Funds may only purchase interests in loan
participations issued by a bank in the United States with assets exceeding $1
billion and for which the underlying loan is issued by borrowers in whose
obligations the Funds may invest. Because the intermediary bank does not
guarantee a loan participation in any way, a loan participation is subject to
the credit risk generally associated with the underlying corporate borrower. In
addition, in the event the underlying corporate borrower defaults, a Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of the borrower. Under the terms of a loan participation, the
purchasing Fund may be regarded as a creditor of the intermediary bank so that
the Fund may also be subject to the risk that the issuing bank may become
insolvent.
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 percent of its assets in any one money market
fund or more than 10 percent 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.
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.
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MORTGAGE-BACKED SECURITIES
Each of the Funds may invest in mortgage-backed securities, which are
securities representing interests in pools of mortgage loans. Interests in pools
of mortgage-related securities differ from other forms of debt securities which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. The market value and interest yield of these instruments
can vary due to market interest rate fluctuations and early prepayments of
underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the United States Government while obligations of FNMA and FHLMC are
supported by the respective agency only.
Each of the Funds (other than the Money Market Funds) may also 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 IBCA, Inc. ("Fitch IBCA"), or, if not rated by S&P, Moody's
or Fitch IBCA, 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"). 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.
CMOs are securities collateralized by mortgages, mortgage pass-through
certificates, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or
are credited with their pro rata portion of the scheduled payments of interest
and principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligations 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.
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Even if the U.S. government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market volatility.
When interest rates decline, mortgage-backed securities experience higher rates
of prepayment because the underlying mortgages are refinanced to take advantage
of the lower rates. The prices of mortgage-backed securities may not increase as
much as prices of other debt obligations when interest rates decline, and
mortgage-backed securities may not be an effective means of locking in a
particular interest rate. In addition, any premium paid for a mortgage-backed
security may be lost when it is prepaid. When interest rates go up,
mortgage-backed securities experience lower rates of prepayment. This has the
effect of lengthening the expected maturity of a mortgage-backed security. As a
result, prices of mortgage-backed securities may decrease more than prices of
other debt obligations when interest rates go up.
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 and Bond Funds 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 percent 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 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
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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 and Bond Funds 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.
OPTIONS OF 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.
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
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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.
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 percent 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
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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 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.
OTHER INVESTMENT COMPANIES
Subject to applicable statutory and regulatory limitations, assets of
each Fund may be invested in shares of other investment companies and foreign
investment trusts. Each Fund may invest up to 5% of its assets in closed-end
investment companies that primarily hold securities of non-U.S. issuers. A
Fund's purchase of investment company securities may result in the duplication
of fees and expenses.
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.
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. Pursuant to an exemptive order from the Securities
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and Exchange Commission, the Funds' may enter into repurchase agreements on a
pooled basis.
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 percent 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.
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 percent 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 percent of net assets
for each Stock, Bond and Tax-Exempt Fund and 10 percent for each Money Market
Fund).
A Fund 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.
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
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portion of the Fund's assets are involved. Reverse repurchase agreements
are considered to be a form of borrowing.
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.
SECURITIES RATED BAA OR BBB
The Funds may purchase securities rated Baa by Moody's or BBB by
Standard & Poor's which may have poor protection of payment of principal and
interest.
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 percent 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. The interest-only component is extremely
sensitive to the rate of principal payments on the underlying obligation. The
market value of the principal-only component generally is unusually volatile in
response to changes in interest rates.
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
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(notes sold to finance working capital needs of the issuer in anticipation of
receiving taxes on a future date), revenue anticipation notes (notes sold to
provide needed cash prior to receipt of expected non-tax revenues from a
specific source), bond anticipation notes, certificates of indebtedness, demand
notes and construction loan notes. A Fund's investment in any of the notes
described above will be limited to those obligations which are rated (i) MIG-2
or VMIG-2 or better at the time of investment by Moody's, (ii) SP-2 or better at
the time of investment by S&P, or (iii) F-2 or better at the time of investment
by Fitch IBCA, or which, if not rated by Moody's, S&P or Fitch IBCA, 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 IBCA or Baa or better by Moody's at the time of investment or, if not
rated by Moody's, S&P or Fitch IBCA, 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 IBCA 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 IBCA, 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 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 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.
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
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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 percent 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.
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.
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 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.
WARRANTS
A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specified amount of the corporation's capital
stock at a set price for a specified period of time. Each of the Stock Funds may
invest up to 5% of its net assets in warrants. Included in this limitation, but
not to exceed 2% of the Fund's net assets, may be warrants not listed on the New
York Stock Exchange or American Stock Exchange. The Short-Term Income Fund and
Income Fund may each invest in warrants in an amount not exceeding 2% of its net
assets, except that this limitation does not apply to warrants acquired in units
or attached to securities. Such warrants may not be listed on the New York Stock
Exchange or American Stock Exchange.
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
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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.
FUND POLICIES
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 percent or more
of the outstanding voting securities of the Fund present at a meeting at which
the holders of more than 50 percent of the outstanding voting securities of the
Fund are present or represented by proxy, or (ii) more than 50 percent 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
percent 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,
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.
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3. A Fund may not acquire more than 10 percent of the voting securities of
any one issuer (except securities issued or guaranteed by the United
States, its agencies or instrumentalities and repurchase agreements
involving such securities) or invest more than 5 percent 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 percent 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, 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 percent 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 percent 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, such a Fund may not pledge, mortgage or
hypothecate assets except to secure temporary borrowings permitted by
(5) above in aggregate amounts not to exceed 10 percent 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>
-23-
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 percent of the
total voting stock of the company; (b) securities issued by any one
investment company represent more than 5 percent of the total assets of
such Fund; or (c) securities (other than treasury stock) issued by all
investment companies represent more than 10 percent 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, 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 percent 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 percent 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 percent of its net assets; this
limitation does not apply to warrants acquired in units or
<PAGE>
-24-
attached to securities. Such warrants may not be listed on the New York Stock
Exchange or American Stock Exchange.
No Fund may invest in illiquid securities in an amount exceeding, in the
aggregate, 15 percent of that Fund's net assets (10 percent 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, 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 percent
of the shares or securities of such issuer and all such officers, trustees,
partners and directors owning more than 1/2 of 1 percent of such shares or
securities together own more than 5 percent 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 percent 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, 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.
TEMPORARY DEFENSIVE POSITION
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.
PORTFOLIO TURNOVER
Set forth below are the portfolio turnover rates for each of the Funds
(with the exception of the money market funds). A rate of 100% indicates that
the equivalent of all of the Fund's assets have been sold and reinvested in a
year. The amount of brokerage commissions will tend to increase as the level of
portfolio activity increases. High portfolio turnover may result in the
realization of substantial net capital gains or losses. To the
<PAGE>
-25-
extent net short term capital gains are realized, any distributions resulting
from such gains are considered ordinary income for federal income tax purposes.
- --------------------------------------------------------------------------------
Portfolio Portfolio
Turnover Rates Turnover Rates
Fund 1997 1998
- --------------------------------------------------------------------------------
Boston 1784 Short-Term Income Fund 128.11%
Boston 1784 Income Fund 78.63%
Boston 1784 U.S. Government
Medium-Term Income Fund 98.22%
Boston 1784 Tax-Exempt Medium
Term Income Fund 33.24%
Boston 1784 Connecticut Tax
Exempt Income Fund 4.28%
Boston 1784 Florida Tax-Exempt
Income Fund (1) 2.90%
Boston 1784 Massachusetts Tax
Exempt Fund 9.47%
Boston 1784 Rhode Island Tax
Exempt Income Fund 8.18%
Boston 1784 Asset Allocation Fund 23.60%
Boston 1784 Growth and Income
Fund 15.35%
Boston 1784 Growth Fund 57.46%
Boston 1784 International Equity
Fund 22.88%
- --------------------------------------------------------------------------------
(1) The Florida Tax-Exempt Income Fund commenced operations on June 30, 1997.
3. MANAGEMENT
TRUSTEES
The management and affairs of the Trust are supervised by the Trustees
under the laws of the Commonwealth of Massachusetts. Subject to the provisions
of the Declaration
<PAGE>
-26-
of Trust, the business of the Trust shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility.
MANAGEMENT INFORMATION
The Trustees and executive officers of the Trust and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. An asterisk indicates a Trustee who may be
deemed to be an "interested person" (as defined in the 1940 Act) of the Trust.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Position(s)
Held with Principal Occupation(s) During Past
Name, Address, and Age Trust 5 Years
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
DAVID H. CARTER Trustee Main Board Director, Touche Remnant & Co.
(date of birth March 21, 1933) (investment advisor), 1982-1988; Managing
224 Polpis Road, Nantucket, Massachusetts Director, Bearbull (UK) Ltd., London
02554 (investment advisor), 1988-January 1993.
- ----------------------------------------------------------------------------------------------------------
TARRANT CUTLER Trustee Senior Executive Vice President,
(date of birth June 12, 1926) Massachusetts Financial Services Company,
5 Masconomo Street retired in 1991.
Manchester, Massachusetts 01944
- ----------------------------------------------------------------------------------------------------------
KENNETH A. FROOT Trustee The Industrial Bank of Japan Professor of
(date of birth July 5, 1957) Finance and Director of Research, Harvard
Harvard University Graduate School of University Graduate School of Business,
Business, Boston, Massachusetts 02163 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 Chief Regional Economist (since 1995) and
(date of birth November 16, 1951) principal (since 1992), Director of
30 Eaton Court, Wellesley Hills, Regional Forecasting, Managing Economist
Massachusetts 02181 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.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-27-
<TABLE>
- ------------------------------------------- ------------------ --------------------------------------------
<S> <C> <C>
KATHRYN FLACKE MUNCIL Trustee Chief Financial Officer, Fort William
(date of birth November 30, 1958) Henry Corporation, since 1993; Treasurer,
c/o Fort William Henry Corporation, Spaulding Investment Company (real estate
48 Canada Street, development, investment and property
Lake George, New York 12845 management), 1985-1993.
- ------------------------------------------- ------------------ --------------------------------------------
*ROBERT A. NESHER President & Mr. Nesher currently performs various
(date of birth August 17, 1946) Chief Executive services on behalf of SEI for which he is
1 Freedom Valley Drive, Oaks, Officer compensated. Director and Executive Vice
Pennsylvania 19456 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 Co-Chairman, Marketing Area and Lincoln
(date of birth December 31, 1935) Filene Professor of Business
Graduate School of Business Administration, Graduate School of
Administration, Harvard University, Business Administration, Harvard
Soldiers Field Road, Boston, University (1988-present); formerly,
Massachusetts 02163 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.
- ------------------------------------------- ------------------ --------------------------------------------
TODD CIPPERMAN Vice President & Vice President and Assistant Secretary of
(date of birth February 14, 1966) Assistant SEI, the Administrator and the Distributor
1 Freedom Valley Drive, Oaks, Secretary since 1995. Associate, Dewey Ballantine
Pennsylvania 19456 (law firm)(1994-1995). Associate, Winston
& Strawn (law firm) (1991-1994).
- ------------------------------------------- ------------------ --------------------------------------------
ROGER P. JOSEPH Secretary Partner, Bingham Dana LLP, counsel to the
(date of birth October 3, 1951) Trust, since 1983.
150 Federal Street, Boston, Massachusetts
02110
- ------------------------------------------- ------------------ --------------------------------------------
STEPHEN G. MEYER Controller Vice President and Controller, Chief
(date of birth July 12, 1965) Accounting Officer of SEI since 1992 (date
1 Freedom Valley Drive, Oaks, of birth July 12, 1965). Senior
Pennsylvania 19456 Associate, Coopers & Lybrand L.L.P. from
1990 to 1992. Internal Audit, Vanguard
Group of Investments prior to 1990.
- ------------------------------------------- ------------------ --------------------------------------------
JOSEPH O'DONNELL Vice President & Vice President of the Administrator and
(date of birth November 13, 1954) Assistant the Distributor since 1998. Vice
1 Freedom Valley Drive, Oaks, Secretary President and General Counsel of FPS
Pennsylvania 19456 Services Inc. from 1995-1998. Secretary,
Staff Counsel and Compliance
Administrator, Provident Mutual Family of
Funds, 1989-1993.
- ------------------------------------------- ------------------ --------------------------------------------
</TABLE>
<PAGE>
-28-
<TABLE>
- ------------------------------------------- ------------------ --------------------------------------------
<S> <C> <C>
SANDRA K. ORLOW Vice President & Vice President and Assistant Secretary of
(date of birth October 18, 1953) Assistant the Administrator and Distributor since
1 Freedom Valley Drive, Oaks, Secretary 1983.
Pennsylvania 19456
- ------------------------------------------- ------------------ --------------------------------------------
KEVIN P. ROBINS Vice President & Senior Vice President of SEI, the
(date of birth April 15, 1961) Assistant Administrator and the Distributor, since
1 Freedom Valley Drive, Oaks, Secretary 1994. Vice President of SEI, the
Pennsylvania 19456 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 & Vice President and Assistant Secretary of
(date of birth November 18, 1958) Assistant SEI, the Administrator and the
1 Freedom Valley Drive, Oaks, Secretary Distributor, since 1994. Associate,
Pennsylvania 19456 Morgan, Lewis & Bockius (law firm)
1989-1994.
- ------------------------------------------- ------------------ --------------------------------------------
</TABLE>
COMPENSATION
The following table sets forth certain information regarding the
compensation of the Trust's Trustees for the fiscal year ended May 31, 1998.
<TABLE>
<CAPTION>
- -------------------------- -------------------- ---------------------- --------------------- ---------------------
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual from the Trust and
Compensation from Accrued as Part of Benefits Upon the Funds Paid to
Name of Trustee the Trust Fund Expenses Retirement Trustee
- -------------------------- -------------------- ---------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
David H. Carter $______ $______ $______ $______
Tarrant Cutler ______ ______ ______ ______
Kenneth A. Froot ______ ______ ______ ______
Sara L. Johnson ______ ______ ______ ______
Kathryn F. Muncil ______ ______ ______ ______
Robert A. Nesher ______ ______ ______ ______
Alvin J. Silk ______ ______ ______ ______
</TABLE>
The Officers of the Trust receive no compensation from the Trust for
serving in such capacity. Compensation of officers and Trustees of the Trust who
are employed by the Administrator is paid by the Administrator.
The Declaration of Trust provides that the Trust will indemnify its
Trustees and officers as described below under "Trustee and Shareholder
Liability--Limitation of Trustees' Liability".
<PAGE>
-29-
4. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
PRINCIPAL HOLDERS
As of ___________, 1998, all Trustees and officers of the Trust as a
group owned less than 1 percent of each Fund's outstanding shares. The Trust
pays the fees for unaffiliated Trustees.
[5% HOLDERS TO BE ADDED]
As of ___________, 1998, [INSERT NAME], [INSERT ADDRESS], owned of
record the following percentages of the outstanding shares of the following
Funds:
5. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISERS
The Trust has entered into separate advisory agreements (each, an
"Advisory Agreement") with BankBoston, a wholly-owned subsidiary of BankBoston
Corporation, and, for Boston 1784 International Equity Fund, with Kleinwort
Benson Investment Management Americas Inc. ("Kleinwort Benson"), the
U.S.-registered investment management subsidiary of the London-based Kleinwort
Benson Group plc, a merchant banking group, which in turn is a subsidiary of
Dresdner Bank A.G.
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."
BankBoston is entitled to receive investment advisory fees, which are
accrued daily and payable monthly, of .40% of each Money Market Fund's average
daily net assets (.20% for the Institutional U.S. Treasury Money Market Fund and
the Institutional Prime Money Market Fund), .74% of each Bond and Each
Tax-Exempt Fund's average daily net assets (.50% for the Short-Term Income Fund)
and .74% of each Stock Fund's average daily net assets (other than the
International Equity Fund).
For the International Equity Fund, BankBoston and Kleinwort Benson each
are entitled to receive an investment advisory fee of .50% of the Fund's average
net assets, for a total of 1.00% of the Fund's average daily net assets. This
fee is higher than the fee paid by most investment companies in general.
BankBoston has agreed to waive its investment advisory fees to the
extent necessary to limit the total operating expenses of each Fund to a
specified level. BankBoston also may contribute to the Funds from time to time
to help them maintain competitive expense ratios. These arrangements are
voluntary and may be terminated at any time.
For the fiscal years ended May 31, 1996, 1997 and 1998, the Trust paid
the following fees (after fee waivers) on behalf of the Funds:
<PAGE>
-30-
<TABLE>
<CAPTION>
- --------------------------------------------- ---------------------- --------------------- ---------------------
BankBoston BankBoston BankBoston
Investment Investment Investment
Fund Advisory Fees Advisory Fees Advisory Fees
1996 1997 1998
- --------------------------------------------- ---------------------- --------------------- ---------------------
<S> <C> <C>
Boston 1784 Tax-Free Money Market Fund $1,996,000 $2,663,000
Boston 1784 U.S. Treasury Money Market Fund 276,000 879,000
Boston 1784 Institutional U.S. Treasury
Money Market Fund 651,000 3,052,000
Boston 1784 Institutional Prime Money Market Fund N/A (1) N/A (1)
Boston 1784 Prime Money Market Fund 6,700 (2) 142,000 (3)
Boston 1784 Short-Term Income Fund 348,000 708,000
Boston 1784 Income Fund 1,257,000 1,829,000
Boston 1784 U.S. Government Medium Term Income Fund 906,000 1,199,000
Boston 1784 Tax-Exempt Medium-Term Income Fund 1,116,000 1,387,000
Boston 1784 Connecticut Tax-Exempt Income Fund 418,000 573,000
Boston 1784 Florida Tax-Exempt Income Fund N/A (1) N/A (1)
Boston 1784 Massachusetts Tax-Exempt Fund 548,000 768,000
Boston 1784 Rhode Island Tax-Exempt Income Fund 208,000 280,000
Boston 1784 Asset Allocation Fund 90,000 177,000
Boston 1784 Growth and Income Fund 1,997,000 2,650,000
Boston 1784 Growth Fund 0 1,050,000
Boston 1784 International Equity Fund 636,000 2,111,000
- --------------------------------------------- ---------------------- --------------------- ---------------------
Total $10,453,700 $19,468,000
- --------------------------------------------- ---------------------- --------------------- ---------------------
</TABLE>
(1) The Boston 1784 Institutional Prime Money Market Fund and Boston 1784
Florida Tax-Exempt Income Fund are newly organized and had no operations
during the periods indicated.
<PAGE>
-31-
(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
year ended December 31, 1996, the Fund paid investment advisory fees of
$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.
For the fiscal year ended May 31, 1996, the Trust paid $1,222,419 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, 1997 and 1998, respectively, the Trust paid $2,111,000 and
$_________ 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.
SERVICEMARKS
The servicemark BOSTON 1784 FUNDS[SERVICE MARK] 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.
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
<PAGE>
-32-
and restated as of October 27, 1995. The Distributor has its principal business
offices at 1 Freedom Valley Drive, Oaks, Pennsylvania 19456.
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. 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, 1998. 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.
The Fund paid the following dollar amounts under the Plan during the
last fiscal year for: (i) Advertising:_____________; (ii) Printing and mailing
of prospectuses to
<PAGE>
-33-
other than current shareholders:______________; (iii) Compensation to
underwriters:_____________; (iv) Compensation to broker-dealers:______________;
(v) Compensation to sales personnel:________________; (vi) Interest, carrying,
or other financing charges; and (vii) Other (specify):____________.
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.
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.
Under the Agreement, the Administrator provides administrative and fund
accounting services to the Funds, including regulatory reporting, office
facilities, and equipment and personnel. The Administrator 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 Funds' combined average daily net assets
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. The Administrator may
retain sub-administrators, including BankBoston, whose fees would be paid by the
Administrator.
For the fiscal year ended May 31, 1996, the Trust paid $2,440,000 to
the Administrator under the Administration Agreement. For the fiscal years ended
May 31, 1997 and 1998, respectively, the Trust paid $3,912,000 and __________ 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 information services to
financial institutions, institutional investors and money managers. The
Administrator and its affiliates also serve as administrator to the following
other 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.,
<PAGE>
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First American Investment Funds, Inc., The Arbor Fund, Marquis Funds(R), Morgan
Grenfell Investment Trust, The PBHG Funds, Inc., PBHG Insurance Series Fund,
Inc., PBHG Advisor Funds, Inc., The Achievement Funds Trust, Bishop Street
Funds, CrestFunds, Inc., STI Classic Variable Trust, Monitor Funds, TIP Funds,
TIP Institutional 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, Expedition Funds, Oak Associates Funds and the Armada Funds.
DIVIDEND DISBURSING 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.
CUSTODIAN
Pursuant to a Custodian Agreement, BankBoston, 150 Federal Street,
Boston, Massachusetts 02110, acts as custodian of the Funds assets (the
"Custodian"). The Custodian's responsibilities include holding and administering
the Funds' cash and securities, handling the receipt and delivery of securities,
furnishing a statement of all transactions and entries for the account of each
Fund, and furnishing the Funds with such other reports covering securities held
by it or under its control as may be agreed upon from time to time. The
Custodian and its agents (including foreign sub-custodians) may make
arrangements with Depository Trust Company and other foreign or domestic
depositories or clearing agencies, including the Federal Reserve Bank and any
foreign depository or clearing agency, whereby certain securities may be
deposited for the purpose of allowing transactions to be made by bookkeeping
entry without physical delivery of such securities, subject to such restrictions
as may be agreed upon by the Custodian and the Funds. Fund securities may be
held by a sub-custodian bank approved by the Trustees. The Custodian does not
determine the investment policies of the Funds or decide which securities the
Funds will buy or sell. For its services, the Custodian will receive such
compensation as may from time to time be agreed upon by it and the Trust.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Bingham Dana LLP, 150 Federal Street, Boston Massachusetts 02110, is
counsel for each Fund. Coopers & Lybrand, L.L.P., 2400 Eleven Penn Center,
Philadelphia, Pennsylvania 19103, serves as independent auditor for each Fund
providing audit and accounting services including: (i) examination of the annual
financial statements, (ii) assistance and consultation with respect to the
preparation of filings with the Securities and Exchange Commission, and (iii)
preparation of annual income tax returns.
6. BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE TRANSACTIONS
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
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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.
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.
For the fiscal years ended May 31, 1996, 1997 and 1998, the Trust paid
the following aggregate amount of brokerage commissions on behalf of the Funds:
<TABLE>
<CAPTION>
- --------------------------------------------- -------------------- ------------------- --------------------
Brokerage Brokerage Brokerage
Fund Commissions 1996 Commissions 1997 Commissions 1998
- --------------------------------------------- -------------------- ------------------- --------------------
<S> <C> <C>
Boston 1784 Asset Allocation Fund $ 12,818.55 $ 17,370.50
- --------------------------------------------- -------------------- ------------------- --------------------
Boston 1784 Growth and Income Fund 165,071.38 152,899.49
- --------------------------------------------- -------------------- ------------------- --------------------
Boston 1784 Growth Fund 12,951.00 163,410.76
- --------------------------------------------- -------------------- ------------------- --------------------
Boston 1784 International Equity Fund 659,011.71 823,922.21
- --------------------------------------------- -------------------- ------------------- --------------------
Total $849,852.64 $1,157,602.96
- --------------------------------------------- -------------------- ------------------- --------------------
</TABLE>
BROKERAGE SELECTION
Each Adviser selects brokers or dealers to execute transactions for the
purchase or sale of securities for the Funds on the basis of the Adviser's
judgment of their professional capability to provide the service. The primary
consideration is to have brokers or dealers execute transactions at the best
price and execution. Best price and execution refers to many factors, including
the price paid or received for a security, the commission charged, the
promptness and reliability of execution, the confidentiality and placement
accorded the order and other factors affecting the overall benefit obtained by
the account on the transaction. Each Adviser's determination of what are
reasonably competitive rates is based upon the professional knowledge of the
Adviser's portfolio managers as to rates paid and charged for
<PAGE>
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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 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
<PAGE>
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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.
7. DESCRIPTION OF SHARES; VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trust to offer separate
portfolios, or funds, of shares of beneficial interest (with no par value). 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, with each other share of that class. 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 right or other right to receive, purchase or
subscribe for any additional shares or other securities issued by the Trust.
Currently, the Trust has seventeen 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. Class A shares are described in a
prospectus. Class C and D shares have been authorized but are not currently
being offered. 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.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for its
obligations and liabilities.
<PAGE>
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However, the Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust and provides for indemnification
and reimbursement of expenses out of Trust property for any shareholder held
personally liable for the obligations of the Trust. The Declaration of Trust
also provides that the Trust may maintain appropriate insurance (e.g., fidelity
bonding and errors and omissions insurance) for the protection of the Trust, its
shareholders, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, 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.
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.
8. PURCHASE, REDEMPTION AND PRICING OF SHARES
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 and Boston 1784 Tax-Free Money Market Fund, as of
3:00 p.m. ET with respect to the 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 (noon when the New York Stock Exchange
closes early), and as of 4:00 p.m. ET with respect to each other Fund. The Fund
is normally closed on the following national holidays: New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veteran's 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
<PAGE>
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than the price a Fund would receive if it sold the instrument. During periods of
declining interest rates, the daily yield of these Funds may tend to be higher
than a like computation made by a company with identical investments utilizing a
method of valuation based upon market prices and estimates of market prices for
all of its fund securities. Thus, if the use of amortized cost by a Fund
resulted in a lower aggregate fund value on a particular day, a prospective
investor in that Fund would be able to obtain a somewhat higher yield than would
result from investment in a company utilizing solely market values, and existing
investors in the Fund would experience a lower yield. The converse would apply
in a period of rising interest rates.
The use by the Money Market Funds of amortized cost and the maintenance
by these Funds of a net asset value at $1.00 are permitted by regulations
promulgated by Rule 2a-7 under the 1940 Act, provided that certain conditions
are met. The regulations also require the Trustees to establish procedures which
are reasonably designed to stabilize the net asset value per share at $1.00 for
these Funds. Such procedures include the determination of the extent of
deviation, if any, of these Funds' current net asset value per share calculated
using available market quotations from these Funds' amortized cost price per
share at such intervals as the Trustees deem appropriate and reasonable in light
of market conditions and periodic reviews of the amount of the deviation and the
methods used to calculate such deviation. In the event that such deviation
exceeds 1/2 of 1%, the Trustees are required to consider promptly what action,
if any, should be initiated, and, if the Trustees believe that the extent of any
deviation may result in material dilution or other unfair results to
shareholders of these Funds, the Trustees are required to take such corrective
action as they deem appropriate to eliminate or reduce such dilution or unfair
results to the extent reasonably practicable. Such actions may include the sale
of fund instruments prior to maturity to realize capital gains or losses or to
shorten average fund maturity; withholding dividends; redeeming shares in kind;
or establishing a net asset value per share by using available market
quotations. In addition, if any of these Funds incurs a significant loss or
liability, the Trustees have the authority to reduce pro rata the number of
shares of that Fund in the account of each shareholder of such Fund and to
offset each such shareholder's pro rata portion of such loss or liability from
that shareholder's accrued but unpaid dividends or from future dividends of the
affected Fund while each other Fund must annually distribute at least 90% of its
investment company taxable income.
In valuing each of the 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 services may
employ methodologies that utilize actual market transactions, broker-dealer
supplied valuations or other electronic data processing techniques. Equity
securities listed on a domestic securities exchange for which quotations are
readily available, including securities traded over the counter, are valued, by
a pricing service, at the last quoted sale price on the principal exchange on
which they are traded on the valuation date, or, if there is no such reported
sale on the valuation date, at the most recent quoted bid price. Equity
securities which are primarily traded on a foreign exchange are generally
valued, by a pricing service, at the preceding closing value on the exchange.
Securities for which market quotations are not readily available are 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.
<PAGE>
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PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund 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. Shares are purchased at net asset value the next
time it is calculated after your investment is received and accepted by the
Distributor.
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.
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.
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.
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
<PAGE>
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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.
REDEMPTION IN KIND
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, subject to the Rule
18f-1 notice described below, 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 filed a Notification of Election pursuant to Rule 18f-1 under
the Investment Company Act of 1940 with the Securities and Exchange Commission
which commits the Boston 1784 Massachusetts Tax-Exempt Income Fund, Boston 1784
Connecticut Tax-Exempt Income Fund, Boston 1784 Rhode Island Tax-Exempt Income
Fund and Boston 1784 Tax-Exempt Medium-Term Income Fund to pay in cash all
requests for redemptions by any shareholder of record, limited in amount with
respect to each shareholder during any 90-day period to the lesser of: (i)
$250,000, or (ii) one percent of the net asset value of the Fund at the
beginning of such period.
9. TAXES
TAX STATUS OF THE FUNDS
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 and the
Tax-Free Money Market 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.
<PAGE>
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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.
TAXATION OF FUND DISTRIBUTIONS
DISTRIBUTIONS -- GENERAL. Shareholders of Funds other than 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 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 for federal income tax purposes without regard to the
length of time the shareholders have held their shares. Such capital gains will
generally be taxable to shareholders as if the shareholders had directly
realized gains from the same sources from which they were realized by the Fund.
The Money Market Funds are not expected to make any capital gain distributions.
Because the Funds other than the Stock Funds do not expect to earn any
dividend income, it is expected that none of their distributions will qualify
for the dividends received deduction for corporations. A portion of the Stock
Funds' ordinary income dividends (but none of their capital gain distributions)
is normally eligible for the dividends received deduction for corporations if
the recipient otherwise qualifies for that deduction with respect to its holding
of Fund shares. Availability of the deduction for particular corporate
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 the record date for any such 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
<PAGE>
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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 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 realized by an individual, estate, or trust 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 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
<PAGE>
-44-
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," 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 diminish its risk of
loss with respect to other positions in its portfolio may constitute
"straddles," and may be subject to special tax rules that would cause deferral
of Fund losses, adjustments in the holding periods of Fund securities, and
conversion of short-term into long-term capital losses. Certain tax elections
exist for straddles that may alter the effects of these rules. The Funds will
limit their activities in options, futures contracts, forward contracts, swaps
and related transactions to the extent necessary to meet the requirements
of Subchapter M of the Code.
ADDITIONAL INFORMATION RELATING TO FOREIGN INVESTMENTS
Special tax considerations apply with respect to a Fund's foreign
investments. Investment income received by a Fund from sources within foreign
countries may be subject to foreign taxes. The Funds (other than the
International Equity Fund) do not expect to be able to pass through to
shareholders foreign tax credits or deductions with respect to such foreign
taxes. The United States has entered into tax treaties with many foreign
countries that may entitle the Funds to a reduced rate of tax or an exemption
from tax on such income. The Funds intend to qualify for treaty reduced rates
where available. It is not possible, however, to determine a Fund's effective
rate of foreign tax in advance since the amount of the Fund's assets to be
invested within various countries is not known.
If the 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 the 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.
<PAGE>
-45-
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 to U.S. tax withholding at a rate of 30%, although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. The
Funds intend to withhold tax payments at the rate of 30% (or the lower treaty
rate) on taxable dividends and other payments to Non-U.S. Persons that are
subject to such withholding. Any amounts overwithheld may be recovered by such
persons by filing a claim for refund with the U.S. Internal Revenue Service
within the time period appropriate to such claims. Distributions received from
the Funds by Non-U.S. Persons also may be subject to tax under the laws of their
own jurisdictions.
BACKUP WITHHOLDING
Each of the Funds is required in certain circumstances to apply backup
withholding at the rate of 31% on taxable dividends and (except in the case of
the Money Market Funds) redemption proceeds paid to any shareholder (including a
Non-U.S. Person) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. Backup
withholding will not, however be applied to payments that have been subject to
30% withholding.
10. 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
<PAGE>
-46-
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.
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 average daily number of shares outstanding during the period
that were 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 the [Tax-Free
Money Market Fund] and 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
<PAGE>
-47-
tax brackets for a shareholder. The tax-equivalent yield quotation of a Fund
will be calculated by dividing that portion of the Fund's yield that is
tax-exempt by 1 minus a stated income tax rate and adding the quotient to that
portion, if any, of the Fund's yield that is not tax-exempt. The tax-equivalent
effective yield is determined by dividing that portion of the Fund's effective
yield that is tax-exempt by 1 minus a stated income tax rate and adding the
quotient to that portion, if any, of the Fund's effective yield that is not
tax-exempt.
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 for any
period which includes periods prior to the commencement of the Fund's operations
reflect the performance of a 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 the common trust fund was calculated in
accordance with recommended standards of the Association for Investment
Management and Research. The common trust fund had investment objectives,
policies and practices materially equivalent to those of the Florida Tax-Exempt
Income Fund. All total return percentages for periods prior to the commencement
of operations of the Florida Tax-Exempt Income Fund reflect historical rates of
return of the common trust fund for those periods adjusted to assume that all
current Fund charges, expenses and fees were then deducted. The common trust
fund was neither registered under the 1940 Act (and therefore was 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 fund had
been registered under the 1940 Act, its investment performance might have been
adversely affected. The prior performance of the common trust fund represents
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.
<PAGE>
-48-
<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 ____% $____
operations) to May 31, 1998
One year ended May 31, 1998 ____% $____
BOSTON 1784 CONNECTICUT TAX-EXEMPT
INCOME FUND
August 1, 1994 (commencement of ____% $____
operations) to May 31, 1998
One year ended May 31, 1998 ____% $____
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME
FUND (1)
January 1, 1991 (date of initial public
investment in the common trust fund) to ____% $____
May 31, 1998
Five years ended May 31, 1998 ____% $____
Three years ended May 31, 1998 ____% $____
One year ended May 31, 1998 ____% $____
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT
INCOME FUND
June 14, 1993 (commencement of ____% $____
operations) to May 31, 1998
One year ended May 31, 1998 ____% $____
BOSTON 1784 RHODE ISLAND TAX-EXEMPT
INCOME FUND
August 1, 1994 (commencement of ____% $____
operations) to May 31, 1998
One year ended May 31, 1998 ____% $____
<PAGE>
-49-
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM
INCOME FUND
June 7, 1993 (commencement of ____% $____
operations) to May 31, 1998
One year ended May 31, 1998 ____% $____
BOSTON 1784 SHORT-TERM INCOME FUND
July 1, 1994 (commencement of
operations) to May 31, 1998 ____% $____
One year ended May 31, 1998 ____% $____
BOSTON 1784 INCOME FUND
July 1, 1994 (commencement of ____% $____
operations) to May 31, 1998
One year ended May 31, 1998 ____% $____
BOSTON 1784 ASSET ALLOCATION FUND
June 14, 1993 (commencement of
operations) to May 31, 1998 ____% $____
One year ended May 31, 1998 ____% $____
BOSTON 1784 GROWTH AND INCOME FUND
June 7, 1993 (commencement of
operations) to May 31, 1998 ____% $____
One year ended May 31, 1998 ____% $____
BOSTON 1784 GROWTH FUND
March 28, 1996 (commencement of
operations) to May 31, 1998 ____% $____
One year ended May 31, 1998 ____% $____
<PAGE>
-50-
BOSTON 1784 INTERNATIONAL EQUITY FUND
January 3, 1995 (commencement of
operations) to May 31, 1998 ____% $____
One year ended May 31, 1998 ____% $____
</TABLE>
(1) Without giving effect to fee waivers and reimbursements currently in effect
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, 1998 and for the
period from January 1, 1991 (date of initial public investment in common trust
fund) to May 31, 1998, would have been _____%, _____%, _____% and _____%,
respectively.
The annualized yield of each of the Tax-Exempt, Bond and Stock Funds
for the 30-day period ended on May 31, 1998 was as follows: Boston 1784
Short-Term Income Fund ____%; Boston 1784 Income Fund ____%; Boston 1784 U.S.
Government Medium-Term Income Fund ____%; Boston 1784 Tax-Exempt Medium-Term
Income Fund ____%; Boston 1784 Connecticut Tax-Exempt Income Fund ____%; Boston
1784 Massachusetts Tax-Exempt Income Fund ____%; Boston 1784 Rhode Island
Tax-Exempt Income Fund ____%; Boston 1784 Asset Allocation Fund ____%; Boston
1784 Growth and Income Fund ____%; and Boston 1784 Growth Fund ____%.
The annualized tax-equivalent yield of each of the Tax-Exempt Funds for
the 30-day period ended on May 31, 1998 was as follows: Boston 1784 Tax-Exempt
Medium-Term Income Fund ____%; Boston 1784 Connecticut Tax-Exempt Income Fund
____%, Boston 1784 Massachusetts Tax-Exempt Income Fund ____%; and Boston 1784
Rhode Island Tax-Exempt Income Fund ____%.
Set forth below is total rate of return information, assuming that
dividends and capital gains distributions, if any, were reinvested, for the
Money Market Funds for the periods indicated.
<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, 1998 ____% $____
One year ended May 31, 1998
----% $----
<PAGE>
-51-
BOSTON 1784 U.S. TREASURY MONEY
MARKET FUND
June 7, 1993 (commencement of ____% $____
operations) to May 31, 1998
One year ended May 31, 1998 ____% $____
BOSTON 1784 INSTITUTIONAL U.S.
TREASURY MONEY MARKET FUND
June 30, 1993 (commencement of
operations) to May 31, 1998 ____% $____
One year ended May 31, 1998 ____% $____
BOSTON 1784 PRIME MONEY MARKET FUND (1)
August 1, 1991 (date of initial
public investment) to May 31, 1998 ____% $____
Five years ended May 31, 1998 ____% $____
Three years ended May 31, 1998 ____% $____
One year ended May 31, 1998 ____% $____
BOSTON 1784 INSTITUTIONAL PRIME MONEY
MARKET FUND
_________ (date of initial public
investment) to May 31, 1998 ____% $____
</TABLE>
(1) 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
The annualized yield and tax-equivalent yield of Boston 1784 Tax-Free
Money Market Fund for the seven-day period ended May 31, 1998 were ____% and
____%, respectively, and the effective compound annualized yield and
tax-equivalent effective yield of Boston 1784 Tax-Free Money Market Fund for
such period were ____% and ____%, respectively.
<PAGE>
-52-
The annualized yield of Boston 1784 U.S. Treasury Money Market Fund for
the seven-day period ended May 31, 1998 was ____% and the effective compound
annualized yield of Boston 1784 U.S. Treasury Money Market Fund for such period
was ____%.
The annualized yield of Boston 1784 Institutional U.S. Treasury Money
Market Fund for the seven-day period ended May 31, 1998 was ____% and the
effective compound annualized yield of Boston 1784 Institutional U.S.
Treasury Money Market Fund for such period was ____%.
The annualized yield of Boston 1784 Prime Money Market Fund for the
seven-day period ended May 31, 1998 was ____% and the effective compound
annualized yield of Boston 1784 Prime Money Market Fund for such period was
____%.
The annualized yield of Boston 1784 Institutional Prime Money Market
Fund for the seven-day period ended May 31, 1998 was ____% and the effective
compound annualized yield of Boston 1784 Institutional Prime Money Market Fund
for such period was ____%.
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. In
reports and other communications to shareholders or in advertising and sales
literature, the Funds may also present statistics on current and historical
rates of Money Market Deposits Accounts and Statement Savings prepared by
outside services such as Bank Rate Monitor, Inc. The Funds may also show the
historical performance of other investment vehicles or groups of other mutual
funds, and may compare tax equivalent yields to taxable yields. Any given
"performance" or performance comparison should not be considered as
representative of any performance in the future. In addition, there may be
differences between the Funds and the various indexes and reporting services
which may be quoted by the Funds.
11. FINANCIAL STATEMENTS
FOR THE PRIME MONEY MARKET FUND
The Statement of Net Assets at May 31, 1998, the Statement of Operations
for the period ended May 31, 1998, the Statements of Changes in Net Assets for
the periods ended May 31, 1997 and May 31, 1998, the Financial Highlights for
the periods ended May 31, 1997 and May 31, 1998, 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 Numbers
________________ and ________________), 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 Net Assets at December 31, 1996,
the Statement of Operations for the Period ended December 31, 1996, the
Statements of Changes in Net Assets for the periods ended December 31, 1995 and
December 31, 1996, the Financial Highlights for the periods ended December 31,
1993, December 31, 1994, December 31, 1995 and December 31, 1996 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, 1998, the Statements of Operations
for the period ended May 31, 1998, the Statements of Changes in Net Assets for
the periods ended May 31, 1997 and May 31, 1998, the Financial Highlights for
the periods ended May 31, 1995, May 31, 1996, May 31, 1997 and May 31, 1998, the
Notes to the Financial Statements and the Report of Independent Accountants,
each of which is included in the Annual Report to Shareholders of the Trust
(Accession Number _______________), are incorporated by reference into this
Statement of Additional Information. The Annual Report has 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 the Annual Report
accompanies this Statement of Additional Information.
<PAGE>
-53-
<PAGE>
-54-
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
Preliminary Official Statement of Connecticut dated December 1, 1997, as
modified January 14, 1998. 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
recovered most of its losses from its peak in the late 1980s. Manufacturing is
diversified, with transportation equipment (primarily aircraft engines,
helicopters, and submarines) the dominant industry. Connecticut is a leading
producer of aircraft engines and parts, submarines, and helicopters. 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.
During the past ten years, Connecticut's manufacturing employment was
at its highest in 1987 at over 384,000 workers. Since that year, employment in
manufacturing has been on a downward trend, declining 28.3 percent or a loss of
108,760 jobs by 1996 from 1987 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 declined 1.3 percent or 3,660
jobs from 1995 to 1996.
Over the past several decades the non-manufacturing sector of the
State's economy has risen in economic importance, from just over 50 percent of
total State employment in 1950 to approximately 83 percent by 1996. This trend
has decreased the State's dependence on manufacturing. The State's
non-manufacturing sector expanded by 2.0 percent in 1996 as compared to 1.9
percent in 1995, 1.7 percent in 1994, and 1.4 percent in 1993, 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, insurance
<PAGE>
-55-
and real estate; business and personal services; and government, which
collectively comprise about 90 percent 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 percent in
1988 to just above the national average of 7.5 percent during 1992.
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-basis 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. In fiscal year
1996-97 an appropriation was made to pay when due the remaining debt service due
on the Economic Recovery Notes. The final payment is due in fiscal year 1998-99.
GENERAL FUND BUDGETS 1997-98, AND 1998-99
Pursuant to Section 4-71 of the General Statutes, the Governor
submitted his proposed budget to the legislature on February 13, 1997. In
accordance with Section 4-71, the budget document included a proposed General
Fund budget for fiscal year 1997-98 and fiscal year 1998-99. Special Act 97-21,
adopted by the legislature June 3, 1997 and signed by the Governor June 6, 1997,
as amended, made General Fund appropriations and set forth estimated revenues
for each of the 1997-98 and 1998-99 fiscal years, and constitutes the adopted
budget.
The adopted budget for fiscal 1997-98 anticipates General Fund revenues
of $9,342.4 million and General Fund expenditures of $9,342.2 million. For
fiscal 1998-99, the adopted budget anticipates General Fund Revenues of $9,496.0
million and General Fund expenditures of $9,495.9 million. The adopted budget is
within the expenditure limits proscribed by the Constitution of the State of
Coonecticut, $213.1 million below the cap in fiscal 1997-98 and $325.1 million
below the cap in fiscal 1998-99.
1997-1998 OPERATIONS
Per Section 3-115 of the Connecticut General Statutes, the State's
fiscal position is reported monthly by the Comptroller. This report compares
revenues already received and the expenditures already made to estimated
expenditures to be made during the balance of the fiscal year. This report
projects an operating surplus of $178.9 million, as a result of an increase in
estimated revenues that more than offset the increase in estimated expenditures.
Estimated revenues have been revised upward by $372.9 million from the enacted
budget plan, including the loss due to the elimination of certain taxes proposed
by the Governor for the 1997-99 Midterm Budget Adjustments totaling $4.2
million. Estimated expenditures have been revised upward by $194.1 million
(including miscellaneous adjustments). In addition, as part of the Midterm
Budget Adjustments, the Governor is proposing to set aside the first $125
million of the estimated year-ending surplus for a taxpayer rebate program. Any
unappropriated surplus amounts in excess of $125 million would be deposited in
the Budget Reserve Fund pursuant to section 4-30a of the Connecticut General
Statutes.
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PROPOSED MIDTERM BUDGET ADJUSTMENTS
Per Section 4071 of the Connecticut General Statutes, the Governor is
required to submit a status report to the General Assembly on the biennial
budget enacted in the previous year. The status report shall include any
recommendationsfor adjustments and revisions to the enacted budget.
On February 4, 1998, the Governor submitted to the General Assembly a
status report including detailed projections of expenditures and revenues and
proposed Midterm Budget Adjustments for the 1997-98 and 1998-99 fiscal years.
Some of the proposals require action by the General Assembly. Per Article XXVIII
of the Amendments to the Constitution of Connecticut, the General Assembly must
enact a budget in which the authorized general budget expenditures do not exceed
the estimated amount of revenue for such fiscal year. The General Assembly
convened on February 4, 1998 to consider the Governor's proposed Midterm Budget
Adjustments and is scheduled to adjourn on May 6, 1998.
The Governor's proposed Midterm Budget Adjustments for fiscal year
1997-98 anticipate General Fund expenditures of $9,536.4 million, General Fund
revenues of $9,715.3 million and an estimated General Fund surplus for fiscal
1997-98 of $178.9 million. The Governor's proposed Midterm Budget Adjustments
for fiscal year 1998-99 anticipate General Fund expenditures of $9,901.0
million, General Fund revenues of $9,901.6 million and an estimated General Fund
surplus for fiscal 1998-99 of $0.6 million.
Pursuant to Article XXVIII of the Amendments to the Constitution of the
State of Connecticut and Section 2-33a of the Connecticut General Statutes, the
Governor's proposed Midterm Budget adjustments would result in a fiscal 1997-98
budget that remains within the limits imposed by the expenditure cap. For fiscal
1998-99, permitted growth in capped expenditures is projected at 4.86 percent.
The proposed Midterm Budget Adjustments would result in a fiscal 1998-99 budget
that is $69.3 million below the expenditure cap.
For fiscal 1997-98, the following revenue modifications are included in
the Governor's proposed Midterm Budget Adjustments: 1) a reduction of $2.8
million due to the repeal of the Corporation Business Tax on private water
companies, effective January 1, 1998; and 2) a reduction of $1.4 million due to
the repeal of the HMO tax on Medicaid, the Healthcare for Uninsured Kids and
Youth (HUSKY) Program, and General Assistance managed care providers, effective
April 1, 1998. In addition, the Governor proposes to set aside the first $125
million of the estimated fiscal 1997-98 surplus for a taxpayer rebate program.
On the expenditure side, the Governor is recommending elimination of the
deficits in the Nautilus Committee Loan Fund ($2 million), the Education
Excellence Trust Fund ($2.5 million), and the Public Works Service Fund ($2.5
million). Also, expenditures for Medicaid and Temporary Family Assistance have
increased over the original budget amounts.
For fiscal 1998-99, the revenues reflect a revised revenue projection
and proposed tax changes in the Midterm Budget Adjustments, including 1) a $75
million personal income tax reduction through an increase in the portion of the
taxable income subject to the lower 3 percent rate; and 2) an $8.5 million tax
reduction for the roll-out of the corporation and HMO tax changes cited above.
Under the personal income tax, effective for income years commencing on or after
January 1, 1998, the taxable income amounts subject to the 3 percent rate are
increased to $9,000 for Single filers, $18,000 for Joint filers, and $14,500 for
Head of Household filers. Commencing on and after January 1, 1999, the taxable
income amounts subject to the 3 percent rate are further expanded to $13,500 for
Single Governor's Midterm Budget Adjustments there is proposed a total increase
of $405.1 million from the
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originally enacted budget, with the most significant adjustments proposed in the
areas of Medicaid, Temporary Family Assistance, and Employment Retirement
Contributions. Medicaid adjustments amount to a total increase of $206.0
million. Of that amount, $84.7 million is in the area of nursing facilities, and
is due to a combination of an increase in the rates paid to the facilities,
annualization of Fiscal Year 1998 expenditures, and the Governor's decision to
suspend current efforts on the state's 1115 Waiver, and another $51.3 million is
due to increases in pharmacy costs and utilization. Temporary Family Assistance
has been increased $46.5 million primarily because the caseload has not declined
as quickly as anticipated in the originally adopted budget. Finally, Employee
Retirement Contributions were adjusted downward to reflect final certification
for Fiscal Year 1999 contributions. In addition to the General Fund proposed
budget adjustments for 1998-99, the Governor is also proposing bonding increases
of $119.5 million for upgrading core financial and data processing systems due
to the Year 2000 problem, $100 million for the local school construction program
and $25 million for Urban Act investment.
COMPONENTS OF REVENUE
PERSONAL INCOME TAX
Beginning with the income year commencing on or after January 1, 1991,
the State imposed a personal income tax on the income of residents of the State
(including resident trusts and estates), part-year residents and certain
non-residents who have taxable income derived from or connected with sources
within Connecticut. For tax years commencing on or after January 1, 1992, the
tax imposed is at the rate of 4.5 percent on Connecticut taxable income.
Depending on federal income tax filing status and Connecticut adjusted gross
income, personal exemptions ranging from $12,000 to $24,000 are available to
taxpayers. In addition, tax credits ranging from 1 percent to 75 percent of a
taxpayer's Connecticut tax liability are also available depending upon federal
income tax filing status and Connecticut adjusted gross income. Such exemptions
and tax credits are phased out at certain higher income levels. Neither the
personal exemption nor the tax credit described above is available to a trust or
an estate. Legislation enacted in 1995 effected a graduated rate structure
beginning in tax year 1996. Under this revised structure, the top rate remains
at 4.5 percent with a rate of 3 percent on the first $4,500 of taxable income
for joint filers and the first $2,250 for single filers. For tax year 1997, the
3 percent rate is expanded to the first $9,000 of taxable income for joint
filers and the first $4,500 for single filers. Legislation enacted during the
1997 session expands the amount of taxable income subject to the lower 3 percent
rate. By tax year 1999, the first $20,000 of taxable income for a joint filer
and the first $10,000 of taxable income for a single filer will be taxed at the
3 percent rate. In addition, the maximum $100 income tax credit for property
taxes paid will be expanded to a maximum of $285 per filer. Taxpayers also are
subject to the Connecticut minimum tax based on their liability, if any, for
payment of the federal alternative minimum tax.
SALES AND USE TAX
The Sales Tax is imposed, subject to certain limitations, on the gross
receipts from certain transactions within the State of persons engaged in
business in the State, including (a) sales at retail of tangible personal
property, (b) the rendering of certain services, (c) the leasing or rental of
tangible personal property, (d) the producing, fabricating, processing,
printing, or imprinting of tangible personal property to special order or with
materials furnished by the consumer, (e) the furnishing, preparing or serving of
food, meals, or drinks, and (f) the transfer of occupancy of hotel or lodging
house rooms for a period not exceeding thirty consecutive calendar days. The Use
Tax is imposed on the consideration paid for certain services or purchases or
rentals of tangible personal property used within the State
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pursuant to a transaction not subject to the Sales Tax. A separate rate of 12
percent is charged on the occupancy of hotel rooms. Effective October 1, 1991,
the tax rate for the Sales and Use Taxes was reduced from eight percent to six
percent. Various exemptions from the Sales and Use Taxes are provided, based on
the nature, use or price of the property or services involved or the identity of
the purchaser. Tax returns and accompanying payments with respect to revenues
from these taxes are generally due monthly on or before the last day of the
month next succeeding the taxable month.
CORPORATION BUSINESS TAX
The Corporation Business Tax is imposed on any corporation, joint stock
company or association or fiduciary of any of the foregoing which carries on or
has the right to carry on business within the State or owns or leases property
or maintains an office within the State or is a general partner in a partnership
or a limited partner in a limited partnership, except an investment partnership,
that does business, owns or leases property or maintains an office within the
State. The Corporation Business Tax provides for three methods of computation.
The taxpayer's liability is the greatest amount computed under any of the three
methods.
The first method of computation is a tax measured by the net income of
a taxpayer (the "Income-Base Tax"). Net income, except as applied to insurance
companies means federal gross income with limited variations less certain
deductions, most of which correspond to the deductions allowed under the
Internal Revenue Code of 1986, as amended from time to time. In the case of life
insurance companies subject to the Corporation Business Tax, net income means
life insurance company taxable income, as determined for federal income tax
purposes, with certain adjustments. The Income-Base Tax is levied at the rate of
10.75 percent until January 1, 1998 when it will decrease to 9.5 percent.
Legislation enacted in 1993 and subsequent years instituted a phase down in the
corporation tax rate so that by the income year commencing on or after January
1, 2000 the corporate rate will be 7.5 percent. The second method of computing
the Corporation Business Tax, from which the domestic insurance companies are
exempted, is an alternative tax on capital. This alternative tax is determined
either as a specific maximum dollar amount or at a flat rate on a defined base,
usually related in whole or in part to its capital stock and balance sheet
surplus, profit and deficit. The third method of computing the Corporation
Business Tax is the minimum tax which is $250. Corporations must compute their
tax under all three methods and pay the tax under the highest computation.
OTHER TAXES
Other tax revenues are derived from the inheritance taxes, taxes on
gross receipts of hospitals and public service corporations, taxes on net direct
premiums of insurance companies, taxes on oil companies, cigarette and alcoholic
beverage excise taxes, real estate conveyance taxes and other miscellaneous tax
sources.
FEDERAL GRANTS
Federal grants in aid are normally conditioned to some degree,
depending upon the particular program being funded, on resources provided by the
State. More than 99 percent of unrestricted federal grant revenue is expenditure
driven. The largest federal grants in fiscal 1997 were made for the purposes of
providing medical assistance payments to the indigent and Aid to Families with
Dependent Children. The State also receives certain restricted federal grants
which are not reflected in annual appropriations but which nonetheless are
accounted for in the General Fund. In addition, the State receives certain
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federal grants which are not accounted for in the General Fund but are allocated
to the Transportation Fund, various Capital Project Funds and other funds.
OTHER NON-TAX REVENUES
Other non-tax revenues are derived from special revenue transfers;
Indian gaming payments; licenses, permits and fees; sales of commodities and
services; rents, fines and escheats; investment income; and other miscellaneous
revenue sources.
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 presently determinable. 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 1997
General Assembly enacted P.A. 97-290, An Act Enhancing Educational Choices and
Opportunities in response to the Supreme Court decision. In response to a motion
filed by the plaintiffs, the Superior Court recently ordered
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the State to show cause as to whether there has been compliance with the Supreme
Court's ruling.
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 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 and the class of plaintiffs has been expanded to include
persons with acquired brain injury who are in the custody of the Department of
Mental Health and Addiction Services.
JOHNSON V. ROWLAND is a Superior Court action brought in 1998 in the
name of several public school students and the Connecticut municipalities in
which the students reside, seeking declaratory judgment that the State's current
system of financing public education through local property taxes and State
payments to municipalities determined under a Statutory Education Cost Sharing
("ECS") formula violates the Connecticut Constitution. Additionally, the suit
seeks various injunctive orders requiring the State to, among other things,
cease implementation of the present system, modify the ECS formula at the level
contemplated in the original 1988 public act which established the ECS.
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. Some of these suits have been settled or dismissed. The plaintiff group
in the remaining suits is the alleged Golden Hill Paugussett Tribe and the lands
involved are generally located in Bridgeport, Trumbull, Orange, Shelton and
Seymour.
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 $300,000,000 State of Florida
Department of Environmental Protection Preservation 2000 Revenue Bonds, Series
1998B dated April 1, 1998. 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.
NATIONAL AND STATE ECONOMIC OUTLOOK
The national economic forecast indicates strong growth this year and
slower next. Real GDP is expected to increase 3.2 percent in 1997-98 and 1.9
percent in 1998-99. Real investment is anticipated to expand 7.2 percent this
year and 2.1 percent next year, while real consumption should increase 3.5
percent this year and 2.6 percent next year. Underlying the official national
economic forecast are key assumptions regarding
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fiscal policy, monetary policy, and prices. By late 1998, the Federal Reserve
will reverse course and lower interest rates because of a slowing economy.
Inflation, as measured by the Consumer Price Index, is expected to remain under
control, averaging 2.1 percent in 1997-98 and 2.4 percent in 1998-99. The
federal budget deficit is forecasted to be $28.7 billion this year and $57.6
billion next year.
In other areas of the U.S. economy, construction activity in 1997-98
will remain near last year's level and drop slightly in 1998-99. Housing starts
should reach 1.46 million units this year and 1.42 million next year. The stock
market, as measured by the S&P Index, is expected to increase for 1997-98 and
decrease slightly in 1998-99. Total employment will expand 2.2 percent in
1997-98 and 1.3 percent in 1998-99. The unemployment rate is expected to average
4.7 percent this year and 5.0 percent next year.
The Florida economy is forecasted to grow in a similar pattern, but
will continue to outperform the U.S. as a whole. Total non-farm employment is
expected to increase 3.9 percent in 1997-98 and 2.6 percent in 1998-99. In
1998-99, non-farm employment is expected to increase 3.9 percent in 1997-98 and
2.6 percent in 1998-99. In 1998-99, non-farm employment in the state will reach
an average of 6.7 million jobs. Trade and services account for more than half of
nonfarm employment. Services employment will grow by 4.8 percent in 1997-98, and
4.1 percent in 1998-99. Trade employment will grow 3.7 percent this year and 2.3
percent next year. Florida's unemployment rate is expected to be 4.6 percent in
1997-98 and 4.8 percent in 1998-99.
An important element of Florida's economic outlook is the construction
sector. Florida's single and multi-family private housing starts are projected
to reach a combined total of 127,400 units in 1998-99 and 125,800 units the
following year. Multi-family starts have been slow to recover from the early
90's recession, but they are showing strength with an expected 39,300 starts in
1998-99, and 38,300 starts in 1999-00. Single family starts in 1998-99, and
38,300 starts in 1999-00. Single family starts are forecasted to be 88,100 in
1998-99, and 87,500 the next year. Total construction expenditures will increase
0.8 percent and 1.8 percent during the two years.
Tourist arrivals are forecasted to increase 2.6 percent in 1998-99 and
1.7 percent the following year. Air tourists will increase 4.1 percent and 3.9
percent, while auto tourists will increase 0.8 percent and -1.0 percent, during
this time. By the end of 1998-99, 49.7 million domestic and international
tourists are expected to visit the State. In 1999-00 tourist visits should reach
50.6 million.
Real personal income in Florida is forecasted to increase 5.2 percent
in 1997-98 and 3.7 percent in 1998-99. During this time, real personal income
per capita is projected to grow at 3.2 percent in 1997-98 and 1.8 percent in
1998-99. Overall, the Florida economy appears to be growing in line with, but
stronger than, the US economy, and is expected to experience strong growth
during 1997-98 and a mild slowdown during 1998-99.
FLORIDA FINANCIAL OUTLOOK
For fiscal year 1997-98, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available total $18,469.8 million, a 10.3
percent increase over 1996-97. The $16,877.6 million in Estimated Revenues
represent a 7.2 percent increase over the analogous figure in 1996-97. With
combined General Revenue, Working Capital Fund, and Budget Stabilization Fund
appropriations at $17,114.0 million, unencumbered reserves at the end of 1997-98
are estimated at $1,355.8 million.
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For fiscal year 1998-99, the estimated General Revenues plus Working
Capital and Budget Stabilization funds available total $19,185.4 million, a 3.9
percent increase over 1997-98. The $17,627.0 million in Estimated Revenues
represent a 4.4 percent increase over the analogous figure in 1997-98.
REVENUES AND EXPENDITURES
Financial operations of the State of Florida covering all receipts and
expenditures are maintained through the use of four fund types: the General
Revenue Fund, Trust Funds, the Working Capital Fund, and the Budget Fund.
In fiscal year 1996-97, an estimated 67 percent 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, beverage tax, and estate tax which
amounted to 68 percent, 8 percent, 4 percent, 3 percent, respectively, of total
General Revenue funds available.
State expenditures are categorized for budget and appropriation
purposes by the type of fund and spending unit, which are further subdivided by
line item. In fiscal year 1996-97, appropriations from the General Revenue Fund
for education, health and welfare, and public safety amounted to approximately
53 percent, 26 percent, and 14 percent, respectively, of total General Revenue
funds available.
SALES AND USE TAX
The largest single source of tax receipts in Florida is the sales and
use tax. The sales tax is 6 percent of the sales price of tangible personal
property sold at retail in the State. The use tax is also 6 percent of the cost
price of tangible personal property when the same is not sold but is used, or
stored for use in the State. The use tax also applies to the use in the State of
tangible personal property purchased outside Florida which would have been
subject to the sales tax if purchased from a Florida dealer.
All receipts of the sales and use tax, with the exception of the tax on
gasoline and special fuels, are credited to either the General Revenue Fund, the
Solid Waste Management Trust Fund, or counties and cities. For the State fiscal
year which ended June 30, 1997, total receipts from this source were $12,089
million, an increase of 5.5 percent from the prior fiscal year.
MOTOR FUEL TAX
The second largest source of State tax receipts, including those
distributed to local governments, is the tax on motor fuels. Preliminary data
show collections from this source in State fiscal year ending June 30, 1997 were
$2,012 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
Florida's alcoholic beverage tax is an excise tax on beer, wine, and
liquor. The tax is one of the State's major tax sources, with revenues totaling
$447.2 million in State fiscal year ending June 30, 1997. Two percent of
collections are deposited into the Alcoholic Beverage
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and Tobacco Trust Fund, while the remainder of revenues are deposited into the
General Revenue Fund.
The 1990 Legislature established a surcharge on alcoholic beverages.
This charge is levied on alcoholic beverages sold for consumption on premises.
The surcharge is ten cents per ounce of liquor, ten cents per four ounces of
wine, and four cents per twelve ounces of beer. In fiscal year 1996-97, a total
of $106.6 million was collected. Of these collections, the Children and
Adolescent Substance Abuse Trust Fund receives 9.8 percent, while the remainder
is deposited to the credit of the General Revenue Fund.
CORPORATE INCOME TAX
Pursuant to an amendment to Article VII, Section 5, of the State
Constitution, the Legislature of the State of Florida adopted, effective January
1, 1972, the "Florida Income Tax Code" imposing a tax upon the net income of
corporations, organizations, associations, and other artificial entities for the
privilege of conducting business, deriving income, or existing within the State.
This tax does not apply to natural persons who engage in a trade or business or
profession under their own or any fictitious name, whether individually as
proprietorships or in partnerships with others, estates of decedents or
incompetents, or testamentary trusts.
All receipts of the corporate income tax are credited to the General
Revenue Fund. For the fiscal year which ended June 30, 1997, receipts from this
source were $1,362.3 million, an increase of 17.2 percent from fiscal year
1995-96.
DOCUMENTARY STAMP TAX
Deeds and other documents relating to realty are taxed at 70 cents per
$100 of consideration, while Corporate shares, bonds, certificates of
indebtedness, promissory notes, wage assignments, and retail charge accounts are
taxed at 35 cents per $100 of face value, or actual value if issued without face
value. Documentary stamp collections totaled $844.2 million during fiscal year
1996-97, posting a 8.9 percent increase from the previous fiscal year.
GROSS RECEIPTS TAX
The tax rate is 2.5 percent of the gross receipts of providers of
electric, natural gas, and telecommunications services.
All gross receipts utilities tax collections are credited to the Public
Education Capital Outlay and Debt Service Trust Fund. In fiscal year 1996-97,
gross receipts utilities tax collections totaled $575.7 million, an increase of
6.0 percent over the previous fiscal year.
INTANGIBLE PERSONAL PROPERTY TAX
This tax is levied on two distinct bases. First, stocks, bonds,
including bonds secured by liens on Florida realty, notes, governmental lease
holds, interests in limited partnerships registered with the Securities and
Exchange Commission, and other miscellaneous intangible personal property not
secured by liens on Florida realty are taxed annually at a rate of 2 mills.
Second, there as a non-recurring 2 mill tax on mortgages and other obligations
secured by liens on Florida realty, notes, governmental lease holds, interests
in limited partnerships registered with the Securities and Exchange Commission,
and other miscellaneous intangible personal property not secured by liens on
Florida realty are taxed
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annually at a rate of 2 mills. Second, there is a non-recurring 2 mill tax on
mortgages and other obligations secured by liens on Florida realty.
The Department of Revenue uses part of the proceeds for administrative
costs. Of the remaining tax proceeds, 33.5 percent is distributed to the County
Revenue Sharing Trust Fund and 66.5 percent is distributed to the General
Revenue Fund.
In fiscal year 1996-97 total intangible personal property tax
collections were $952.4 million, a 6.3 percent increase from the prior year.
ESTATE TAX
An estate tax is imposed on the estate for the privilege of
transferring property at death. The tax on estates of resident decedents is
equal to the amount allowable as a credit against federal estate tax for state
death taxes paid, less any amount paid to other states. Thus, the Florida estate
tax on resident decedents will not increase the total tax liability of the
estate. The tax on estates of nonresident decedents is equal to the amount
allowable as a credit against federal estate tax for state death taxes paid
multiplied by the ratio of the value of the property taxable in Florida over the
value of the entire gross estate.
All receipts of the estate tax are credited to the General Revenue
Fund. For the fiscal year which ended June 30, 1997, receipts from this source
were $546.9 million, an increase of 30 percent from fiscal year 1995-96.
LOTTERY
In November 1986 the voters of the State of Florida approved a
constitutional amendment which allows State operated lotteries. Section 15,
Article X of the Florida Constitution provides for State lotteries, with the
proceeds being dedicated exclusively to education. The 1987 Legislature passed
Chapter 24, Florida Statutes, creating the Department of the Lottery to operate
the State Lottery and setting forth the allocation of the revenues. Of the
revenues generated by the Lottery, 50 percent is to be returned to the public as
prizes; at least 38 percent is to be deposited in the Educational Enhancement
Trust Fund (for public education); and no more than 12 percent can be spent on
the administrative cost of operating the lottery.
Fiscal year 1996-97 produced gross revenues of $2.09 billion of which
education received approximately $792.3 million.
LITIGATION
Due to its size and broad range of activities, the State is involved in
numerous routine legal actions. The departments involved believe that the
results of such litigation pending or anticipated will not materially affect the
State of Florida's financial position.
COASTAL PETROLEUM V. STATE OF FLORIDA, CASE NO. 90-3195, 2ND JUDICIAL
CIRCUIT. This is an inverse condemnation case claiming that the action of the
Trustees and Legislature constitute a taking of Coastal's leases for which
compensation is due. The Circuit judge granted the State's motion for summary
judgment, finding that as a matter of law, the State had not deprived Coastal of
any royalty rights. Coastal appealed to the First District Court of Appeals, but
the case was remanded to Circuit Court for trial. On August 6, 1996, final
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judgment was made in favor of the State. Coastal has filed for a review by the
Florida Supreme Court. The State is awaiting by the Court.
FLORIDA DEPARTMENT OF TRANSPORTATION V. 745 PROPERTY INVESTMENTS, CSX
TRANSPORTATION, INC. AND CONTINENTAL EQUITIES, CASE NO. 94-17739 CA 27, DADE
COUNTY CIRCUIT COURT. This case involves the Florida Department of
Transportation (FDOT) and CSX Transportation, Inc. FDOT has filed an action
against the adjoining property owners seeking a declaratory judgment from the
Dade County Circuit Court that the Department is not the owner of the property
that is subject to a claim by the U.S. Environmental Protection Agency (EPA).
The case was dismissed and FDOT's appeal of the order of dismissal is pending in
the Third District Court of Appeal.
The EPA is seeking clean-up costs, pursuant to the Comprehensive
Environmental Response Compensation and Liability Act, regarding property which
the EPA alleges is owned by the FDOT (and formerly owned by CSX Transportation,
Inc.). The EPA has agreed to await the outcome of the Department's declaratory
action before proceeding further. If the Department is unsuccessful in its
actions, the possible clean-up costs could exceed $25 million.
JENKINS V. FLORIDA DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES,
CASE NO. 79-102-CIV-J-16, UNITED STATES DISTRICT COURT. This is a class action
suit on behalf of clients of residential placement for the developmentally
disabled seeking refunds for services where children were entitled to free
education under the Education for Handicapped Act. The district court held that
the State could not charge maintenance fees for children between the ages of 5
and 17 based on the Education for Handicapped Act. All appeals have been
exhausted. The State's potential cost of refunding these charges could exceed
$42 million. However, attorneys are in the process of negotiating a settlement
amount.
NATHAN M. HAMEROFF, M.D. ET AL. V. AGENCY FOR HEALTH CARE
ADMINISTRATION, ET AL., CASE NO. 95-5936, LEON COUNTY CIRCUIT COURT. The
plaintiffs challenge the constitutionality of the Public Medical Assistance
Trust Fund (PMATF) annual assessment on net operating revenue of free-standing
out-patient facilities offering sophisticated radiology services. Atrial has not
been scheduled. If the State is unsuccessful in its actions, the potential
refund liability could amount to approximately $70 million.
WALDEN V. DEPARTMENT OF CORRECTIONS, CASE NO. 95-40357-WS (USDC N.D.
FLA.). This action is brought by one captain and one lieutenant in the
Department of Corrections seeking declaratory judgment that they (and
potentially 700 similarly situated others) are not exempt employees under the
Fair Labor Standards Act (FLSA) and, therefore, are entitled to overtime
compensation at a rate of not less than one and one-half times their regular
rate of pay for overtime hours worked since April 1, 1992, forward and including
liquidated damages. The U.S. District Court for the Northern District of Florida
entered an order dismissing the case for lack of jurisdiction on June 24, 1996.
Plaintiffs filed a lawsuit against the Department (Case No. 96-3955) in July
1996 at the State level (Circuit Court, Second Judicial Circuit), making the
same allegations at that level which plaintiffs previously made before the U.S.
District Court for the Northern District of Florida. On December 20, 1996, that
Court determined that it has jurisdiction over the FLSA claim. On December 10,
1997 the Court entered final summary judgment. The Plaintiffs were not awarded
overtime pay at time and one-half nor liquidated damages; however, they were
awarded attorneys fees and costs.
BARNETT BANK V. DEPARTMENT OF REVENUE, CASE NO. 97-02375, 4TH JUDICIAL
CIRCUIT, involves the issue of whether Florida's refund statute for dealer
repossessions authorizes the
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Department to grant a refund to a financial institution as the assignee of
numerous security agreements governing the sale of automobiles and other
property sold by dealers. The question turns on whether the Legislature intended
the statute only to provide a refund or credit to the dealer who actually sold
the tangible personal property and collected and remitted the tax or intended
that right to be assignable. Several banks have applied for refunds; the
potential refund to financial institutions exceeds $30,000,000.
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,
1998. 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.
The ability of the Commonwealth to meet its obligations will be
affected by future social, environmental and economic conditions, among other
things, as well as by questions of legislative policy and the financial
conditions of the Commonwealth. Many of these conditions are not within the
control of the Commonwealth.
1998 FISCAL YEAR
The budget for fiscal 1998 was enacted by the Legislature on June 30,
1997 and approved by Governor Weld on July 10, 1997. (Appropriations covering
the first two weeks of the fiscal year were enacted and approved on June 30,
1997.) The budget was based on a consensus tax revenue forecast of $12.85
billion, as agreed by both houses of the Legislature in March. The Executive
Office for Administration and Finance revised the fiscal 1998 tax forecast to
$13.06 billion on July 30, 1997 and, after a review of first quarter fiscal 1998
tax receipts, to $13.20 billion on October 15, 1997. (The fiscal 1998 budget
amended the state finance law to change the required date for tax revenue
estimates from September 25 to October 15.) The fiscal 1998 tax revenue
estimates were revised again on January 16, 1998 to reflect an increase of $100
million in tax revenues.
Year-to-date tax collections through January, 1998 total approximately
$7.577 billion, approximately $395 million, or 5.5 percent, higher than
collections in the corresponding period in fiscal 1997 and approximately $102
million higher than the high end of the benchmark range ($7.315 billion to
$7.475 billion) contemplated by the Department of Revenue's January 16, 1998
estimates.
The fiscal 1998 budget provides for total appropriations of
approximately $18.4 billion, a 2.8 percent increase over fiscal 1997
expenditures. Governor Weld vetoed or reduced appropriations totaling $3.3
million. The budget incorporates tax cuts valued by the Department of Revenue at
$61 million and provides for an accelerated pension funding schedule.
Supplemental appropriations have been approved for fiscal 1998 in the amount of
approximately $17.7 million. In addition, on November 26, 1997, Acting Governor
Cellucci approved legislation transferring off-budget the $206.3 million
Department of Medical Assistance reserve to indemnify certain medical facilities
against losses that might result from providing uncompensated care. Additional
requests by Acting Governor Cellucci for approximately $215.5 million in fiscal
1998 supplemental appropriations are being
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considered by the House Ways and Means Committee. Projected total fiscal 1998
expenditures are approximately $18.848 billion, including approximately $136
million reserved for contingencies and identified deficiencies.
On January 30, 1998, Acting Governor Cellucci filed two bills
recommending supplemental appropriations for fiscal 1998 totaling $211.8
million. The bills incorporate most of the supplemental appropriations
recommended in bills filed by the Administration on October 6, 1997 and October
17, 1997 which were not enacted by the Legislature. The first bill totals $44.6
million in proposed spending to provide for certain unanticipated obligations of
the Commonwealth. The second bill recommends $167.1 million in proposed spending
to provide for one-time expenditures, matching grants and capital initiatives,
including $50 million for the construction and repair of local roads and
bridges, $20 million for the development of a new human resource compensation
management system and $10 million in additional funding for the upgrade of the
Commonwealth's information technology systems in preparation for the year 2000
conversion.
CASH FLOWS. The Commonwealth ended fiscal 1997 with a cash balance of
approximately $902.0 million, not including the Stabilization Fund ending
balance of $799.3 million. The most recent cash flow projections for fiscal 1998
were released by the State Treasurer and the Secretary of Administration and
Finance on December 11, 1997. The forecast was based on the fiscal 1998 budget
signed by Governor Weld on July 10, 1997, and includes the value of all fiscal
1998 supplemental budgets enacted by the Legislature. Projections are based on
revenue and spending estimates prepared by the Executive Office for
Administration and Finance and incorporate actual results through October, 1997
and monthly projections through June, 1998.
Fiscal 1998 is projected to end with a cash balance of $335.1 million,
without regard to any fiscal 1998 activity that may occur after June 30, 1998.
Such balance does not include the balance in the Stabilization Fund ($799.3
million at June 30, 1997) or interest earnings thereon expected during fiscal
1998; it does reflect the required Stabilization Fund transfer related to fiscal
1997 of $234.0 million during fiscal 1998. The cash flow statement notes that
general obligation bonds were issued for capital projects in August, 1997 in the
amount of $250 million and projects that an additional $600 million of general
obligation bonds will be issued for such purposes during the remainder of the
fiscal year. The statement also notes that $105 million of special obligation
bonds were issued in October, 1997. Neither the issuance of transit notes nor
commercial paper for operating purposes is forecast.
The cash flow statement notes that the Massachusetts Turnpike Authority
and the Massachusetts Port Authority are required to make payments to the
Commonwealth in connection with the Central Artery/Ted Williams Tunnel project
and forecasts that the Commonwealth will receive $400 million in the aggregate
during fiscal 1998 from such authorities or from the issuance of Commonwealth
notes in anticipation of payments from such authorities. (The statement also
notes that the Commonwealth has the statutory authority to issue bonds to pay
any such notes.) The statement further forecasts, in connection with the Central
Artery/Ted Williams Tunnel project, that the Commonwealth will issue $350
million of notes in anticipation of future federal highway grants, noting that
federal funding for such purposes has been extended on an interim basis through
March 31, 1998, and the successor federal funding legislation is expected to be
enacted during 1998. Certain of the foregoing assumptions relating to the
Central Artery/Ted Williams Tunnel project have been modified since the date of
the cash flow statement.
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The ending balances reported for fiscal 1997 and projected for fiscal
1998 are likely to differ from the ending balances for the Commonwealth's
budgeted operating funds for those years because of timing differences and the
effect of non-budget items.
1999 FISCAL YEAR
On January 27, 1998, Acting Governor Celluci filed his fiscal 1999
budget recommendations with the House of Representatives. The proposal calls for
budgeted expenditures of approximately $19.06 billion, or total fiscal 1999
spending of $19.49 billion after adjusting for shifts to and from off-budget
accounts. The proposed fiscal 1999 spending level represents a $641.7 million,
or 3.4 percent, increase over projected total fiscal 1998 expenditures of
$18.848 billion. Budgeted revenues for fiscal 1999 are projected to be $18.961
billion, or $19.291 billion after adjusting for shifts to and from off-budget
accounts. This represents a $542.0 million, or 2.9 percent, increase over the
$18.749 billion forecast for fiscal 1998. (The $18.749 billion revenue estimate
for fiscal 1998 reflects the addition of $100 million in tax revenue
incorporated into the forecast by the Secretary of Administration and Finance on
January 16, 1998.) The Governor's proposal projects a fiscal 1999 ending balance
in the budgeted funds of $906.3 million, including a Stabilization Fund balance
of $878.1 million.
The Governor's budget recommendation is based on a tax revenue estimate
of $13.665 billion, a $510.7 million, or 3.9 percent, increase over fiscal 1998
projected tax revenues of $13.154 billion. The projection incorporates $244.8
million in income tax cuts proposed by the Governor, including a reduction of
the Part B ("earned income") tax rate from 5.95 percent to 5 percent over three
years ($205.8 million), a reduction of the Part A ("unearned income"; i.e.,
interest from non-Massachusetts banks, dividends, and short-term capital gains)
tax rate from 12 percent to 5 percent over five years ($30 million), credits and
exemptions to encourage saving for children's higher education ($3 million), an
exemption from capital gains taxes on the sale of a house ($2 million) and an
exemption for providing care to an elderly relative ($4 million). The
recommendation also proposes moving $92.5 million in tax revenue in the
Children's and Seniors Health Protection Fund off-budget.
The proposed budget assumes non-tax revenues of $5.297 billion, or
$5.624 billion when adjusted for the shifts to and from off-budget accounts, and
represents a decrease of $60.4 million from fiscal 1998. Of the three classes of
non-tax revenue, federal reimbursements, including those for Medicaid, and block
grants for Temporary Assistance to Needy Families and Child Care programs most
affect the Commonwealth's budgetary considerations. These payments are projected
to total $3.216 billion in fiscal 1999, or $3.426 billion after the impact of
shifts to and from off-budget accounts is removed. This level of federal
payments represents an increase of $50.7 million, or 1.5 percent, from fiscal
1998, the result primarily of changes in federal reimbursement for Medicaid
programs. Fiscal 1999 departmental revenues of $1.130 billion, or $1.158 billion
after adjusting for shifts to and from off-budget accounts, represent a decrease
of approximately $115 million from fiscal 1998 projections, due primarily to the
implementation of free, lifetime driver licensing and vehicle registration and a
decrease of $29.9 million from fiscal 1998 in the revenue generated by the
revenue optimization program. Consolidated transfers, the third category of
non-tax revenue, consists primarily of state lottery profits which are
distributed to cities and towns. Consolidated transfers are projected to
increase by $4.3 million from fiscal 1998 levels. Lottery profits are expected
to remain constant in fiscal 1999.
The Governor's budget proposal generally provides for maintaining
current levels of service for most state programs but recommends increased
spending for certain priority areas, including a $357 million increase in
funding for the Department of Education, $309.7
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million in additional local aid to cities and towns, $69 million for Medicaid
program inflation and $34 million in additional local aid funded by the State
Lottery.
The Governor's fiscal 1999 budget recommendations call for
appropriations of $945.3 million for pension funding, $93.9 million less than
the amount appropriated for fiscal 1998 and $113.9 million less than the amount
called for in the most recently adopted funding schedule. The recommended amount
reflects the elimination in 1997 of the Commonwealth's responsibility for
funding cost-of-living adjustments incurred by local pension systems and assumes
the adoption of a revised funding schedule in the spring of 1998. The proposed
budget also includes a $20 million reserve to meet the Commonwealth's obligation
to reduce the unfunded pension liabilities attributable to former employees of
Franklin, Hampden, Middlesex and Worcester counties and certain incremental
benefit costs associated with legislation enacted in 1996; any expenditures from
the reserve are contingent upon the adoption of a new funding schedule.
Under the Governor's proposed fiscal 1999 budget, the Commonwealth is
expected to spend approximately $936.6 million on public assistance programs.
Under the federal welfare reform law, Massachusetts will receive $459.4 million
from the Temporary Assistance for Needy Families (TANF) federal block grant. Of
this total, the Commonwealth is expected to spend $321.6 million on Transitional
Aid for Families with Dependent Children (TAFDC)-related programs and to
transfer $91.9 million to the Child Care Fund and $45.9 million to the Social
Services Program Fund. In addition, the Commonwealth expects to receive $77.3
million from the Child Care Development Fund block grant and $51.8 million from
the Social Services block grant.
Acting Governor Celluci's fiscal 1999 budget also recommends spending
of $3.688 billion by the Department of Medical Assistance, the Commonwealth's
Medicaid agency. This level of spending represents a decrease of $133.4 million,
or 3.5 percent, from fiscal 1998, due in part to the Governor's proposal to move
the Children's and Seniors' Health Care Assistance Fund off-budget to a trust
fund. Spending in support of the expansion in the population eligible for health
care assistance therefore is not reflected in the fiscal 1999 budget
recommendation. The proposed fiscal 1999 expansion in Medicaid coverage conforms
to the terms of the Commonwealth's federal waiver and was authorized by
legislation passed in July 1996 and July 1997.
LOCAL GOVERNMENT
Below the level of state governments are 12 county governments
responsible for various functions, principally the operation of houses of
correction and registries of deeds. There are 14 counties in Massachusetts, but
county government has been abolished in two of them and is scheduled to
terminate in two others. Under legislation enacted in 1996, Franklin County
government terminated on July 1, 1997 in favor of a regional council of
governments. Legislation approved by Governor Weld on July 11, 1997 in favor of
a regional council of governments. Legislation approved by Governor Weld on July
11, 1997 abolished Middlesex County government on that date and provided for the
abolition of county government in Hampden and Worcester Counties on July 1, 1998
(or sooner, if such county defaults on a bond or note). Under the 1997
legislation, all functions, duties and responsibilities of the affected counties
are transferred to the Commonwealth. As of the date of abolition of an affected
county's government, all valid liabilities and debts of such county which are in
force immediately before such date become obligations of the Commonwealth, and
all assets and revenues of such county become assets and revenues of the
Commonwealth. The Secretary of Administration and Finance is directed to
establish an amortization schedule to recover the Commonwealth's costs from the
cities and towns within
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each such country over a period not to exceed 25 years. Governor Weld vetoed
provisions in the legislation that would have placed responsibility for county
retirees on cities and towns rather than the Commonwealth, and indicated that he
would file legislation providing for state assumption of such pension costs. On
July 15, 1997, the House of Representatives overrode Governor Weld's veto of
such provisions, but the Senate has not acted on the Governor's veto message.
Governor Weld also vetoed provisions that would have created the county charter
commissions in certain counties, including that he favored legislation setting a
date certain for the abolition of all county government and a mechanism by which
cities and towns that wish to do so may establish alternative regional entities.
The legislation approved by Governor Weld in July, 1997 established a task force
on the valuation of county assets and liabilities that was charged with
compiling an inventory and providing for the valuation of all property of all
countries 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 eleven-member task force, consisting of eight members of
the Legislature, the Secretary of Administration and Finance, the Inspector
General and the State Auditor, had a report filing deadline of February 1, 1998;
the task force has convened and has begun planning for the valuation. On July
17, 1997, Governor Weld filed legislation that would abolish all county
governments by July 1, 1999 and that would require the state employees'
retirement system to absorb the pension costs associated with county retirees.
The legislation is being considered by the Legislature's Committee on Counties.
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 1997, approximately 70.8 percent of the Commonwealth's annual budgeted
revenues were derived from state taxes. In addition, the federal government
provided approximately 16.6 percent of such revenues, with the remaining 12.6
percent provided from departmental revenues and transfers from non-budgeted
funds.
The major components of State taxes are the income tax, which accounted
for approximately 55.8 percent of total tax revenues in fiscal 1997, the sales
and use tax, which accounted for approximately 22.4 percent, and the business
corporations tax, which accounted for approximately 7.5 percent. Other tax and
excise sources accounted for the remaining 14.3 percent of total fiscal 1997 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 percent is applied to income from employment,
professions, trades, businesses, rents, royalties, taxable pensions and
annuities and interest from Massachusetts banks; a rate of 12 percent 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 percent on capital gains from the
sale of assets held for one year and less to 0 percent on capital gains from the
sale of certain assets held more than six years.
In December 1994, the Governor approved legislation modifying the
capital gains tax by phasing out the tax for assets held longer than six years
and increasing the no-tax status threshold for personal income tax purposes. The
capital gains tax charge did not
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become effective until January 1, 1996. Accordingly, it is estimated by the
Executive Office for Administration and Finance to have had only a minor effect
on fiscal 1996 tax revenues and to have approximately $41.0 million. The no-tax
status change is estimated to have reduced fiscal 1995 tax revenues by
approximately $13.3 million. It is expected to decrease fiscal 1998 tax revenues
by $13.0.
As part of the fiscal 1997 budget the Legislature established a tax
deduction for the amount by which tuition payments to two- or four-year
colleges, net of financial aid, exceed 25 percent of the taxpayer's adjusted
gross income. The Department of Revenue estimates that this deduction resulted
in no revenue reduction in fiscal 1997 and will result in an approximately $14
million reduction on an annualized basis thereafter.
The fiscal 1998 budget contained three tax cuts with an aggregate
fiscal 1998 cost estimated by the Department of Revenue to be $60.9 million--an
increase in the child dependent deduction from $600 to $1,200 for children up to
age 12 ($15.3 million), a tax credit of up to $6,000 over four years for septic
tank improvements ($17 million) and an earned income tax credit amounting to 10
percent of the federal credit ($28.6 million).
On November 6, 1997, Acting Governor Cellucci approved legislation
exempting military pensions from the state income tax, effective January 1,
1998. The Department of Revenue estimates that this exemption will result in a
fiscal 1998 revenue reduction of $25.0 million and an approximately $18 million
reduction on an annualized basis thereafter.
SALES AND USE TAX. The Commonwealth imposes a 5 percent sales tax on
retail sales of certain tangible properties (including retail sales of meals)
transacted in the Commonwealth and a corresponding 5 percent 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.
On October 20, 1997, Acting Governor Cellucci announced that the
Department of Revenue will issue regulations changing the payment for
approximately 15,000 sales, meals and room occupancy taxpayers over $25,000 in
tax per year. While these new regulations will not affect the amount of tax
owed, the Department of Revenue estimates that the Commonwealth will realize a
reduction in fiscal 1998 revenues of $120 million to $160 million, which has
been incorporated into the January 16, 1998 revenue estimates. This reduction
will be a one-time event.
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 percent. The minimum
tax is $456. Both rates and the minimum tax include a 14 percent surtax. The
reduction in fiscal 1996 tax revenues from business corporations compared to
fiscal 1995 was due primarily to an estimated $49 million reduction resulting
from the application of the "single sales factor" apportionment formula,
described below. The fiscal 1997 tax revenue collections reflected an additional
$44 million reduction for the full-year impact of the "single sales"
apportionment
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formula and a $10 million reduction due to the impact of legislation enacted in
August 1996, which, effective January 1, 1997, changed the computation of the
sales factor for certain mutual fund companies.
On November 28, 1995 the Governor approved legislation establishing a
"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 prior formula that took other factors, such as
payroll and property into account. The new formula was made effective as of
January 1, 1996 to certain federal defense contractors and phased in over five
years for manufacturing firms generally. The Department of Revenue estimated
that the revision reduced revenues by $44 million in fiscal 1996 and by $90
million in fiscal 1997. If the new formula were fully effective for all covered
businesses, the Department estimates that the annual revenue reduction would be
$100 million to $150 million.
On August 8, 1996, the Governor approved legislation making two changes
in the apportionment formula for the business corporations tax payable by
certain mutual fund service corporations. Effective January 1, 1997, the
legislation changed the computation of the sales factor; instead of sourcing
sales from the state where the seller bears the cost of performing the services
relating to the sale, the corporations will source sales to the state of
domicile of the ultimate consumer of the service. Effective July 1, 1997, the
legislation changed the prior three-factor formula to a single sales factor
formula, just as the November 1995 legislation had done for certain federal
defense contractors and, over time, for manufacturing firms. Under the new law,
affected corporations are required to increase their numbers of employees by 5
percent per year for five years, subject to exceptions for adverse economic
conditions affecting the stock market or the amount of assets under their
management. The Department of Revenue estimates that the changes resulted in a
revenue reduction of approximately $10 million in fiscal 1997 and will result in
revenue reductions of $39 million to $53 million on an annualized basis
thereafter, starting in fiscal 1998. These estimates do not take into account
any increased economic activity stimulated by the tax cuts.
On August 9, 1996, the Governor signed legislation providing a tax
credit to shippers that pay federal harbor maintenance taxes on cargo passing
through Massachusetts ports. The Department of Revenue estimates that there was
no impact on revenues in fiscal 1997 as a result of this tax credit and the
annualized revenue loss will be approximately $3 million to $4 million,
beginning in fiscal 1998.
BANK TAX. Commercial and savings banks are subject to an excise tax of
12.54 percent. On July 27, 1995, the Governor approved legislation that will
reduce the rate over several years to 10.5 percent, 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.
OTHER TAXES. 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.
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On July 24, 1996, the Legislature overrode the Governor's veto of
legislation imposing a 25(cent)-per-pack tax increase on cigarettes, as well as
a 25 percent increase in the tax on smokeless tobacco and a 15 percent tax on
cigars and smoking tobacco, all effective October 1, 1996. The Department of
Revenue estimates that these changes resulted in approximately $74 million in
additional revenue for fiscal 1997 and will result in $80 million to $90 million
in additional revenue in fiscal 1998. The Department estimates that by fiscal
2000, when demand for cigarettes will have fully adjusted to the higher tobacco
product prices expected to result from the increased tax, additional revenues
will range from $73 million to $83 million.
In 1992, legislation was enacted by the voters which increased the
tobacco excise tax by 1.25(cent) per cigarette (25(cent) per pack of 20
cigarettes) and 25 percent of the wholesale price of smokeless tobacco,
effective January 1, 1993. Under the legislation, the revenues raised by this
excise tax were to be credited to the Health Protection Fund and expended,
subject to appropriation by the Legislature, to pay for health programs and
education relating to tobacco use. Total revenues deposited in the Health
Protection Fund in fiscal 1993 and fiscal 1994 were $59.5 million and $116.4
million and have been $114 million on an annualized basis since fiscal 1995.
The Commonwealth is authorized to issue special obligation highway
bonds secured by a pledge of all or a portion of the Highway Fund, including
revenues derived from all or a portion of the motor fuels excise tax. The
portion of the motor fuel tax currently pledged to special obligation bonds is
estimated to be approximately $177 million in fiscal 1998. Additional special
obligation bonds may be issued in the future secured by all or additional
portions of the motor fuels excise tax.
On November 17, 1997, the legislature overrode Acting Governor
Cellucci's veto to enact legislation the Commonwealth to issue special
obligation convention center bonds secured by a pledge of certain taxes related
to tourism and conventions, including a 2.75 percent convention center financing
fee imposed by the legislation on hotel room occupancy in four Massachusetts
cities.
ESTATE TAX REVISIONS. The fiscal 1993 budget included legislation which
gradually phased down the current Massachusetts estate tax until it became a
"sponge tax" in 1997. The "sponge tax" is based on the maximum amount of the
credit for the State taxes allowed for federal estate tax purposes. The estate
was phased out by means of annual increases in the basic exemption from the
original $200,000 level. The exemption was increased to $300,000 for 1993,
$400,000 for 1994, $500,000 for 1995 and $600,000 for 1996. In addition, the
legislation included a full marital deduction starting July 1, 1994. The marital
deduction was limited to 50 percent of the Massachusetts adjusted gross estate
until June 30, 1995. The statistic fiscal impact of the phase-out of the estate
tax is estimated to have been approximately $25 million in fiscal 1994,
approximately $73 million in fiscal 1995, approximately $112 million in fiscal
1996 and approximately $139 million in fiscal 1997 and is projected to be
approximately $253 million in fiscal 1998.
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.
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The Commonwealth receives reimbursement for approximately 50 percent of its
spending for Medicaid programs. Block grant funding for TANF is received
quarterly and its contingent upon a maintenance of effort spending level
determined annually by the federal government.
Departmental and other non-tax revenues are derived from licenses,
registrations and reimbursements and assessments for services. In fiscal 1996, a
revenue maximization pilot project undertaken by the Comptroller and the
Executive office for Administration and Finance yielded almost $39.9 million in
additional federal reimbursement revenues, net of agency and vendor incentive
payments, at the Department of Mental Health, Department of Mental Retardation,
Department of Social Services and Division of Medical Assistance. In fiscal
1997, $41.3 million in additional non-tax revenues resulted in net revenues of
$39.1 million deposited into the General Fund. In fiscal 1998, an estimated
$54.3 million in additional non-tax revenues is expected to result in $43.9
million of net revenues for the General Fund.
The Commonwealth began in fiscal 1997 to phase in a one-time (rather
than annual) passenger vehicle registration fee of $30 and a reduction in the
passenger vehicle operating license renewal fee from the rate of $30 to $2,
effective May 1, 2001. The Executive Office for Administration and Finance
estimates that these changes had no effect on fiscal 1997 revenues and will
reduce fiscal 1998 revenues by $13.8 million. When all drivers become eligible
for free registration renewals in fiscal 1999, revenues are projected to decline
by approximately $55 million. Revenue reductions due to lifetime licenses will
not begin until fiscal 2001, when they will total approximately $5 million. In
fiscal 2002, when all drivers become eligible for free license renewals, the
revenue reduction is estimated to be approximately $31 million. (The
Commonwealth is still maintaining the requirement that all parking tickets,
moving violation citations, excise taxes and insurance premiums be paid before
license and registration renewals are processed, in order to ensure that cities
and towns do not lose revenue from the change to lifetime licenses and
registration.) In May, 1997, the Legislature enacted legislation that would
restore registration, license and permit fees credited to the Highway Fund to
the rates in effect on January 1, 1996 if federal aid to the Central Artery/Ted
Williams Tunnel project falls below $550 million in any fiscal year during the
next six years. Governor Weld vetoed this provision. Under the state
constitution, his veto can be overridden by a two-thirds vote of each house of
the Legislature; neither house has acted on the veto.
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 $600.2
million, $667.3 million, $709.5 million, $727.5 million and $770.2 million in
fiscal 1993 through 1997, respectively and which are expected to account for
$778.4 million in fiscal 1998.
In 1994, the voters in the statewide general election approved an
initiative petition, effective December 8, 1994, that would slightly increase
the portion of gasoline tax revenue credited to the Highway Fund, one of the
Commonwealth's three major budgeted finds, prohibit the transfer of money from
the Highway Fund to other funds for non-highway purposes and exclude the Highway
Fund balance from the computation of the "consolidated net surplus" for purposes
of state finance laws. The initiative petition also provided that no more than
15 percent of gasoline tax revenues could be used for mass transportation
purposes, such as expenditures related to the Massachusetts Bay Transportation
Authority. This law is not a constitutional amendment and is subject to
amendment or repeal by the Legislature, which may also, notwithstanding
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the terms of the initiative petition, appropriate moneys from the Highway Fund
in such amounts and for such purposes as it determines, subject only to a
constitutional restriction that such moneys be used for motor vehicle, highway,
or mass transportation purposes. The Legislature has twice postponed the
effective ate of the provision that would exclude the Highway Fund balance from
the computation of the "consolidated net surplus". The most recent postponement
changed the effective date of the provision to July 1, 1998.
On August 9, 1996, the Governor approved legislation, authorizing the
State Lottery Commission to participate with other states in a
multi-jurisdictional lottery. Beginning September, 1996, the Commission joined
with the states of Illinois, Georgia, Maryland, Michigan and Virginia in a
multi-state game that is estimated to generate an additional $30 million per
year in net lottery revenues.
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 establishes 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. As part of his fiscal 1999 budget
recommendations, Acting Governor Celluci, has proposed the repel of the tax
revenue limits in Chapter 29B.
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Tax revenues in fiscal 1993 through fiscal 1997 were lower than the
limit set by either Chapter 62F or Chapter 29B, and the Executive Office for
Administration and Finance currently estimates that State tax revenues in fiscal
1998 will not reach the limit imposed by either of these statutes.
LITIGATION
There are pending in state and federal courts within the Commonwealth
and in the Supreme Court of the United States various suits in which the
Commonwealth is a party. In the opinion of the Attorney General, no litigation
is pending or, to his knowledge, threatened which is likely to result, either
individually or in the aggregate, in final judgments against the Commonwealth
that would affect materially its financial condition.
COMMONWEALTH PROGRAMS AND SERVICES. From time to time actions are
brought against the Commonwealth by the recipients of governmental services,
particularly recipients of human services benefits, seeking expanded levels of
services and benefits and by the providers of such services challenging the
Commonwealth's reimbursement rates and methodologies. To the extent that such
actions result in judgments requiring the Commonwealth to provide expanded
services or benefits or pay increased rates, additional operating and capital
expenditures might be needed to implement such judgments. In June, 1993, in an
action challenging the Commonwealth's funding of public primary and secondary
education systems on both federal and state constitutional grounds, WEBBY V.
DUKAKIS (now known as MCDUFFY V. ROBERTSON, Supreme Judicial Court for Suffolk
County No. 90-128), the Supreme Judicial Court ruled that the Massachusetts
Constitution imposes an enforceable duty on the Commonwealth was not at that
time fulfilling this constitutional duty. However, the court also ruled that the
Legislature and the Governor were to determine the necessary response to satisfy
the Commonwealth's constitutional duty, although a single justice of the court
could retain jurisdiction to determine whether, within a reasonable time,
appropriate legislative action had been taken. Comprehensive education reform
legislation was approved by the Legislature and the Governor later in June 1993
legislation did not provide sufficiently for public education and that its
timetable was too slow. It cannot be determined at this time what further
action, if any, the plaintiffs in McDuffy may take or whether the court will
order any further relief.
Challenges by residents of five state schools for the retarded in RICCI
V. MURPHY (US District Court C.A. No. 72-469-T) resulted in a consent decree in
the 1970's which required the Commonwealth to upgrade and rehabilitate the
facilities in question and to provide services and community placements in
western Massachusetts. The District Court issued orders in October, 1986 leading
to termination of active judicial supervision. On May 25, 1993, the District
Court entered a final order vacating and replacing all consent decrees and court
orders. In their place, the final order requires lifelong provisions for
individualized services to class members and contains requirements regarding
staffing, maintenance of effort (including funding) and other matters.
In HODGE V. BELMONT (US District Court No. 95-1238GAO), the plaintiffs
are former residents of the Fernald School, a facility of the Department of
Mental Retardation. They allege that in the 1950's they were fed radioactive
isotopes without their informed consent. They claim violations of their civil
rights, battery, invasion of privacy, loss of consortium and misrepresentation.
The amount of potential liability is estimated to be $25 million.
ENVIRONMENTAL MATTERS. The Commonwealth is engaged in various lawsuits
concerning environmental and related laws, including an action brought by the
U.S. Environmental Protection Agency alleging violations of the Clean Water Act
and seeking to
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enforce the clean-up of Boston Harbor. UNITED STATES V. METROPOLITAN DISTRICT
COMMISSION (U.S. District Court C.A. No. 85-0489-MA). See also CONSERVATION LAW
FOUNDATION V. METROPOLITAN DISTRICT COMMISSION (U.S. District Court C.A. No.
83-1614-MA). The Massachusetts Water Resources Authority (MWRA), successor in
liability to the Metropolitan District Commission (MDC), has assumed primary
responsibility for developing and implementing a court-approved plan and
timetable for the construction of the treatment facilities necessary to achieve
compliance with the federal requirements. During fiscal 1997, the MWRA completed
the mining of the 9.5-mile outfall tunnel, completed the draft combined sewer
outflow (CSO) plan and began design of several CSO projects, completed
construction of the first battery of secondary treatment and began construction
of the third and final battery of secondary treatment. The MWRA currently
projects that the total cost of construction of the waste water facilities
required under the court's order, not including CSO costs, will be approximately
$3.142 billion in current dollars, with approximately $601 million to be spent
after June 30, 1997. With CSO costs, the MWRA anticipates spending approximately
$901 million after that date. Under the Clean Water Act, the Commonwealth may be
liable for any cost of complying with any judgment in these or any other Clean
Water Act cases to the extent the MWRA or a municipality is prevented by state
law from raising revenues necessary to comply with such a judgment.
On February 12, 1998, the U.S. Department of Justice filed a complaint
in federal district court seeking to compel the MWRA to build a water filtration
plant for the metropolitan Boston water supply and, together with the MDC, to
take certain watershed protection measures. The MWRA is gathering data to
determine whether a water filtration plant is necessary and anticipates
completing its inquiry by the fall of 1998. Attorneys for the MWRA and the MDC
have been negotiating with the U.S. Department of Justice regarding this future
course of the litigation. It is too early, however, to determine the outcome of
those negotiations.
TAXES AND OTHER REVENUES. In MASSACHUSETTS WHOLESALERS OF MALT
BEVERAGES V. COMMONWEALTH (Suffolk Superior Court No. 90-1523), associations of
bottlers challenged the 1990 amendments to the bottle bill which escheat
abandoned deposits to the Commonwealth. Plaintiffs claimed a taking; the
Commonwealth argued a legitimate regulation of abandoned amounts. In March,
1993, the Supreme Judicial Court upheld the amendments except for the initial
funding requirement, which the Court held severable. In August, 1994, the
Superior Court ruled that the Commonwealth is liable for certain amounts (plus
interest) as a result of the Supreme Judicial Court's decision. The actual
amount will be determined in further proceedings. In February, 1996, the
Commonwealth settled all remaining issues with one group of plaintiffs, the
Massachusetts Soft Drink Association. Payments to that group will total
approximately $7 million. The Legislature appropriated the funds necessary for
these payments in its final supplemental budget for fiscal 1996. Litigation with
the other group of plaintiffs, the Massachusetts Wholesalers of Malt Beverages,
is still pending. The remaining potential liability is approximately $50
million.
In THE FIRST NATIONAL BANK OF BOSTON V. COMMISSIONER OF REVENUE
(Appellate Tax Board No. F232249), the First National Bank of Boston challenges
the constitutionality of the former version of the Commonwealth's bank excise
tax. In 1992, several pre-1992 petitions filed by the bank, which raised the
same issues, were settled prior to a board decision. The bank has now filed
claims with respect to 1993 and 1994. The bank claims that the tax violated the
Commerce Clause of the United States Constitution by including its worldwide
income without appointment. The Department of Revenue estimates that the amount
of abatement, including interest, sought by the First National Bank of Boston,
could total $128 million.
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In STATE STREET BANK AND TRUST COMPANY V. COMMISSIONER OF REVENUE
(Appellate Tax Board Nos. F215497, F232152, F233019 and F233948), State Street
Bank and Trust Company has raised the same claims as the First National Bank of
Boston, outlined above. State Street Bank also claims that it is entitled to
alternative apportionment under the bank excise tax. The Department of Revenue
estimates that the amount of abatement, including interest, sought by State
Street Bank and Trust Company, could total $158 million.
In addition, there are several tax cases pending which could result in
significant refunds if taxpayers prevail. It is the policy of the Attorney
General and the Commissioner of Revenue to defend such actions vigorously on
behalf of the Commonwealth, and the descriptions that follow are not intended to
imply that the Commissioner has conceded any liability whatsoever.
On March 22, 1995, the Supreme Judicial Court issued its opinion in
PERINI CORPORATION V. COMMISSIONER OF REVENUE (Supreme Judicial Court No. 6657).
The court held that certain deductions from the net worth measure of the
Massachusetts corporate excise tax violate the Commerce Clause of the United
States Constitution. The court remanded the case for entry of a declaration and
further proceedings, if necessary, to determine other appropriate remedies. On
October 2, 1995, the United State Supreme Court denied the Commonwealth's
petition for a writ of certiorari. The Supreme Judicial Court, on April 30,
1996, entered a partial final judgment implementing its decision for tax years
ending prior to January 1, 1995. The Department of Revenue estimates that tax
revenues in the amount of $40 million to $55 million may be abated as a result
of the partial final judgment. On May 13, 1996, the Court entered an order for
judgment and memorandum concerning relief for tax years ending on or after
January 1, 1996. A final judgment was entered on June 6, 1996. The Department of
Revenue is estimating the fiscal impact of that ruling; to date it has paid
approximately $15 million in abatements in accordance with the judgment.
Approximately $75 million in taxes and interest in the aggregate are at
issue in several other cases pending before the Appellate Tax Board or on appeal
to the Appeals Court of the Supreme Judicial Court.
EMINENT DOMAIN. In SPAULDING REHABILITATION HOSPITAL CORPORATION V.
MASSACHUSETTS HIGHWAY DEPARTMENT (Suffolk Superior Court. No. 95-4360C), the
Spaulding Rehabilitation Hospital filed an action to enforce an agreement to
acquire its property by eminent domain, in connection with the Ted Williams
Tunnel/Central Artery project. If the hospital is successful, it could recover
the fair market value of its property in addition to its relocation costs with
respect to its personal property. It is estimated that the Commonwealth's
potential liability is approximately $50 million. The hospital has signed
interrogatories indicating that it believes that the property is worth more than
$60 million. The case has been tried and is currently under advisement in
Superior Court.
Both COMMONWEALTH OF MASSACHUSETTS V. RUGGLES CENTER JOINT VENTURE
(Suffolk Superior Court No. 47-1764-A and RUGGLES CENTER, LLC V. BEACON
CONSTRUCTION CORPORATION (Suffolk Court No. 96-0637-E) involve an indoor air
quality dispute regarding the former headquarters of the Registry of Motor
Vehicles at Ruggles Center in Boston. In 1997, the Commonwealth commenced suit
against the former building owners, Ruggles Center Joint Venture (RCJV), as well
as the general contractor, the architect, the mechanical engineer and the
manufacturer of the fireproofing, to recover losses associated with the indoor
air quality (IAQ) problems, including the costs of relocating the agency and
workers' compensation payments paid to employees. RCJV has filed a counterclaim
against the Commonwealth alleging breach of lease, breach of the covenant of
good faith and fair dealing and negligence. RCJV claims that it fulfilled all of
its obligations under the lease and its
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amendment and that the Commonwealth wrongfully terminated these agreements, and
that the Commonwealth's negligence, or that of its contractors, caused the IAQ
problems. RCJV seeks to recover the costs associated with its efforts to remedy
the IAQ problems, additional rent payments under the lease, and the value of
RCJV's equity in the project had the lease not been terminated. In the second
and related case, the building owner has sued the general contractor to recover
on the performance bond. Many second, third and fourth parties have been named
as fourth-party defendants by the manufacturer of the fireproofing. United
States Mineral Products Co., Inc., which has asserted a claim for
indemnification. Potential liability to the Commonwealth in each case is
approximately $25 million.
DIBIASE V. COMMISSIONER OF INSURANCE (Suffolk Superior Court No.
96-4241-A) is a putative class action suit in which the plaintiffs seek to
invalidate most of Chapter 178A of the Massachusetts General Law, which is the
savings bank life insurance statute. The suit alleges that the statute's
conversion of the former savings bank life insurance system established by
former Chapter 178 of the Massachusetts General Laws deprived policyholders
under the old system of more than $60 million in "surplus" and $11 million in
former General Insurance Guaranty Fund, the proceeds of both of which assertedly
belonged to them. The defendants have moved to dismiss on statute of limitations
grounds, and the plaintiffs have cross-moved for partial summary judgment on a
claim of alleged procedural due process violations. On October 16, 1997, the
Court dismissed the case on statute-of-limitations grounds. The plaintiff's
appeal period expires on February 17, 1998.
BOSTON WHARF CO. V. COMMONWEALTH OF MASSACHUSETTS (Suffolk Superior
Court No. 96-0028) is an eminent domain case concerning a parcel on A Street in
South Boston which is being used for a tunnel in the Central Artery/Ted Williams
Tunnel project. The plaintiff's are claiming $32 million.
MASSACHUSETTS PORT AUTHORITY, BIRD ISLAND LTD. PARTNERSHIP AND HILTON
HOTELS V. COMMONWEALTH OF MASSACHUSETTS (Suffolk Superior Court Nos. 96-4803-C,
94-6966, 94-2830-#, 94-2831-F, 94-5745-B, 94-5744-A and 96-6789-E) are eminent
domain cases concerning a land acquisition in East Boston for the Central
Artery/Ted Williams Tunnel project. The Commonwealth faces a potential liability
of approximately $35.7 million.
THOMAS RICH V. COMMONWEALTH OF MASSACHUSETTS (Norfolk Superior Court
No. 94-2319) is an eminent domain case concerning property in the city of
Quincy. The Commonwealth faces a potential liability of $30 million. The cost of
remediation of contaminated soil will also be an issue.
P&P REALTY CO., INC. V. DEPARTMENT OF PUBLIC WORKS (Suffolk Superior
Court No. 92-2081) is an eminent domain case concerning two parcels at Summer
Street and Trilling Way in South Boston. The Commonwealth's potential liability
is $22 million.
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 April 9, 1998. 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.
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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.
ECONOMIC FORECAST
The Revenue Estimating Conference incorporates a range of economic
forecasts and economic information in making revenue estimates. During its
November 1997 meeting, forecasts were presented by Data Resources, Inc. (DRI)
and Regional Financial Associates (RFA). The New England Economic Project (NEEP)
provided a written analysis of current and forecast economic conditions. Current
employment and labor force trends were also presented by the Department of Labor
and Training.
RFA, DRI, and NEEP all forecast that economic growth will continue
throughout the budget year, albeit at a more moderate pace.
EMPLOYMENT
There was a considerable disparity among the economists with respect to
the employment forecast. In fiscal year 1998, growth is anticipated in the range
of 0.6 percent to 1.1 percent, and fiscal year 1999, growth is expected to fall
in the range of 0.6 percent to 1.7 percent. The disparity may be partially
explained by problems in data sampling.
Benchmark revisions for fiscal year 1997 resulted in annual employment
growth of 1.7 percent, versus the preliminary figure 1.0 percent. RFA revised
its 1998 nonfarm employment growth from 0.6 percent to 1.5 percent.
PERSONAL INCOME
Personal income growth rates vary from 4.3 percent to 5.4 percent in
fiscal year 1998, and 4.2 percent to 5.7 percent in fiscal year 1999. Personal
income tax receipts have increased dramatically due to continued strength in
financial markets.
WAGE AND SALARY INCOME
A fairly wide range of forecasts is present in wage and salary growth
estimates, from 4.5 percent to 5.4 percent in fiscal year 1998, and 3.0 percent
to 5.8 percent in fiscal year 1999. This disparity also contributes to the
differential in estimated personal income growth. The more optimistic outlook
may reflect the theory that high wage earners are realizing greater salary
gains, as well as larger and more frequent bonuses. The dramatic rise in wage
and salary income since 1996 further indicates that Rhode Island is increasingly
creating higher paying jobs. This is further evidenced by the shift in Rhode
Island is increasingly creating employment toward higher paying services
employment.
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.
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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 percent based on the DRI/McGraw-Hill
forecast.
EMPLOYMENT. The economists generally agreed that employment would grow
1.1 percent for fiscal year 1997, an increase over the fiscal year 1996 growth
of 0.6 percent. Benchmark revisions for fiscal year 1996 employment data had
resulted in a reduction in non-farm employment growth from 1.3 percent to 0.6
percent. The revised fiscal year 1997 forecast reflects significant increases
from the December projections of 0.3 percent 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 percent, while DRI is
more optimistic with 1.4 percent 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 percent which is less than the 5.7 percent
experience in fiscal year 1996. Fiscal year 1998 growth varies by forecaster
between 4.0 and 4.9 percent. The difference in the estimates of the three
economists is based on the emphasis of contributing factors. The 4.9 percent
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 percent forecast is based
on the assumption that the manufacturing employment losses will continue at a
fairly constant rate through fiscal year 1998.
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 percent to 4.9 percent for fiscal year 1997 and from 2.5 percent to 5.6
percent 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 67.6 percent of all taxes and departmental
receipts in fiscal year 1997 were derived from the Rhode Island personal income
tax and the sales and use tax. They constituted 60.8 percent of all general
revenues.
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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 percent 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 percent 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 34.3
percent of the State's fiscal year 1997 general revenues.
BUSINESS CORPORATION TAX. The business corporation 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 percent effective July 1, 1989. Passage of the fiscal
year 1991 Reissuance of Appropriations Act provided for a surtax of 11.0 percent
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. In addition, the minimum business or franchise tax was raised from $100
to $250. Two reductions to the business corporation tax were enacted as part of
the fiscal year 1994 Budget; the first repealed the 11.0 percent 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. The fiscal year 1998 Appropriation Act modified taxes due under the
Business Corporations Tax by providing for enhanced credits. Specifically, the
budget provides for an increase in the Investment Tax Credit from 4.0 percent to
10.0 percent for machinery and equipment expenditures and increases the Research
and Development Tax Credit for qualified research expenses from 5.0 percent to
22.5 percent, both effective January 1, 1998.
Corporations dealing in securities on their own behalf, whose gross
receipts from such activities amount to at least 90.0 percent of their total
gross receipts, have been exempt from the net worth computation but are required
to pay the 9.0 percent 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. Such corporate
security dealers, investment companies, investment trusts and personal holding
companies are allowed to deduct from net income 50.0 percent of the excess of
capital gains over capital losses realized during the taxable year when
computing the tax.
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 percent 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
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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.
The sales and use tax accounted for approximately 27 percent of the
State's fiscal year 1997 general revenues.
HEALTH CARE PROVIDER ASSESSMENT. The 1992 Legislature enacted a health
care provider assessment on residential facilities for the mentally retarded in
the fiscal year 1992 Supplemental Budget Bill. This was a medicaid provider
specific tax levy of 25.0 percent on gross revenues on community residences for
the mentally retarded. That assessment fell within the guidelines of the federal
legislation enacted in November of 1991 concerning medicaid provider specific
taxes. In mid-September 1994, the levy dropped to 6.0 percent because of new
federal limitations on reimbursements for this tax.
The Legislature also enacted a 2.75 percent tax on gross revenues for
nursing homes and a 1.50 percent tax on gross revenues from free-standing
medicaid facilities not associated with hospitals as part of the fiscal year
1993 budget. This tax was scheduled to end September 30, 1995; however, the
fiscal year 1996 Appropriations Act extended the tax on nursing facilities to
September 30, 1997 and raised the rate to 3.75 percent effective October 1,
1995. The fiscal year 1998 Budget provided for elimination of the previously
enacted sunset date and made the tax permanent.
TAXES ON PUBLIC SERVICE CORPORATIONS. A tax ranging from 1.25 percent
to 8.0 percent of gross earnings is assessed annually against any corporation
enumerated in Title 44, Chapter 13 of the General Laws, incorporated under the
laws of the State or doing business in Rhode Island. In the case of corporations
whose principal business is manufacturing, selling or distributing currents of
electricity, the rate of tax imposed is 4.0 percent. For those corporations
manufacturing, selling or distributing illuminating or heating gas, the rate of
tax imposed is 3.0 percent of gross earnings. Corporations providing
telecommunications services were assessed at the rate of 6.0 percent, until July
1, 1997, at which time the rate was reduced to 5.0 percent. However, 100.0
percent of the amounts paid by a corporation to another corporation for
connecting fees, switching charges and carrier access charges are excluded from
the gross earnings of the paying company. The minimum tax payable is $100. The
tangible personal property within the State of telegraph, cable, and telephone
corporations used exclusively for the corporate business, is exempt from
taxation, subject to certain exceptions.
Article 14 of the fiscal year 1995 Appropriations Act prescribed a
phase out of the portion of the public service corporations tax imposed on
energy used in manufacturing effective July 1, 1994. The tax on electricity was
lowered one percent for four years, and was fully eliminated on July 1, 1996.
The article contained provisions to ensure that the tax savings would be passed
on directly to manufacturers.
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TAX ON INSURANCE COMPANIES. Each insurance company transacting business
in Rhode Island must file a return each year on or before March 1 and pay a tax
of 2.0 percent of its gross premiums. These are premiums on insurance contracts
written during the preceding calendar year on Rhode Island businesses. The same
tax applies to an out-of-state insurance company, but the tax cannot be less
than that which would be levied by the State or foreign country on a similar
Rhode Island insurance company or its agent doing business to the same extent
there. Effective December 31, 1989, premiums from marine insurance issued in
Rhode Island became exempt from the tax on gross premiums. The fiscal year 1998
Appropriations Act provided for an increase in the investment tax credit for
insurance companies from 4.0 percent to 10.0 percent for machinery and equipment
expenditures effective January 1, 1998.
Insurance and surety companies are exempt from the business corporation
tax and annual franchise tax, but they are subject to provisions concerning any
estimated taxes which may be due. Through the provisions of Article 33 of the
fiscal year 1990 Appropriations Act, surplus line brokers were included under
the statutes relative to estimated taxes.
TAX ON BANKING INSTITUTIONS-EXCISE TAX. For the privilege of existing
as a banking institution during any part of the year, each State bank, trust
company, or loan and investment company in the State must annually pay an excise
tax measured by (1) 9.0 percent of its net income of the preceding year, or (2)
$2.50 per $10,000 or a fraction thereof of its authorized capital stock as of
the last day of the preceding calendar year. The tax payable is the higher of
the two. A national bank within the State must only pay the excise tax measured
by option (1) above. The minimum tax payable is $100. Mutual savings banks and
building and loan associations are subject to tax, effective January 1, 1998.
The fiscal year 1998 Appropriations Act provided for an increase in the
investment tax credit for banking institutions from 4.0 percent to 10.0 percent
for machinery and equipment expenditures effective January 1, 1998.
TAX ON BANKING INSTITUTIONS-INTEREST BEARING DEPOSITS. Chapter 410 of
the Public Laws of 1986 established current tax rates on banking institutions.
For institutions with over $150 million in deposits, the rate was .0695(cent) on
each one hundred dollars ($100) of deposits. For institutions with over $150
million in deposits, the rate was .0625(cent) on each one hundred dollars
($100). Under Article 29 of the fiscal year 1993 Appropriations Act, the tax
rates applied to credit unions were set equal to those levied on other banking
institutions and the tax is applied to average daily deposits held for the full
calendar year for all types of banking institutions. Article 34 of the fiscal
year 1996 Appropriations Act reduces the rates on banking institutions with over
$150 million in deposits to .0348 cents on each one hundred dollars of deposits
and .0313 cents on each one hundred dollars of deposits for those institutions
with less than $150 million in deposits for the calendar year. The rate was set
to zero beginning January 1, 1998 and thereafter. The deposits base includes all
but that percentage equivalent to total assets as are invested in obligations of
the United States and excludes those deposits of a branch or office located
outside the State of Rhode Island or those of an international banking facility
of any banking institution. The fiscal year 1996 Appropriations Act eliminated
certain exclusions relative to the tax on credit unions effective January 1,
1996, but did not make changes relative to the rate of tax.
Chapter 15 of the 1992 Rhode Island Public Laws changed the timing of
the estimated payments. The legislation placed the bank deposit tax on the same
calendar basis as the other business taxes.
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ESTATE TAX. For decedents who died before January 1, 1986, a tax was
assessed on each decedent's estate at rates ranging from 2.0 percent to 9.0
percent of the net estate depending on its value. The exemption for all estates
is $25,000, and the marital deduction is $175,000. An orphan's deduction is
allowed similar to the deduction allowed under federal law.
Current law, established under the provisions of the 1991
Appropriations Act, provides for the phasing out of the estate tax, with the
minimum tax set equal to the maximum credit allowable under federal estate tax
law. Rates are equal to 40 percent of the tax otherwise payable for estates of
decedents whose deaths occurred on or after January 1, 1992, the estate tax
equaled the maximum credit allowable under federal estate tax law, providing for
the full implementation of the phase out. The time period for filing a return
was reduced from ten to nine months under this legislation.
CIGARETTE TAX. Article 17 of the 1990 Appropriations Act established
rates equal to 18.5 mills per cigarette (37 cents per package of 20) effective
on June 29, 1989. The fiscal year 1994 Budget increased the rate from 18.5 mills
per cigarette to 22.0 mills per cigarette (from 37 cents to 44 cents per package
of 20 cigarettes) and to 56 cents per pack, effective July 1, 1994. The fiscal
year 1996 Appropriations Act increased the tax by five cents to 61 cents to 71
cents per pack effective July 1, 1995. Article 12 of the fiscal year 1998
Appropriations Act raised the tax by 10 cents to 71 cents per pack effective
July 1, 1997.
GASOLINE TAX. The tax is not refundable on the sale of all fuels used
or suitable for operating internal combustion engines other than fuel used: (a)
for commercial fishing and other marine purposes other than operating pleasure
craft; (b) in engines, tractors, or motor vehicles not registered for the use or
used on public highways by lumbermen, water well drillers and farmers; (c) for
the operation of airplanes; (d) by manufacturers who use diesel engine fuel for
the manufacture of power and who use fuels other than gasoline and diesel engine
fuel as industrial raw material; and (e) for municipalities and sewer
commissions using fuel in the operation of vehicles not registered for use on
public highways.
Chapter 6 of the 1991 Rhode Island Public Laws modified the gasoline
tax floor from 18 cents per gallon to 23 cents per gallon, effective upon
passage. In addition, the minimum tax under the gasoline excise component was
changed from two to three cents per gallon for a total gasoline tax floor of 26
cents per gallon upon passage of the Act.
The fiscal year 1993 Budget increased the dedicated portion of gas tax
receipts to the Highway Reconstruction and Repair account from five cents to
seven cents and from zero to three cents to the Rhode Island Public Transit
Authority (RIPTA). The 1994 Appropriations Act raised the gasoline tax of 28
cents per gallon, an increase of 2 cents. One cent continues to be deposited as
general revenue. The remaining 27 cents are deposited in the Intermodal Surface
Transportation Fund (ISTF). ISTF funds were distributed to RIPTA (3 cents),
Elderly and Handicapped Transportation (1 cent), and the General Revenue Fund
(10 cents), with the remainder used to finance the Department of Transportation
(13 cents). The fiscal year 1996 Appropriations Act decreased the portion of the
tax deposited in General Revenue by one cent (to 9 cents), and reallocated that
portion to the Department of Transportation. The fiscal year 1998 Appropriations
Act again modified the distribution of ISTF receipts. The share of the gasoline
tax transferred to the general fund decreased by 2 cents (to 7 cents), thereby
increasing the Department of Transportation share by 1.5 cents (to 17.5 cents),
and RIPTA by one cent (to 4 cents).
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
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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, which was intended to be a one year fee that 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 percent, yielding $37.5 million. The fiscal year 1998
Appropriations Act also extended the fee for an additional year and imposed a
rate of 2.0 percent, which yielded $37.4 million. The fiscal year 1999
Appropriations Act again extends the fee for one year, at the current rate of
2.0 percent of gross patient receipts.
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 1997, the State received a total of
$90.1 million in restricted receipts excluding transfers into the General Fund.
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.
Lottery transfers to the general fund totaled $100.0 million in fiscal
year 1997.
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 $37.7 million in fiscal year 1997.
The Unclaimed Property Transfer reflects funds which have escheated to
the State. Unclaimed property transfers totaled $5.0 million in fiscal year
1997.
Other Miscellaneous Sources in fiscal year 1997 totaled $40.8 million.
This includes $15.8 million from DEPCO, $5.5 million from the Underground
Storage Tank Fund, $4.5 million of interest earnings, and $5.0 million of health
insurance settlements. In fiscal year 1998 and fiscal year 1999, $35.3 million
and $35.2 million are estimated.
FEDERAL RECEIPTS. In fiscal year 1997, the State collected receipts of
$922.4 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
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ranging from a 50 percent 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 53.4 percent as of
October 1, 1997. Effective in fiscal year 1997, TANF funds are block grants;
state eligibility is conditional on maintenance of effort expenditure floors.
REVENUE ESTIMATES
Revenue estimates are predicated upon the November Revenue Estimating
conference, as well as changes to general revenues reflected in the fiscal year
1998 budget plan adopted by the Legislature on April 2, 1998 and included in the
fiscal year 1999 budget recommended by the Governor. The Consensus Revenue
Estimating Conference is required by legislation to convene at least twice
annually to forecast general revenues for the current year and the budget year,
based upon current law and collection trends, as well as the economic forecast.
FISCAL YEAR 1998 REVENUE ESTIMATE
The fiscal year 1998 estimate is revised upward by $60.9 million over
the enacted level and $0.8 million over the revised estimate adopted by the
November Revenue Estimating Conference. This is a revision of 3.3 percent to the
acted estimate and 0.4 percent over the November estimate. The estimate includes
adjustments adopted by the Revenue Estimating Conference changes included in the
fiscal year 1998 budget plan adopted by the Legislature for 1998 and the fiscal
year 1999 the changes proposed by the Governor in his budget submitted in
February 1998.
The largest revision was $41.0 million in personal income taxes over
the enacted estimate. The revisions to the enacted estimate were: $11.9 million
increase in estimated payments, $8.0 million in final payments, $3.3 million
decrease in refunds, and a $17.8 million increase in withholding payments. The
Conference adopted estimated payments of $141.5 million, growth of 8.0 percent
over fiscal year 1997, reflecting market activity. The 9.7 percent increase in
final payments appears to also reflect that activity. Refunds are estimated at
4.7 percent.
Total general business taxes estimates were $3.5 million greater than
the enacted estimate with gains in Corporate Income Tax ($2.5 million), Public
Utilities Gross Earnings Taxes ($1.6 million), taxes on insurance companies
($1.0 million), bank deposit taxes ($0.1 million), and health care providers
taxes ($0.1 million), which were only marginally offset by a reduction in the
financial institutions tax estimate ($1.8 million).
Estimated sales tax revenues of $516.0 million reflects 5.5 percent
growth over fiscal year 1997 receipts. The estimate is $12.5 million over the
enacted estimate. Other major changes in the Sales and Use Tax category include
increases in Motor Vehicle Taxes ($2.2 million) and Cigarettes ($4.1 million).
Other adjustments include: an increase of $0.8 million in inheritance
taxes; an upward revision of $6.8 million for departmental earnings; and a
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$4.0 million decrease to lottery revenues. The lottery estimate change includes
a $2.8 million decrease to the video lottery terminal estimate, a decrease of
$1.8 million to the enacted estimate for games, and a $0.6 million increase to
the KENO estimate.
The Governor recommends the inclusion of $720,000 in the fiscal year
1998 budget for receivables collected by an agency under contract with the
State.
The Legislature recommends additional revenues of $45,240 for the sale
of voting machines, as well as the transfer of $13,126 in from restricted
receipts which will not be expended for telemarketing purposes by the Office of
the Attorney General.
FISCAL YEAR 1999 REVENUE ESTIMATE
The largest source of fiscal year 1999 general revenue is the personal
income tax, with estimated receipts of $697.9 million composing 36.2 percent of
the total. While collections in this component have been reduced significantly
by 1997 tax law changes, healthy growth of 3.2 percent is still anticipated.
Adjusted for these changes, fiscal year 1999 growth equals 6.2 percent.
Sales Tax collections are expected to total $532.0 million in fiscal
year 1999. The fiscal year 1999 estimate anticipates 3.1 percent annual growth,
and composes 27.6 percent of total general revenues.
Other sources of "Sales and Use" taxes are expected to vary slightly in
the budget year. The Motor Fuel Tax is expected to realize a 1.7 percent gain,
bringing collections to $5.5 million. Cigarette Tax collections are expected to
realize a loss of $.9 million, or negative 1.4 percent, for an annual total of
$64.4 million. Motor Vehicle and Alcohol Tax collections are expected to remain
at fiscal year 1998 levels.
The General Business Taxes, which represent 10.5 percent of total
collections, are expected to decline slightly in the budget year. The Business
Corporations Tax is expected to decline by approximately 2.0 percent as a result
of tax cuts, for a total of $64.6 million in revenues. The Franchise and Bank
Deposits Taxes are expected to remain flat in fiscal year 1999, while the Public
Utilities Gross Earnings Tax revenues are expected to decrease by 1.9 percent,
with total collections of $63.0 million. The Financial Institutions account
should rebound in fiscal year 1999, with total revenues reaching $12.0 million,
or growth of 9.1 percent. The Health Care Provider Assessment is expected to
increase by 3.0 percent to $24.4 million, keeping in line with forecast
inflation.
Inheritance and Gift Taxes are expected to decline by $1.7 million,
(negative 14.0 percent) in fiscal year 1999. The anticipated loss is
attributable to the Taxpayer Relief Act provisions which will alter the taxable
estate criteria beginning January 1, 1998, and which will likely have the
greatest incremental effect in fiscal year 1999, due to tax return filing
requirements.
The Hospital Licensing Fee enacted by the 1997 General Assembly expires
on June 30, 1998. The Governor recommends that the fee be reinstated at the
current rate of 2.0 percent of gross receipts, and the amount of $37.4 million
be included in fiscal year 1999 General Revenues.
Other recommended changes to Departmental Receipts include revenues for
outstanding fines and penalties recovered by a collection agency ($.3 million),
as well as a $.4
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million adjustment for anticipated growth in Mental Health and Retardation
Hospital Disproportionate Share revenues for uncompensated care.
A reduction in "Other Sources" is explained by a smaller portion of the
Gas Tax being transferred to General Revenue, as well as significant reductions
in "Other Miscellaneous Revenues". Legislation in 1997 reduced the gasoline tax
transfer to the general fund by the value of one cent of the total gasoline tax
collection, and allocated the amount to the Department of Transportation for
fiscal year 1999. The Governor recommends that during fiscal year 1999, the
value of one and one-half cent be dedicated to the Department of Transportation,
and that an additional one-cent be dedicated to the Rhode Island Public Transit
Authority, rather than the General Fund.
Other recommendations include the transfer of $15.0 million in funds
which represent a portion of the excess between monies collected and paid to
DEPCO for debt service and those required for actual debt service payments in
fiscal year 1999, as well as a transfer from the Resource Recovery Fund in the
amount of $4.0 million.
FISCAL YEAR 1999 APPROPRIATIONS ACT
The General Assembly is considering the Governor's proposed budget
which increases general revenues by $50.5 million for total general revenues of
$1.928.0 billion in fiscal year 1999. The largest component of the proposed
increase occurs in the hospital licensing fee which would be extended for one
year at a rate of 2.0 percent and would generate $37.4 million.
The budget also includes legislation which would allow the state to
partially recover the difference between sales taxes dedicated and paid to DEPCO
ad the actual amounts required by DEPCO to meet its debt service requirements.
Based upon the November estimate for fiscal year 1998 sales tax collections,
recovery of the full excess would yield $32.0 million. This amount has been
limited to a transfer of $15 million to the General Fund, and a reservation of
$17.0 million for a property tax relief program commencing in fiscal year 2000.
In fiscal year 2000 through 2003, all DEPCO excess sales tax would be dedicated
to fund property tax relief.
Other enhancements are proposals to dedicate additional gas revenues of
$6.6 million for transportation improvement programs.
EXPENDITURES
Expenditures for fiscal year 1998 reflect General Fund appropriations
which were enacted on June 25, 1997, as modified by the Supplemental
Appropriations Bill passed by the Legislature on April 7, 1998. Expenditures for
fiscal year 1999 reflect those proposed by the Governor in his budget submitted
on February 12, 1998. General Revenues for fiscal year 1998 and fiscal year 1999
are predicated upon consensus estimates of the Revenue Estimating Conference of
November 1997, adjusted by non-statutory revenues changes of .8 million as
reflected in the fiscal year 1998 Supplemental Budget as passed by the
Legislature on April 7, 1998.
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,
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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 30, 1997, the State had $775.2 million of
bonds outstanding and $312,847,926 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 30, 1997, these entities had bonds outstanding
of $54,973,749 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 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.
LITIGATION
The State, its officers and employees are defendants in numerous
lawsuits. With respect to any such litigation, State officials are of the
opinion that the lawsuits are not likely to result either individually or in the
aggregate in final judgments against the State which would materially affect its
financial position.
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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 IBCA, Inc. ("Fitch IBCA") 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 IBCA, INC.'S
FOUR HIGHEST INTERNATIONAL LONG-TERM CREDIT RATINGS
When assigning ratings, Fitch IBCA considers the historical and
prospective financial condition, quality of management, and the operating
performance of the issuer and of any guarantor, any special features of a
specific issue or guarantee, the issue's relationship to other obligations of
the issuer, as well as developments in the economic and political environment
that might affect the issuer's financial strength and credit quality.
Variable rate demand obligations and other securities which contain a
demand feature will have a dual rating, such as 'AAA/F1+'. The first rating
denotes long-term ability to make principal and interest payments. The second
rating denotes ability to meet a demand feature in full and on time.
AAA Highest credit quality. 'AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA Very high credit quality. 'AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. 'A' ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings. BBB Good credit
quality. 'BBB' ratings indicate that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered
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adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this capacity. This is the lowest investment-grade
category.
"+" or "-" may be appended to a rating to denote relative status within
major rating categories. Such suffixes are not added to the 'AAA' long-term
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.
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
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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 IBCA, INC.'S
TWO HIGHEST INTERNATIONAL SHORT-TERM CREDIT RATINGS
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher 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.
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.
<PAGE>
-5-
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.
<PAGE>
APPENDIX C
TAXABLE EQUIVALENT YIELDS
- --------------------------------------------------------------------------------
These tables show the yield investors need to achieve from a taxable investment
to equal the yield from a tax-exempt investment. These tables do not predict the
yield of any Fund. 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 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%
- ------------ ------------ ------- -------- -------- -------- ------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-24,000 $0-40,100 15.00% 4.71% 5.29% 5.88% 6.47% 7.06%` 7.65% 8.24% 8.82% 9.41%
24,001-58,150 40,101-96,900 28.00% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42% 11.11%
58,151-121,300 96,901-147,700 31.00% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87% 11.59%
121,301-263,750 147,701-263,750 36.00% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94% 11.72% 12.50%
over 263,750 over 263,750 39.60% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59% 12.42% 13.25%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
CONNECTICUT
Equivalent yields: Tax-exempt versus taxable securities
<TABLE>
<CAPTION>
1997
Combined
Taxable Income* Connecticut A Connecticut Tax-Exempt Income Fund Yield of:
- -------------------------------- State Federal and Federal ----------------------------------------------------------------
Single Joint Rate** Rate Tax Bracket*** 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%
- --------------- --------------- ------ ------- ----------- ----- ------ ------ ----- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-6,250 $0-12,500 3.00% 15.00% 17.55% 4.85% 5.46% 6.06% 6.67% 7.28% 7.88% 8.49% 9.10% 9.70%
6,251-24,650 12,501-41,200 4.50% 15.00% 18.83% 4.93% 5.54% 6.16% 6.78% 7.39% 8.01% 8.62% 9.24% 9.86%
24,651-59,750 41,201-99,600 4.50% 28.00% 31.24% 5.82% 6.54% 7.27% 8.00% 8.73% 9.45% 10.18% 10.91% 11.63%
59,751-124,650 99,601-151,750 4.50% 31.00% 34.11% 6.07% 6.83% 7.59% 8.35% 9.11% 9.86% 10.62% 11.38% 12.14%
124,651-271,050 151,751-271,050 4.50% 36.00% 38.88% 6.54% 7.36% 8.18% 9.00% 9.82% 10.63% 11.45% 12.27% 13.09%
over 271,050 over 271,050 4.50% 39.60% 42.32% 6.93% 7.80% 8.67% 9.54%10.40% 11.27% 12.14% 13.00% 13.87%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Connecticut Personal Income Tax law, however,
Connecticut taxable income may differ due to differences in exemptions,
itemized deductions and other items.
** The Connecticut credits have not been included in the calculation of the
state rates. A credit between 1% and 75% is automatically allowed for
single taxpayers with a CT adjusted gross income ranging from $12,000 to
$52,500. A credit between 1% and 75% is automatically allowed for married
filing joint taxpayers with CT adjusted gross income ranging from $24,000
to $100,500.
*** For federal tax purposes, these combined rates reflect the applicable
marginal rates for 1997, including indexing for inflation. These rates
include the effect of deducting state taxes on your Federal return.
- --------------------------------------------------------------------------------
<PAGE>
-2-
FLORIDA
Equivalent yields: Tax-exempt versus taxable securities
<TABLE>
<CAPTION>
1997
Combined
Taxable Income* Florida A Tax-Exempt Income Fund Yield of:
- -------------------------------- and Federal -------------------------------------------------------------
Single Joint Tax Bracket** 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- --------------- --------------- ------------- -------- -------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-24,000 $0-40,100 15.00% 4.71% 5.29% 5.88% 6.47% 7.06%` 7.65% 8.24%
24,001-58,150 40,101-96,900 28.00% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
58,151-121,300 96,901-147,700 31.00% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
121,301-263,750 147,701-263,750 36.00% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
over 263,750 over 263,750 39.60% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Florida Personal Income Tax law; however,
Florida taxable income may differ due to differences in exemptions,
itemized deductions and other items.
** For federal tax purposes these combined rates reflect the applicable
marginal rates for 1997, including indexing for inflation. These rates
include the effect of deducting state taxes on your federal return.
- --------------------------------------------------------------------------------
MASSACHUSETTS
Equivalent yields: Tax-exempt versus taxable securities
<TABLE>
<CAPTION>
1997
Combined
Taxable Income* Connecticut A Massachusetts Tax-Exempt Income Fund Yield of:
- -------------------------------- State Federal and Federal ------------------------------------------------
Single Joint Rate Rate Tax Bracket** 4.0% 5.0% 6.0% 7.0% 8.0%
- --------------- --------------- ------ ------- ----------- ------ ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-24,000 $0-40,100 12.00% 15.00% 25.20% 5.35% 6.68% 8.02% 9.36% 10.70%
24,001-58,150 40,101-96,900 12.00% 28.00% 36.64% 6.31% 7.89% 9.47% 11.05% 12.63%
58,151-121,300 96,901-147,700 12.00% 31.00% 39.28% 6.59% 8.23% 9.88% 11.53% 13.18%
121,301-263,750 147,701-263,750 12.00% 36.00% 43.68% 7.10% 8.88% 10.65% 12.43% 14.20%
over 263,750 over 263,750 12.00% 39.60% 46.85% 7.53% 9.41% 11.29% 13.17% 15.05%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Massachusetts Personal Income Tax law,
however, Massachusetts taxable income may vary due to differences in
exemptions, itemized deductions and other items.
** For federal tax purposes these combined rates reflect the applicable
marginal rates for 1997, including indexing for inflation. These rates
include the effect of deducting state taxes on your Federal return.
<PAGE>
-3-
- --------------------------------------------------------------------------------
RHODE ISLAND
Equivalent yields: Tax-exempt versus taxable securities
<TABLE>
<CAPTION>
1997
Combined
Taxable Income* Rhode Island A Rhode Island Tax-Exempt Income Fund Yield of:
- -------------------------------- State Federal and Federal ----------------------------------------------------------------
Single Joint Rate Rate Tax Bracket** 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%
- --------------- --------------- ------ ------- ----------- ----- ------ ------ ----- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-24,000 $0-40,100 4.13% 15.00% 18.51% 4.91% 5.52% 6.14% 6.75% 7.36% 7.98% 8.59% 9.20% 9.82%
24,001-58,150 40,101-96,900 7.70% 28.00% 33.54% 6.02% 6.77% 7.52% 8.28% 9.03% 9.78% 10.53% 11.29% 12.04%
58,151-121,300 96,901-147,700 8.53% 31.00% 36.88% 6.34% 7.13% 7.92% 8.71% 9.51% 10.30% 11.09% 11.88% 12.67%
121,301-263,750 147,701-263,750 9.90% 36.00% 42.34% 6.94% 7.80% 8.67% 9.54% 10.41% 11.27% 12.14% 13.01% 13.87%
over 263,750 over 263,750 10.89% 39.60% 46.18% 7.43% 8.36% 9.29% 10.22% 11.15% 12.08% 13.01% 13.93% 14.86%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income defined in the Internal Revenue
Code is the same as under the Rhode Island Personal Income Tax law,
however, Rhode Island taxable income may differ due to differences in
exemptions, itemized deductions, and other items.
** For federal tax purposes, these combined rates reflect the applicable
marginal rates for 1997, including indexing for inflation. These rates
include the effect of deducting state taxes on your Federal return.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT ADVISERS BOSTON 1784 FUNDS[SERVICE 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 INTERNATIONAL EQUITY FUND
SEI Fund Resources
1 Freedom Valley Drive
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. ________________, 1998
100 Federal Street
Boston, Massachusetts 02110
- ----------------------------------------------------
</TABLE>
Boston 1784 Funds[SERVICE 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.
<PAGE>
-2-
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.
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
(1)(a) Declaration of Trust of the Registrant.(1)
(1)(b) Certificate of Amendment to Agreement and Declaration of
Trust.(11)
(2) By-Laws of the Registrant.(2)
(4)(a) Investment Advisory Agreement between the Registrant and
BankBoston, N.A.(3)(6)
(4)(b) Form of Investment Advisory Agreement between the
Registrant and BankBoston, N.A. with Schedule reflecting
advisory fees to be paid by the Registrant on behalf
of Boston 1784 Prime Money Market Fund.(8)
(4)(c) Investment Advisory Agreement between the Registrant and
BankBoston, N.A. with respect to Boston 1784
International Equity Fund.(5)
(4)(d) Investment Advisory Agreement between the Registrant and
Kleinwort Benson Investment Management Americas Inc. with
respect to Boston 1784 International Equity Fund.(5)
(4)(e) Form of Investment Advisory Agreement between the
Registrant and BankBoston, N.A. with Schedule reflecting
advisory fees to be paid by the Registrant on behalf of
Boston 1784 Small Cap Equity Fund.(9)
(4)(f) Form of Investment Advisory Agreement between the
Registrant and BankBoston, N.A. with Schedule reflecting
advisory fees to be paid by the Registrant on behalf of
Boston 1784 Large Cap Equity Fund.(10)
(5) Amended and Restated Distribution Agreement between the
Registrant and SEI Financial Services Company.(6)
(7) Custodian Agreement.(3)
(8)(a) Administration Agreement between the Registrant and SEI
Financial Management Corporation.(3)
(8)(b) Transfer Agency and Service Agreement between the
Registrant and State Street Bank and Trust Company.(7)
(8)(c) Fund Accounting Agreement between the Registrant and
BankBoston, N.A.(3)
(10)(a) Consent of Coopers & Lybrand L.L.P.
<PAGE>
(10)(b) Consent of Ernst & Young LLP.
(13)(a) Amended and Restated Distribution Plan of the
Registrant.(6)
(13)(b) Distribution Plan (Class C Shares of Boston 1784 U.S.
Treasury Money Market Fund) of the Registrant.(6)
(13)(c) Distribution Plan (Class D Shares of Boston 1784 U.S.
Treasury Money Market Fund) of the Registrant.(6)
(14) Financial Data Schedule.
(19)(a) Code of Ethics of the Registrant.(8)
(19)(b) Code of Ethics of BankBoston, N.A.
(25)(a) Powers of Attorney of Trustees of Registrant.(4)
(25)(b) Powers of Attorney of Trustees of Registrant.(11)
- -------------------------------
(1) Incorporated by reference to Registrant's Statement on
Form N1-A filed with the SEC on February 8, 1993.
(2) Incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 filed with the SEC on May 18, 1993.
(3) Incorporated by reference to Registrant's Post-Effective
Amendment No. 2 filed with the SEC on January 31, 1994.
(4) Incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 filed with the SEC on May 18, 1993 (on
signature page).
(5) Incorporated by reference to Registrant's Post-Effective
Amendment No. 5 filed with the SEC on September 28, 1994.
(6) Incorporated by reference to Registrant's Post-Effective
Amendment No. 8 filed with the SEC on November 1, 1995.
(7) Incorporated by reference to Registrant's Post-Effective
Amendment No. 9 filed with the SEC on December 15, 1995.
(8) Incorporated by reference to Registrant's Post-Effective
Amendment No. 10 filed with the SEC on July 17, 1996.
(9) Incorporated by reference to Registrant's Post-Effective
Amendment No. 13 filed with the SEC on November 15, 1996.
(10) Incorporated by reference to Registrant's Post-Effective
Amendment No. 14 filed with the SEC on March 17, 1997.
(11) Incorporated by reference to Registrant's Post-Effective
Amendment No. 16 filed with the SEC on August 1, 1997.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
<PAGE>
ITEM 25. INDEMNIFICATION
Reference is hereby made to Article VIII of the Agreement and
Declaration of Trust, filed as an Exhibit to Registrant's Statement on
Form N-1A with the Securities and Exchange Commission on February 8,
1993. The Trust participates in a group liability policy under which
the Trust and its trustees, officers and affiliated persons are insured
against certain liabilities. The Trust and its officers and employees
are also insured under the fidelity bond required by Rule 17g-1 under
the Investment Company Act of 1940, as amended.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
BankBoston, N.A. ("BankBoston") and its affiliates offer a
wide variety of banking and other financial services to customers
throughout New England, the United States and internationally. As of
___________, 1998, BankBoston and its affiliates had aggregate gross
interest and non-interest income of $_________ billion year to date,
net income of $_____ million and assets of approximately $_______
billion, including customer deposits of $______ billion. BankBoston's
principal place of business is 100 Federal Street, Boston,
Massachusetts 02110.
Other business, profession, vocation, or employment of a
substantial nature in which each director or principal officer of
BankBoston is or has been, at any time during the last two fiscal
years, engaged for his or her own account or in the capacity of
director, officer, employee, partner or trustee are as follows (each
Director of BankBoston is also a director of BankBoston Corporation):
Name and Position Connection with and
with Investment Adviser Name of Other Company
- ----------------------- ---------------------
Wayne A. Budd, Group President, Bell Atlantic, 185 Franklin
Director Street, Boston, MA 02107, since 1996. Senior
Partner, Goodwin, Procter & Hoar, from 1993
to 1996, United States Attorney, District of
Massachusetts from 1989 to 1992; Associate
Attorney General of the United States from
1992 to 1993.
William F. Connell, Chairman and Chief Executive Officer of Connell
Director Limited Partnership, One International Place,
Boston, MA 02109, since 1987. Director of
Harcourt General, Inc. and LCI International, Inc.
Gary L. Countryman, Chairman and Chief Executive Officer of Liberty
Director Mutual Insurance Company, 175 Berkeley Street,
Boston, MA 02117. Chairman of Liberty
Mutual Insurance Company since 1991;
Director of Boston Edison Company, The
Neiman-Marcus Group, Inc.,
Alliance of American Insurers,
and Harcourt General, Inc.
<PAGE>
William M. Crozier, Jr., Chairman Emeritus, BankBoston Corporation, 100
Chairman Emeritus Federal Street, Boston, MA 02110, Chairman of the
BankBoston Corporation Board and Chief Executive Officer of BayBanks from
1974 to July, 1996.
Alice F. Emerson, Senior Fellow, The Andrew W. Mellon Foundation,
Director 140 East 62nd Street, New York, NY 10021, since
1991. President Emerita of Wheaton College;
President of Wheaton College from 1975 to 1991;
Director of Eastman Kodak Company, Champion
International Corporation and AES Corporation.
Charles K. Gifford, Chairman and Chief Executive Officer of BankBoston
Chief Executive Officer of Corporation and of BankBoston since July 1995;
BankBoston Corporation, President of BankBoston and BankBoston Corporation
100 Federal Street, since 1989; Director of Massachusetts Mutual Life
Boston, MA 02110 Insurance Company and Boston Edison Company.
Thomas J. May, Chairman, President and Chief Executive Officer of
Director Boston Edison Company, 800 Boylston Street,
Boston, MA 02199, since July, 1994.
President and Chief Operating Officer of Boston
Edison Company from 1993 to July, 1994; Director
of Liberty Mutual Life Insurance Company and
RCN Corporation.
Donald F. McHenry, University Research Professor of Diplomacy and
Director International Relations, Georgetown University,
School of Foreign Service, Washington, D.C. 20057,
since 1981. President of the IRC Group, 1320 19th
Street, N.W., Suite 410, Washington, D.C. 20036,
since 1983; Director of American Telephone and
Telegraph Company, Coca-Cola Company,
International Paper Company, and
SmithKline Beecham, plc.
Henrique de Campos Meirelles, President and Chief Operating Officer,
President and Chief BankBoston, N.A., 100 Federal Street,
Operating Officer Boston, MA 02110; Director of Best Foods, Inc.
BankBoston, and MasterCard International.
100 Federal Street,
Boston, MA 02110
<PAGE>
Paul C. O'Brien, President of The O'Brien Group, Inc., Two
Director International Place, Boston, MA 02110 since 1995.
President and Chief Executive Officer of New
England Telephone and Telegraph Company from 1988
to 1993 and Chairman of the Board from 1993 to
December 1994. Chairman of the Board of ViewTech,
Inc. since January 1997, Director of Cambridge
NeuroScience, Inc, First Pacific Networks Inc.,
Shiva Corporation, The Registry, Inc., and
ViewTech, Inc.
Thomas R. Piper, Lawrence E. Fouraker Professor of Business
Director Administration, Harvard University Graduate School
of Business Administration, Morgan Hall -
469 Soldier's Field Road, Boston, MA 02163
Fran S. Rodgers, Chief Executive Officer of WFD, Inc. (Formerly
Director Work/Family Directions) 930 Commonwealth Avenue,
Boston, MA 02215; Founder and Chief Executive
Officer of Work/Family Directions since 1983;
Trustee of Barnard College of Columbia University,
and Trustee of the Foundation of the National
Academy of Human Resources.
John W. Rowe, Chairman, President and Chief Executive Officer of
Director Unicom Corp., 25 Research Drive, Westborough,
MA 01582, since 1998; President and Chief
Executive Officer of New England Electric System
from 1989 to February 1998. Director of New
England Electric System and UNUM Corporation.
Glenn P. Strehle, Vice President for Finance and Treasurer,
Director Massachusetts Institute of Technology, Building 4
- Room 110, 77 Massachusetts Avenue,
Cambridge, MA 02139, since 1975 Vice President
since 1986 and Vice President for Finance
and Treasurer since 1994; Director of BayBanks
from 1979 to July, 1996. Director, Liberty Mutual
Insurance Company and Property Capital Trust.
William C. Van Faasen, President and Chief Executive Officer of Blue
Director Cross and Blue Shield of Massachusetts, Inc.,
100 Summer Street, Boston, Massachusetts 02110.
Executive Vice President and Chief Operating
Officer of Blue Cross and Blue Shield of
Massachusetts, Inc. from 1990 to 1992 and
President and Chief Executive Officer of
Blue Cross andBlue Shield of Massachusetts, Inc.
since 1992.
<PAGE>
Thomas B. Wheeler, Chairman and Chief Executive Officer of
Director Massachusetts Mutual Life Insurance Company,
1295 State Street, Springfield, MA 01111.
President of Massachusetts Mutual Life Insurance
Company from 1987 to March, 1996 and Chief
Executive Officer since 1988 and Chairman since
March, 1996; Director of Massachusetts Mutual Life
Insurance Company and Textron Inc.
Alfred M. Zeien, Chairman of the Board and Chief Executive Officer
Director of The Gillette Company, Prudential Tower
Building, Boston, MA 02199, since 1991. Director
of Polaroid Corporation, Raytheon Company and
Massachusetts Mutual Life Insurance Company.
Kleinwort Benson Investment Management Americas Inc.
("Kleinwort") is the U.S. registered investment management subsidiary
of the London based Kleinwort Benson Group plc, a holding company for a
merchant banking group whose origins date back to 1792, which in turn
is an indirect wholly-owned subsidiary of Dresdner Bank A.G. Kleinwort
has offices in New York, London, Hong Kong and Tokyo. As of May 31,
1998, Kleinwort had approximately $795 million of assets under
management. Kleinwort's principal place of business is 75 Wall Street,
New York, New York 10005.
Other business, profession, vocation, or employment of a
substantial nature in which each director or principal officer of
Kleinwort Benson is or has been, at any time during the last two fiscal
years, engaged for his or her own account or in the capacity of
director, officer, employee, partner or trustee are as follows:
Name and Position Connection with and
with Investment Adviser Name of Other Company
- ----------------------- ---------------------
Gerhard Eberstadt, Member of the Board of Managing Directors,
Chairman Dresdner Bank AG ("Dresdner")
Michael J. Apatoff, President and Member of the Board of
Director and Chief Executive Managers, Dresdner RCM Global Investors LLC
Officer ("Dresdner RCM")
Eamonn F. Dolan, Principal, Dresdner RCM
Director
George N. Fugelsang, President, Chief Executive Officer and Member
Director of the Board of Managers, Dresdner Kleinwort
Benson North America LLC
Joachim Madler, Member of the Board of Managing Directors,
Director Dresdner Bank
William L. Price, Chief Investment Officer and Member of the
Director Board of Managers, Dresdner RCM
<PAGE>
Jeffrey S. Rudsten, Principal and Member of the Board of
Director Managers, Dresdner RCM
Kenneth B. Weeman, Jr., Chief Operating Officer and Member of the
Director Board of Managers, Dresdner RCM
ITEM 27. PRINCIPAL UNDERWRITERS
(a) The Registrant's distributor, SEI Investments Distribution Co. (the
"Distributor"), acts as distributor for SEI Daily Income Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI
Institutional Managed Trust, SEI International Trust, Stepstone Funds,
The Advisors' Inner Circle Fund, The Pillar Funds, CUFund, STI Classic
Funds, CoreFunds, Inc., First American Funds, Inc., First American
Investment Funds, Inc., The Arbor Fund, Boston 1784 Funds(R), Marquis
Funds(R), Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The
Achievement Funds Trust, Bishop Street Funds, CrestFunds, Inc., STI
Classic Variable Trust, ARK Funds, Monitor Funds, FMB Funds, Inc., SEI
Asset Allocation Trust, TIP Funds, SEI Institutional Investments Trust,
First American Strategy Funds, Inc., Highmark Funds, Armada Funds,
Expedition Funds, and Oak Associate Funds pursuant to distribution
agreements dated July 15, 1982, November 29, 1982, December 3, 1982,
July 10, 1985, January 22, 1987, August 30, 1988, January 30, 1991,
November 14, 1991, February 28, 1992, May 1, 1992, May 29, 1992,
October 30, 1992, November 1, 1992, November 1, 1992, January 28, 1993,
June 1, 1993, August 17, 1993, January 3, 1994, July 16, 1993, December
27, 1994, January 27, 1995, March 1, 1995, August 18, 1995, November 1,
1995, January 11, 1996, March 1, 1996, April 1, 1996, April 28, 1996,
June 14, 1996, October 1, 1996, February 18, 1997, March 8, 1997, June
9, 1997, and February 27, 1998 respectively.
The Distributor provides numerous financial services to
investment managers, pension plan sponsors, and bank trust departments.
These services include fund evaluation, performance measurement, and
consulting services ("Funds Evaluation") and automated execution,
clearing and settlement of securities transactions ("MarketLink").
(b) The following are the directors and officers of the Distributor.
Unless otherwise noted, the business address of each director or
officer is 1 Freedom Valley Drive, Oaks, Pennsylvania 19456.
<PAGE>
Position and Positions and
Name Offices with Underwriter Offices with Trust
---- ------------------------ ------------------
Alfred P. West, Jr. Director, Chairman and Chief --
Executive Officer
Henry H. Greer Director, President & Chief --
Operating Officer
Carmen V. Romeo Director, Executive Vice --
President
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
Jack May Senior Vice President
A. Keith McDowell Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Patrick K. Walsh Senior Vice President --
Kevin P. Robins Senior Vice President, General Vice President &
Counsel & Secretary Assistant Secretary
Kathryn L. Stanton Vice President & Assistant Vice President &
Secretary Assistant Secretary
Robert Crudup Vice President & Managing --
Director
Victor Galef Vice President & Managing --
Director
Kim Kirk Vice President & Managing --
Director
Carolyn McLaurin Vice President & Managing --
Director
<PAGE>
John Krzeminski Vice President & Managing --
Director
Donald Pepin Vice President & Managing --
Director
Mark Samuels Vice President & Managing --
Director
Wayne M. Withrow Vice President & Managing --
Director
Mick Duncan Vice President & Team Leader --
Cynthia M. Parrish Vice President & Assistant --
Secretary
Sandra K. Orlow Vice President Vice President &
Assistant Secretary
Robert Aller Vice President --
Marc H. Cahn Vice President & Assistant Vice President &
Secretary Assistant Secretary
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Vice President &
Secretary Assistant Secretary
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Kathy Heilig Vice President & Treasurer --
Michael Kantor Vice President --
Samuel King Vice President --
Jack May Senior Vice President --
W. Kelso Morrill Vice President --
Joanne Nelson Vice President --
Larry Pokora Vice President --
Kim Rainey Vice President --
Steve Smith Vice President --
Daniel Spaventa Vice President --
<PAGE>
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
BankBoston, N.A. (custodian and investment adviser)
100 Federal Street
Boston, Massachusetts 02110
and
150 Royall Street,
Canton, Massachusetts 02021
Kleinwort Benson Investment Management Americas Inc. (investment adviser)
75 Wall Street
New York, New York 10005
and
10 Fenchurch Street
London, England EC3M 3HB
SEI Fund Resources (administrator and fund accountant)
1 Freedom Valley Drive
Oaks, Pennsylvania 19456
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
NOTICE
A copy of the Agreement and Declaration of Trust for the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts and notice
is hereby given that this Registration Statement has been executed on behalf of
the Trust by an officer of the Trust as an officer and by its Trustees as
trustees and not individually and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers, or
Shareholders individually but are binding only upon the assets and property of
the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Oaks,
Commonwealth of Pennsylvania on the 22nd day of June, 1998.
BOSTON 1784 FUNDS[registered mark]
By: /s/ Robert A. Nesher
Robert A. Nesher
President
Pursuant to the requirements of the Securities Act, this registration statement
has been signed below by the following persons in the capacities and on the
date(s) indicated.
/s/ Robert A. Nesher Trustee, President & Chief June 22, 1998
- -------------------
Robert A. Nesher Executive Officer
/s/ Stephen G. Meyer Controller June 22, 1998
- --------------------
Stephen G. Meyer
* Trustee June 22, 1998
- ---------------
David H. Carter
* Trustee June 22, 1998
- ---------------
Tarrant Cutler
* Trustee June 22, 1998
- ----------------
Kenneth A. Froot
* Trustee June 22, 1998
- ---------------
Sara L. Johnson
* Trustee June 22, 1998
- -----------------
Kathryn F. Muncil
* Trustee June 22, 1998
- -------------
Alvin J. Silk
*By: /s/ Robert A. Nesher
- -------------------------
Robert A. Nesher
Executed by Robert A. Nesher, Attorney-in-fact on behalf of those indicated,
pursuant to Powers of Attorney previously filed.
<PAGE>
EXHIBIT INDEX
Exhibit Name
------- ----
(10)(a) Consent of Coopers & Lybrand L.L.P.
(10)(b) Consent of Ernst & Young LLP
(14) Financial Data Schedule
(19)(b) Code of Ethics of BankBoston, N.A.
Exhibit 10(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 22 to the Registration Statement under the Securities Act of 1933 and Post-
Effective Amendment No. 24 to the Registration Statement under the Securities
Act of 1940 on Form N-1A and (File Nos. 33-58004 and 811-7474, respectively) of
our report dated July 11, 1997 on our audit of the financial statements and
financial highlights of Boston 1784 Funds, which report is included in the
Annual Report to Shareholders for the year ended May 31, 1997 and for the
respective periods then ended. We also consent to the reference to our Firm
under the headings "Financial Highlights" in the Prospectus and under the
headings "Independent Accountants" and "Financial Statements" in the Statement
of Additional Information.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 17, 1998
Exhibit 10(b)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Highlights"
and to the use of our report dated February 9, 1996, with respect to the
financial statements and financial highlights of Boston 1784 Prime Money
Market Fund incorporated by reference in the Form N-1A Filing and related
Prospectus and Statement of Additional Information of Boston 1784 Funds.
/S/ SIGNATURE
Pittsburgh, Pennsylvania
June 17, 1998
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<NAME> BOSTON 1784 FUNDS
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Exhibit 19(b)
BANKBOSTON, N.A.
CODE OF ETHICS
--------------
While affirming its confidence in the integrity and good faith of all of
its employees, officers and directors, BankBoston, N.A. (the "Adviser")
recognizes that the knowledge of present or future portfolio transactions and,
in certain instances, the power to influence portfolio transactions made by or
for Boston 1784 Funds (the "Trust") which may be possessed by certain of its
personnel could place such individuals, if they engage in personal transactions
in securities which are eligible for investment by the Trust, in a position
where their personal interest may conflict with that of the Trust. References
herein to the Trust shall also be applied MUTATIS MUTANDIS to any other
registered investment company to which the Adviser may act as the investment
adviser.
In view of the foregoing and of the provisions of Rule 17j-l(b)(1) under
the Investment Company Act of 1940 (the "1940 Act"), the Adviser has determined
to adopt this Code of Ethics to specify and prohibit certain types of
transactions deemed to create conflicts of interest (or at least the potential
for or the appearance of such a conflict), and to establish reporting
requirements and enforcement procedures.
I. STATEMENT OF GENERAL PRINCIPLES.
In recognition of the trust and confidence placed in the Adviser by the
Trust and its shareholders, and to give effect to the Adviser's belief that its
operations should be directed to the benefit of the Trust's shareholders, the
Adviser hereby adopts the following general principles to guide the actions of
its employees, officers and directors:
(1) The interests of the Trust's shareholders are paramount, and all
of the Adviser's personnel must conduct themselves and their
operations to give maximum effect to this tenet by assiduously
placing the interests of the shareholders before their own.
(2) All personal transactions in securities by the Adviser's
personnel must be accomplished so as to avoid even the appearance
of a conflict of interest on the part of such personnel with the
interests of the Trust and its shareholders.
(3) All of the Adviser's personnel must avoid actions or activities
that allow (or appear to allow) a person to profit or benefit
from
<PAGE>
his or her position with respect to the Trust, or that otherwise
bring into question the person's independence or judgment.
II. DEFINITIONS.
(1) "Access Person" shall mean any director, officer, or Advisory
Person of the Adviser who, with respect to the Trust, makes any
recommendation, participates in the determination of which
recommendation shall be made, or whose principal function or
duties relate to the determination of which recommendation shall
be made by the Adviser with respect to the purchase or sale of a
security by the Trust, or who, in connection with his or her
duties, obtains any information concerning securities
recommendations being made by the Adviser to the Trust.
(2) "Advisory Person" shall mean (i) any employee of the Adviser (or
of any company in a control relationship to the Adviser) who, in
connection with his regular functions or duties, makes,
participates in, or obtains information regarding the purchase or
sale of a security by the Trust, or whose functions relate to the
making of any recommendations with respect to such purchases and
sales; and (ii) any natural person in a control relationship to
the Adviser who obtains information concerning recommendations
made to the Trust with regard to the purchase or sale of a
security.
(3) "Beneficial ownership" of a security is to be determined in the
same manner as it is for purposes of Section 16 of the Securities
Exchange Act of 1934. This means that a person should generally
consider himself the beneficial owner of any securities in which
he has a direct or indirect pecuniary interest. In addition, a
person should consider himself the beneficial owner of securities
held by his spouse, his minor children, a relative who shares his
home, or other persons by reason of any contract,
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arrangement, understanding or relationship that provides him with
sole or shared voting or investment power.
(4) "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the 1940 Act.
(5) "Investment Personnel" means all Access Persons who occupy the
position of portfolio manager (or who serve on an investment
committee that carries out the portfolio management function) with
respect to the Trust or any separately-managed series thereof (a
"Fund"), and all Access Persons who provide information or advice
to any portfolio manager (or committee), or who execute or help
execute any portfolio manager's (or committee's) decisions.
(6) "Purchase or sale of a security" includes, among other things, the
writing of an option to purchase or sell a security.
(7) "Security" shall have the same meaning as that set forth in
Section 2(a)(36) of the 1940 Act, except that it shall not include
securities issued by the Government of the United States, bankers'
acceptances, bank certificates of deposit, commercial paper,
shares of registered open-end investment companies, interests with
respect to market indexes, or the stock or obligations (or options
or other interests with respect to such stock or obligations) of
BankBoston Corporation or its subsidiaries. Notwithstanding the
foregoing, the stock and obligations (and options and other
interests with respect to such stock and obligations) of
BankBoston Corporation and its subsidiaries shall be deemed
securities for purposes of the reports required by Section VI(2)
and VI(4).
(8) A "security held or to be acquired" by the Trust (or any Fund)
means any security which, within the most recent fifteen days, (i)
is or has been held by the Trust, or (ii) is
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being or has been considered by the Adviser for purchase by the
Trust.
(9) A security is "being purchased or sold" by the Trust from the time
when a purchase or sale program has been communicated to the
person who places the buy and sell orders for the Trust until the
time when such program has been fully completed or terminated.
III. PROHIBITED PURCHASES AND SALES OF SECURITIES.
(1) No Access Person shall, in connection with the purchase or sale,
directly or indirectly, by such person of a security held or to be
acquired by any Fund:
(A) employ any device, scheme or artifice to defraud such Fund;
(B) make to such Fund any untrue statement of a material fact or
omit to state to such Fund a material fact necessary in order
to make the statements made, in light of the circumstances
under which they are made, not misleading;
(C) engage in any act, practice or course of business which would
operate as a fraud or deceit upon such Fund; or
(D) engage in any manipulative practice with respect to Fund.
(2) Subject to Section IV(2) of this Code, no Access Person shall
purchase or sell, directly or indirectly, any security in which he
had or by reason of such transaction acquires any beneficial
ownership, within 24 hours (7 days, in the case of any portfolio
manager to the Fund in question) before or after the time that the
same (or a related) security is being purchased or sold by any
Fund.
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(3) No Investment Personnel may acquire securities as part of an
initial public offering by the issuer of such class of securities.
(4) Subject to Section IV(2) of this Code, no Investment Personnel
shall sell a security within 60 days of acquiring beneficial
ownership of that (or a related) security, or purchase a security
within 60 days of selling that (or a related) security, unless, in
the case of a sale, such sale has been specifically approved by
the Adviser's designated Review Officer and results in a loss
(after taking all corporate actions into account).
(5) No Access Person may make an uncovered short sale of any security
if that (or a related) security is held by any Fund.
IV. PRE-CLEARANCE OF TRANSACTIONS.
(1) Except as provided in Section IV(2), each Access Person shall
pre-clear each proposed transaction in securities with the
Adviser's designated Review Officer prior to proceeding with the
transaction. No transaction in securities may be effected without
the prior written approval of the Review Officer and, in the case
of a proposed acquisition of securities by Investment Personnel in
a private placement, the Chief Investment Officer. In determining
whether to grant such clearance, the Review Officer and, if
applicable, the Chief Investment Officer shall consider whether
the proposed transaction appears, upon reasonable inquiry and
investigation, to present no reasonable likelihood of harm to the
Trust and is otherwise in accordance with Rule 17j-1 and the
Report of the Advisory Group on Personal Investing (Investment
Company Institute, May 9, 1994). Approvals shall be
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effective until the end of the following business day, or such
shorter or longer period as the approval shall specify.
(2) The requirements of Section IV(1) shall not apply to the following
transactions:
(A) Purchases or sales over which the Access Person has no direct or
indirect influence or control.
(B) Purchases or sales which are non-volitional on the part of
either the Access Person or any Fund, including purchases or
sales upon exercise of puts or calls written by the Access
Person and sales from a margin account pursuant to a BONA FIDE
margin call.
(C) Purchases which are part of an automatic dividend reinvestment
plan.
(D) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities,
to the extent such rights were acquired from such issuer.
V. ADDITIONAL RESTRICTIONS AND REQUIREMENTS
(1) No Access Person shall accept or receive any gift or other thing of more
than de minimis value from any person or entity that does business with
or on behalf of the Adviser or the Trust.
(2) No Investment Personnel may accept a position as a director, trustee or
general partner of a publicly-traded company (other than BankBoston
Corporation) unless such position has been presented to and approved by
the Adviser and by the Trust's Board of Trustees as consistent with the
interests of the Trust and its shareholders.
(3) Any Investment Personnel who have acquired securities in a private
placement shall disclose that investment when they play a part in any
Fund's subsequent consideration of an
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investment in the issuer, and the Fund's decision to purchase securities
of such an issuer shall be subject to an independent review of Investment
Personnel with no personal interest in the issuer.
(4) Any Access Person who realizes profits on transactions in violation of
Section III(4) of this Code shall disgorge such profits to the Trust.
VI. REPORTING OBLIGATIONS
(1) The Adviser shall create and thereafter maintain a list of all Investment
Personnel and other Access Persons.
(2) Each Access Person shall report on a quarterly basis all transactions in
securities in which the person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership.
(3) Each Access Person must direct each brokerage firm or bank at which such
person maintains a securities account to promptly send duplicate copies
of such person's statement to the Adviser.
(4) Each Access Person must provide to the Review Officer a complete listing
of all securities owned by such person as of the date he or she first
became an Access Person, and thereafter must submit a revised list of
such holdings to the Review Officer as of January 1 of each subsequent
year. The initial listing must be submitted within 20 days of the date
upon which such person first became an Access Person, and each update
thereafter must be provided no later than 20 days after the start of the
subsequent year.
VII. REPORTS
(1) Quarterly reports shall be filed with the Review Officer. The Review
Officer shall submit confidential quarterly reports with
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respect to his or her own personal securities transactions to an officer
designated to receive his or her reports ("Alternate Review Officer"),
who shall act in all respects in the manner prescribed herein for the
Review Officer.
(2) Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he has
any direct or indirect beneficial ownership in the security to which the
report relates.
(3) Every Access Person shall report the name of any publicly-owned company
(or any company anticipating a public offering of its equity securities)
and the total number of its shares beneficially owned by him.
(4) Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
(A) The date of the transaction, the title and the number of shares
or the principal amount of each security involved;
(B) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(C) The price at which the transaction was effected;
(D) The name of the broker, dealer or bank with or through whom the
transaction was effected; and
(E) The date the report was signed.
(5) In the event no reportable transactions occurred during the quarter,
the report should be so noted and returned signed and dated
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VIII. REVIEW AND ENFORCEMENT.
(1) The Review Officer shall compare all reported personal securities
transactions with completed portfolio transactions of the Trust and a
list of securities being considered for purchase or sale by the Adviser
to determine whether a violation of this Code may have occurred. Before
making any determination that a violation has been committed by any
person, the Review Officer shall give such person an opportunity to
supply additional explanatory material.
(2) If the Review Officer determines that a violation of this Code may have
occurred, he shall submit his written determination, together with the
confidential monthly report and any additional explanatory material
provided by the individual, to the Chief Investment Officer of the
Adviser, who shall make an independent determination as to whether a
violation has occurred.
(3) If the Chief Investment Officer finds that a violation has occurred,
the Chief Investment Officer shall impose upon the individual such
sanctions as he or she deems appropriate and shall report the violation
and the sanction imposed to the Board of Trustees of the Trust.
(4) No person shall participate in a determination of whether he has
committed a violation of the Code or of the imposition of any sanction
against himself. If a securities transaction of the Chief Investment
Officer is under consideration, the Executive Director, Global Treasury
and Investment Services, shall act in all respects in the manner
prescribed herein for the Chief Investment Officer.
IX. RECORDS.
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The Adviser shall maintain records in the manner and to the extent set
forth below, which records shall be available for examination by representatives
of the Securities and Exchange Commission.
(1) A copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be
preserved in an easily accessible place;
(2) A record of any violation of this Code and of any action taken
as a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
(3) A copy of each report made by an officer or trustee pursuant to
this Code shall be preserved for a period of not less than five
years from the end of the fiscal year in which it is made, the
first two years in an easily accessible place; and
(4) A list of all Persons who are, or within the past five years
have been, required to make reports pursuant to this Code shall
be maintained in an easily accessible place.
X. MISCELLANEOUS
(1) All reports of securities transactions and any other information filed
with the Trust pursuant to this Code shall be treated as confidential.
(2) The Adviser may from time to time adopt such interpretations of this
Code as it deems appropriate.
(3) The Chief Investment Officer of the Adviser shall report to the Adviser
and to the Board of Trustees of the Trust at least annually as to the
operation of this Code and shall address in
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any such report the need (if any) for further changes or modifications
to this Code.
Adopted this 6th day of July, 1995.
Amended this 4th day of March, 1998.
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