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APPENDIX A
DESCRIPTION OF RATINGS
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The following descriptions are summaries of certain published ratings.
Description of Commercial Paper Ratings
--------------------------------------------------------------------------------
The following descriptions of commercial paper ratings have been published by
Standard and Poor's Ratings Group ("S&P"), Xxxxx'x Investors Service, Inc.
("Xxxxx'x") and Fitch Investors Service, Inc. ("Fitch").
S&P's ratings are graded into several categories of which A is the highest.
This category is divided into sub-categories as follows:
A-1 This highest sub-category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality, respectively, on the
basis of relative repayment capacity.
Commercial paper issues rated F-1+, F-1, and F-2 by Fitch are judged by Fitch
to be of "exceptionally strong" quality, "very strong" quality and "good"
quality, respectively, on the basis of relative repayment capacity.
Description of Corporate Bond Ratings
--------------------------------------------------------------------------------
Bonds rated AAA by S&P have the highest rating S&P assigns to debt obligations.
Such a rating indicates an extremely strong capacity to repay principal and pay
interest. Bonds rated AA also qualify as high-quality debt obligations.
Capacity to repay principal and pay interest is very strong, and differs from
AAA issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher rated categories.
Bonds rated BBB by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than with Aaa securities.
Bonds which are rated A by Moody's possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated Baa by Moody's are considered to be medium-grade
obligations (i.e., they are neither
A-1
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highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Bonds rated AAA by Fitch are considered to be investment grade and of very high
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
Bonds rated AA by Fitch are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
Bonds rated A by Fitch are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Description of Municipal Note Ratings
--------------------------------------------------------------------------------
S&P's municipal note ratings reflect the liquidity concerns and market access
risks unique to notes. An SP-1 rating indicates a strong capacity to pay
principal and interest. Issues determined to possess very strong
characteristics are given a plus (+) designation. An SP-2 rating indicates a
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
Xxxxx'x MIG-1/VMIG-1 designation denotes best quality. Municipal notes that
obtain this rating possess strong protection due to established cash flows,
superior liquidity support or demonstrated broad-based access to the market for
refinancing. Moody's MIG-2/VMIG-2 designation denotes high quality. Margins of
protection are ample although not so large as in the MIG-1/VMIG-1 group.
Municipal notes rated F-1+, F-1 and F-2 by Fitch are judged by Fitch to be of
"exceptionally strong" quality, "very strong" quality and "good" quality,
respectively, on the basis of the degree of assurance of timely payment.
A-2
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APPENDIX B
TAXABLE EQUIVALENT YIELD TABLES
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These tables are for illustrative purposes only and are not intended to predict
the actual return an individual would earn on an investment in the Funds. No
assurance can be made that any Fund will attain any particular yield. The tax
rates used in these tables are based upon published 1995 marginal tax rates
currently available and scheduled to be in effect. The tables do not take into
account changes in tax rates that are proposed from time to time. Investors
should consult their tax advisers to determine their actual tax rates.
1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
Find your Federal tax bracket based on your taxable income.
You would need the taxable yield listed
opposite the Federal
1995 tax bracket in the chart below to have a
Taxable Income* Federal tax-exempt yield of:
-------------------------------------------- Marginal -------------------------------------------
Single Joint Rate 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
--------------------- --------------------- -------- ----- ----- ----- ----- ----- ------ ------
$ 0-- 23,350 $ 0-- 39,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
23,351-- 56,550 $ 39,001-- 94,250 28.00% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
56,551-- 117,950 94,251-- 143,600 31.00% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
117,951-- 256,500 143,601-- 256,500 36.00% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
256,501 and more 256,501 and more 39.60% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59%
* This amount represents taxable income as defined in the Internal Revenue
Code.
Note: Information in this table is provided as of June 30, 1995.
1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
Find your combined Massachusetts and Federal tax bracket based on your taxable
income.
You would need the taxable yield listed
opposite the
combined Massachusetts and Federal tax
bracket in the
1995 Combined chart below to have a Massachusetts tax-
Taxable Income* Massachusetts exempt yield of:
------------------------------------------- and Federal ---------------------------------------------
Single Joint State Rate Federal Rate Tax Bracket** 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
-------------------- -------------------- ---------- ------------ ------------- ----- ----- ----- ------ ------ ------ ------
$ 0-- 23,350 $ 0-- 39,000 12.00% 15.00% 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
23,351-- 56,550 39,001-- 94,250 12.00% 28.00% 36.64% 6.31% 7.10% 7.89% 8.68% 9.47% 10.26% 11.05%
56,551-- 117,950 94,251-- 143,600 12.00% 31.00% 39.28% 6.59% 7.41% 8.23% 9.06% 9.88% 10.70% 11.53%
117,951-- 256,500 143,601-- 256,500 12.00% 36.00% 43.68% 7.10% 7.99% 8.88% 9.77% 10.65% 11.54% 12.43%
over 256,500 over 256,500 12.00% 39.60% 46.85% 7.53% 8.47% 9.41% 10.35% 11.29% 12.23% 13.17%
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Massachusetts Personal Income Tax laws;
however, Massachusetts taxable income may vary due to differences in
exemptions, itemized deductions, and other items.
** For Federal tax purposes, these combined rates reflect the applicable
marginal rates for 1995, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal return.
Note: Information in this table is provided as of June 30, 1995.
B-1
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1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
Find your combined Rhode Island and Federal tax bracket based on your taxable
income.
You would need the taxable yield listed
opposite the
combined Rhode Island and Federal tax bracket
in the
1995 Combined chart below to have a Rhode Island tax-exempt
Taxable Income* Rhode Island 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%
----------------- ----------------- ------ ------- ------------- ----- ----- ----- ------ ------ ------ ------
$ 0-- 23,350 $ 0-- 39,000 4.13% 15.00% 18.51% 4.91% 5.52% 6.14% 6.75% 7.36% 7.98% 8.59%
23,351-- 56,550 39,001-- 94,250 7.70% 28.00% 33.54% 6.02% 6.77% 7.52% 8.28% 9.03% 9.78% 10.53%
56,551--117,950 94,251--143,600 8.53% 31.00% 36.88% 6.34% 7.13% 7.92% 8.71% 9.51% 10.30% 11.09%
117,951--256,500 143,601--256,500 9.90% 36.00% 42.34% 6.94% 7.80% 8.67% 9.54% 10.41% 11.27% 12.14%
over 256,500 over 256,500 10.89% 39.60% 46.18% 7.43% 8.36% 9.29% 10.22% 11.15% 12.08% 13.01%
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Rhode Island Personal Income Tax law; however,
Rhode Island taxable income may differ due to differences in exemptions,
itemized deductions, and other items.
** For Federal tax purposes, these combined rates reflect the applicable
marginal rates for 1995, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal return.
Note: Information in this table is provided as of June 30, 1995.
1784 CONNECTICUT TAX-EXEMPT INCOME FUND
Find your combined Connecticut and Federal tax bracket based on your taxable
income.
You would need the taxable yield listed
opposite the
combined Connecticut and Federal tax
bracket in the
1995 Combined chart below to have a Connecticut tax-
Taxable Income* Connecticut exempt yield of:
------------------------------------ State Federal and Federal ------------------------------------------
Single Joint Rate** Rate Tax Bracket*** 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
----------------- ----------------- ------ ------- -------------- ----- ----- ----- ------ ------ ------
$ 0-- 23,350 $ 0-- 39,000 4.50% 15.00% 18.83% 5.54% 6.16% 6.78% 7.39% 8.01% 8.62%
23,351-- 56,550 39,001-- 94,250 4.50% 28.00% 31.24% 6.54% 7.27% 8.00% 8.73% 9.45% 10.18%
56,551--117,950 94,251--143,600 4.50% 31.00% 34.11% 6.83% 7.59% 8.35% 9.11% 9.86% 10.62%
117,951--256,500 143,601--256,500 4.50% 36.00% 38.88% 7.36% 8.18% 9.00% 9.82% 10.63% 11.45%
over 256,500 over 256,500 4.50% 39.60% 42.32% 7.80% 8.67% 9.54% 10.40% 11.27% 12.14%
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Connecticut Personal Income Tax law; however,
Connecticut taxable income may differ due to differences in exemptions,
itemized deductions, and other items.
** The Connecticut credits have not been included in the calculation of the
state rates. A credit between 1% and 75% is automatically allowed for
single taxpayers with a CT adjusted gross income ranging from $12,000 to
$52,500. A credit between 1% and 75% is automatically allowed for married
filing joint taxpayers with CT adjusted gross income ranging from $24,000
to $100,500.
*** For Federal tax purposes, these combined rates reflect the applicable
marginal rates for 1995, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal
return.
Note: Information in this table is provided as of June 30, 1995.
B-2
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PROSPECTUS
[LOGO OF 1784 FUNDS APPEARS HERE]
Investment Adviser:
THE FIRST NATIONAL BANK OF BOSTON
1784 FUNDS (the "Trust") is a mutual fund consisting of several professionally
managed portfolios, or funds, of securities. The Trust provides a convenient
way to invest in one or more of these funds. This Prospectus relates to shares
of the following tax-exempt funds (the "Funds" or the "Tax-Exempt Funds"):
1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
1784 CONNECTICUT TAX-EXEMPT INCOME FUND
Shares of the Funds are offered primarily to individuals and institutional
investors, including accounts for which The First National Bank of Boston
("Bank of Boston"), its affiliates and correspondents, and other financial
institutions act in a fiduciary, agency or custodial capacity. Investors in
shares of the Funds are referred to hereinafter as "Shareholders." Shares of
the Funds are currently offered without any sales charges.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANK OF BOSTON OR ANY OF ITS AFFILIATES. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING RISK
TO PRINCIPAL.
This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing in the Funds.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information, dated October 2, 1995, has
been filed with the Securities and Exchange Commission (the "SEC") and is
available without charge through the Distributor, SEI Financial Services
Company, 000 Xxxx Xxxxxxxxxx Xxxx, Xxxxx, XX 00000 or by calling 1-800-BKB-
1784. The Statement of Additional Information is incorporated into this
Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
October 2, 1995
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EXPENSE SUMMARY
--------------------------------------------------------------------------------
Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of each of the Tax-Exempt Funds and annual operating expenses of the
Funds, and (ii) an example illustrating the dollar cost of such expenses on a
hypothetical $1,000 investment in each of the Funds.
Shareholder Transaction Expenses
--------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None
Sales Charge Imposed on Reinvested Dividends (as a percentage of offering
price) None
Deferred Sales Charge Imposed on Redemptions (as a percentage of offering
price) None
Redemption Fees (1) None
Exchange Fee None
Annual Operating Expenses
--------------------------------------------------------------------------------
(As a percentage of average net assets)
1784
Tax-Exempt 1784 1784 1784
Medium- Massachusetts Rhode Island Connecticut
Term Tax-Exempt Tax-Exempt Tax-Exempt
Income Fund Income Fund Income Fund Income Fund
----------------------------------------------------------------------------
Advisory Fees (after fee
waiver) (2) 0.60% 0.60% 0.60% 0.60%
12b-1 Fee (after fee
waiver) (2) None None None None
Other Expenses (2) 0.20% 0.20% 0.20% 0.20%
----------------------------------------------------------------------------
Total Operating Expenses
(2) 0.80% 0.80% 0.80% 0.80%
----------------------------------------------------------------------------
(1) If proceeds of a redemption of Fund shares are paid by wire transfer, a
wire transfer charge (presently $12.00) will be imposed.
(2) Bank of Boston, which serves as the Adviser for the Trust, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
each of the Tax-Exempt Funds to not more than 1.25% of average daily net assets
on an annualized basis; this limitation would not apply to any brokerage
commissions, interest expense or taxes or to extraordinary expense items,
including but not limited to litigation expenses. SEI Financial Services
Company, which acts as Distributor of the Trust's shares, has agreed to waive
its 12b-1 fee, which is computed at an annual rate of 0.25% of each Fund's
average daily net assets. If the Distributor should terminate this waiver,
after a substantial period of time annual payment of this fee may total more
than the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge. SEI Financial Management Corporation,
which acts as the Trust's Administrator, has agreed to waive its fee from
certain funds of the Trust to assist these funds in maintaining a competitive
expense ratio. Bank of Boston contributes to the Funds in order to limit other
operating expenses and to assist the Funds in maintaining a competitive expense
ratio. Fee waivers by the Adviser, Administrator and Distributor, and
contributions by the Bank of Boston, are voluntary and may be terminated at any
time. From time to time the Adviser may also waive additional portions of its
fees to reduce net operating expenses to less than that shown in the table
above. Certain other parties may also agree to waive portions of their fees
from time to time on a month to month basis. Additional information may be
found under "The Adviser," "The Administrator" and "The Distributor." Absent
waivers, the Adviser's investment advisory fee is calculated at an annual rate
of 0.74% of the average daily net assets of each of the Tax-Exempt Funds.
Absent the waiver of fees by the Distributor, Adviser and Administrator, and
voluntary contributions by the Bank of Boston, other expenses and estimated
total operating expenses would be as follows: 0.27% and 1.26% of average daily
net assets of the 1784 Tax-Exempt Medium-Term Income Fund, 0.36% and 1.35% of
average daily net assets of the 1784 Massachusetts Tax-Exempt Income Fund,
0.61% and 1.60% of average daily net assets of the 1784 Rhode Island Tax-Exempt
Income Fund and 0.41% and 1.40% of average daily net assets of the 1784
Connecticut Tax-Exempt Income Fund, in each case on an annualized basis. Other
expenses are based on actual expenses for each Fund's fiscal year ended May 31,
2
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1995, and include expense items described under "General Information -- The
Trust." A person who purchases shares through a financial institution may be
charged separate fees by the financial institution.
Example
--------------------------------------------------------------------------------
An investor would pay the following expenses on a hypothetical $1,000
investment assuming a 5% annual total return and redemption at the end of each
time period:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------
1784 Tax-Exempt Medium-Term Income Fund $8 $26 $44 $99
1784 Massachusetts Tax-Exempt Income Fund $8 $26 $44 $99
0000 Xxxxx Xxxxxx
Tax-Exempt Income Fund $8 $26 $44 $99
1784 Connecticut
Tax-Exempt Income Fund $8 $26 $44 $99
Absent voluntary waivers by the Adviser, Distributor and Administrator and
contributions made by the Bank of Boston, the amounts for this example for one
year, three years, five years and ten years would be $13, $40, $69 and $152 for
the 1784 Tax-Exempt Medium-Term Income Fund, $14, $43, $74 and $162 for the
1784 Massachusetts Tax-Exempt Income Fund, $16, $50, $87 and $190 for the 1784
Rhode Island Tax-Exempt Income Fund and $14, $44, $77 and $168 for the 1784
Connecticut Tax-Exempt Income Fund. The example is based on actual expenses for
each Fund's fiscal year ended May 31, 1995. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN, AND ACTUAL
EXPENSES AND RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of
this table is to assist the investor in understanding the various costs and
expenses that may be directly or indirectly borne by investors in the Funds.
Additional information may be found under "General Information -- The Trust,"
"The Adviser," "The Administrator" and "The Distributor."
SUMMARY
--------------------------------------------------------------------------------
The following information is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information.
1784 Funds (the "Trust") is an open-end management investment company which
provides a convenient way to invest in one or more professionally managed funds
of securities. The following provides basic information about the 1784 Tax-
Exempt Medium-Term Income Fund, 1784 Massachusetts Tax-Exempt Income Fund, 1784
Rhode Island Tax-Exempt Income Fund and 1784 Connecticut Tax-Exempt Income Fund
(each, a "Fund" or a "Tax-Exempt Fund," and collectively, the "Funds" or the
"Tax-Exempt Funds"). The 1784 Tax-Exempt Medium-Term Income Fund is a
diversified fund; each of the 1784 Massachusetts Tax-Exempt Income Fund, the
1784 Rhode Island Tax-Exempt Income Fund, and the 1784 Connecticut Tax-Exempt
Income Fund (collectively, the "State Funds") is a non-diversified fund.
What Is the Investment Objective? The investment objective of the 1784 Tax-
Exempt Medium-Term Income Fund is current income, exempt from federal income
taxes, consistent with preservation of capital. The investment objective of the
1784 Massachusetts Tax-Exempt Income Fund is current income, exempt from both
federal and Massachusetts personal income taxes, consistent with the
preservation of capital. The investment objective of the 1784 Rhode Island Tax-
Exempt Income Fund is current income exempt from federal income tax, from Rhode
Island personal income tax and from the Rhode Island business corporation tax.
The investment objective of the 1784 Connecticut Tax-Exempt Income Fund is
current income exempt from both federal and Connecticut personal income taxes.
Preservation of capital is a secondary objective for each of these Funds. Each
Fund's investment
3
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objective may be changed only with the consent of holders of a majority of that
Fund's outstanding shares. There can be no assurance that any Tax-Exempt Fund
will achieve its investment objective. See "Investment Objective" and
"Investment Limitations."
What Are the Permitted Investments? The 1784 Tax-Exempt Medium-Term Income Fund
under normal market conditions invests at least 80% of its net assets in
obligations issued by or on behalf of the states, territories or possessions of
the United States and the District of Columbia and their respective political
subdivisions, agencies and instrumentalities, the interest on which, in the
opinion of counsel for the issuer, is exempt from federal income tax and not
included as a preference item under the alternative minimum tax (collectively,
"Municipal Securities"). Each of the State Funds under normal market conditions
invests at least 80% of its net assets in Municipal Securities, and normally
invests at least 65% of its total assets in Municipal Securities the interest
on which, in the opinion of counsel for the issuer, is exempt from both federal
and that state's personal income tax and not included as a preference item
under the alternative minimum tax.
What Are Some of the Risks? The investment policies of each of the Tax-Exempt
Funds entail certain risks and considerations of which an investor should be
aware. For example, the net asset value per share of each of the Tax-Exempt
Funds is not fixed and should be expected to fluctuate. In addition, values of
fixed income securities tend to vary inversely with interest rates and may be
affected by other market and economic factors as well; mortgage-backed
securities are subject to prepayment of the underlying mortgages and may not be
an effective means of locking in long-term interest rates; and the longer
maturity securities in which the Funds may invest are subject to greater market
fluctuations as a result of changes in interest rates. Since the State Funds
are non-diversified funds, a relatively high percentage of their assets may be
invested in the securities of a limited number of issuers, which means that the
value of the shares of these Funds may be more susceptible to any single
economic, political or regulatory occurrence than the shares of a diversified
investment company.
For further information, see "Investment Policies," "Certain Investment
Policies and Guidelines" and "Description of Permitted Investments and
Techniques" herein and in the Statement of Additional Information.
Who Is the Adviser? The First National Bank of Boston ("Bank of Boston" or the
"Adviser") serves as the Adviser for the Trust and is entitled to a fee which
is calculated daily and paid monthly at an annual rate of 0.74% of the average
daily net assets of each of the Tax-Exempt Funds. The Adviser has agreed for an
indefinite period of time to waive all or a portion of its fee in order to
limit the total operating expenses of the Tax-Exempt Funds to not more than
1.25% of each Fund's average daily net assets. Bank of Boston contributes to
the Funds in order to limit operating expenses and to assist the Funds in
maintaining a competitive expense ratio. Fee waivers and contributions may be
terminated at any time. See "The Adviser."
Who Is the Administrator? SEI Financial Management Corporation serves as the
Administrator for the Trust under an Administration Agreement and is entitled
to a fee which is calculated daily and paid monthly at an annual rate of 0.15%
of the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Each Tax-Exempt Fund's
portion of such fee is based on that Fund's average daily net assets. The
Administrator has agreed to waive a portion of its fees on a month to month
basis under certain circumstances. See "The Administrator."
Who Is the Shareholder Servicing Agent and Transfer Agent? SEI Financial
Management Corporation acts as dividend disbursing agent and shareholder
servicing agent for the Trust under the Administration Agreement and as
transfer agent for the Trust under a separate transfer agent agreement. See
"The Shareholder Servicing and Transfer Agent."
4
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Who Is the Distributor? SEI Financial Services Company acts as distributor of
the Trust's shares. The Trust has adopted a distribution plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan
provides for payments to the Distributor of a fee, calculated daily and paid
monthly at an annual rate of 0.25% of each Tax-Exempt Fund's average daily net
assets; the Distributor can use all or a portion of this fee to compensate
broker-dealers and other financial institutions that provide services to
Shareholders or to their customers who beneficially own shares of the Tax-
Exempt Funds. The Distributor has agreed to waive its 12b-1 fee. However,
distribution fees may be imposed in the event that the Distributor determines
to terminate its waiver of such fees. The Trust may create one or more
additional classes of shares, without distribution fees, of one or more of the
Funds. See "The Distributor."
How Do I Purchase Shares? Purchases of Fund shares may be made through the
Distributor by the close of business Monday through Friday except on days when
the New York Stock Exchange or the Federal Reserve Bank of Boston is closed
("Business Days"). Shares may also be purchased through broker-dealers which
have established dealer agreements with the Distributor. Purchase orders
submitted through broker-dealers normally will be received by the Distributor
on the Business Day after they are received by the broker-dealer.
A purchase order for shares representing an investment in a Tax-Exempt Fund
will be effective as of the Business Day the order is received by the
Distributor if the Distributor receives a purchase order in good form for the
shares and payment (by wire transfer or check) for the shares before 4:00 p.m.
Eastern Time ("ET") on that day. Shares are sold at their net asset value
determined as of the end of the day the order is effective. Shares purchased
will begin accruing dividends on the day following the date of purchase.
The minimum initial investment in a Tax-Exempt Fund is $1,000; all subsequent
purchases must be at least $250. Minimum investment requirements are lower for
accounts established for automatic investment programs. See "Purchase of
Shares."
Shares of each of the Tax-Exempt Funds are currently being offered without any
sales charges. See "The Distributor."
How Do I Redeem Shares? Redemptions of shares of a Tax-Exempt Fund may be made
through the Transfer Agent on any Business Day. Redemption orders must be
placed in good form before 4:00 p.m. ET on any Business Day to be effective on
that day. The redemption price is the net asset value per share determined as
of the end of the day the order is effective. See "Redemption of Shares."
How Are Distributions Paid? Substantially all of the net investment income
(exclusive of capital gains) of each of the Funds is distributed in the form of
dividends which are declared daily and paid monthly. Shareholders of record on
the record date for the dividend distribution will be entitled to the
dividends, except that shares will not begin accruing dividends until the day
following the date of their purchase. On redemption, a shareholder will receive
dividends through and including the day a valid redemption request is received
by the Transfer Agent. Any capital gain is distributed at least annually.
Distributions are paid in additional shares unless the Shareholder elects to
take the payment in cash. See "Dividends and Distributions."
How Do I Make Exchanges? Once payment for shares of a Tax-Exempt Fund has been
received by the Distributor, those shares may be exchanged for shares of one or
more other portfolios of the Trust at net asset value, provided the amount of
the exchange meets the minimum investment requirements for the other portfolio
of the Trust. There are no charges for an exchange. If an exchange request in
good order is received by the Distributor by 4:00 p.m. ET on any Business Day,
the exchange usually will occur on that day; however, requests for exchanges
for shares of a money market fund must be received earlier than 4:00 p.m. ET
(in cases when regular trading on the New York
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I784 FUNDS
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Stock Exchange closes earlier than 4:00 p.m. ET, as early as 12:00 noon ET) for
the exchange to occur on that day. A Shareholder must obtain and should read
the prospectus of the other portfolio and consider the differences in
investment objectives and policies before making any exchange. An exchange is
treated, for federal and state income tax purposes, as a sale of the Tax-Exempt
Fund shares exchanged, and could result in taxable gain or loss to the
Shareholder. See "Exchanges."
CONDENSED FINANCIAL INFORMATION
--------------------------------------------------------------------------------
The following table provides condensed financial information about the 1784
Tax-Exempt Medium-Term Income Fund and the 1784 Massachusetts Tax-Exempt Income
Fund for the period from June 14, 1993 (commencement of operations) through May
31, 1995, and about the 0000 Xxxxx Xxxxxx Tax-Exempt Income Fund and the 1784
Connecticut Tax-Exempt Income Fund for the period from August 1, 1994
(commencement of operations) through May 31, 1995. The information should be
read in conjunction with the financial statements appearing in the Funds'
Annual Report to Shareholders, which is incorporated by reference in the
Statement of Additional Information. The financial statements and notes, as
well as the table below, covering the period through May 31, 1995 have been
audited by Coopers & Xxxxxxx L.L.P., independent accountants, whose report is
included in the Funds' Annual Report. Copies of the Annual Report may be
obtained without charge from the Distributor.
FINANCIAL HIGHLIGHTS
For the Period Ended May 31, 1995
--------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
Net Net Ratio
Asset Realized and Dividends Net Assets Ratio of Net
Value Net Unrealized from Net Asset Value End of Expenses Income
Beginning Investment Gains or (Losses) Investment End Total of Period to Average to Average
of Period Income on Investments Income of Period Return (000) Net Assets Net Assets
--------- ---------- ----------------- ---------- ----------- ------ --------- ----------- ----------
TAX-EXEMPT
MEDIUM-TERM
INCOME (1)
=================
6/14/93-5/31/94 $10.00 0.49 (0.10) (0.49) $ 9.90 3.93%* $ 36,365 0.32%** 5.06%**
6/1/94-5/31/95 $ 9.90 0.48 0.24 (0.48) $10.14 7.58% $176,345 0.80% 5.02%
MASSACHUSETTS
TAX-EXEMPT
INCOME (1)
=================
6/14/93-5/31/94 $10.00 0.50 (0.19) (0.50) $ 9.81 3.04%* $ 49,662 0.33%** 5.10%**
6/1/94-5/31/95 $ 9.81 0.47 0.09 (0.47) $ 9.90 6.00% $ 82,058 0.80% 4.93%
RHODE ISLAND
TAX-EXEMPT
INCOME FUND (2)
=================
8/1/94-5/31/95 $10.00 0.45 0.13 (0.45) $10.13 6.09%* $ 32,495 0.54%** 5.56%**
CONNECTICUT
TAX-EXEMPT
INCOME FUND (2)
=================
8/1/94-5/31/95 $10.00 0.45 0.27 (0.45) $10.27 7.45%* $ 61,369 0.52%** 5.44%**
Ratio Ratio of
of Expenses Net Income
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ---------- ---------
TAX-EXEMPT
MEDIUM-TERM
INCOME (1)
=================
6/14/93-5/31/94 1.61%** 3.77%** 98.83%
6/1/94-5/31/95 1.26% 4.56% 74.74%
MASSACHUSETTS
TAX-EXEMPT
INCOME (1)
=================
6/14/93-5/31/94 1.41%** 4.02%** 13.99%
6/1/94-5/31/95 1.35% 4.38% 34.59%
RHODE ISLAND
TAX-EXEMPT
INCOME FUND (2)
=================
8/1/94-5/31/95 1.60%** 4.50%** 57.51%
CONNECTICUT
TAX-EXEMPT
INCOME FUND (2)
=================
8/1/94-5/31/95 1.40%** 4.56%** 35.56%
* Returns are for the period indicated and have not been annualized.
** Ratios for this period have been annualized.
(1) The Tax-Exempt Medium-Term Income and Massachusetts Tax-Exempt Income Funds
commenced operations on June 14, 1993.
(2) The Rhode Island Tax-Exempt Income and Connecticut Tax-Exempt Income Funds
commenced operations on August 1, 1994.
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I784 FUNDS
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THE TRUST
--------------------------------------------------------------------------------
1784 Funds (the "Trust") is an open-end management investment company that
currently offers units of beneficial interest ("shares") in several separate
professionally managed investment portfolios, or funds. Each share of each fund
represents an undivided, proportionate interest in that fund. This Prospectus
relates to shares of the Trust's 1784 Tax-Exempt Medium-Term Income Fund, a
diversified fund, and of the 1784 Massachusetts Tax-Exempt Income Fund, 1784
Rhode Island Tax-Exempt Income Fund, and 1784 Connecticut Tax-Exempt Income
Fund, which are non-diversified funds. The Trust's other funds include the 1784
U.S. Treasury Money Market Fund, 1784 Institutional U.S. Treasury Money Market
Fund, 1784 Tax-Free Money Market Fund, 1784 Growth and Income Fund, 1784 Asset
Allocation Fund, 1784 International Equity Fund, 1784 U.S. Government Medium-
Term Income Fund, 1784 Short-Term Income Fund, and 1784 Income Fund.
Information regarding the Trust's other funds is contained in separate
prospectuses that may be obtained from the Trust's distributor, SEI Financial
Services Company (the "Distributor"), 000 Xxxx Xxxxxxxxxx Xxxx, Xxxxx,
Xxxxxxxxxxxx 00000, or by calling 1-800-BKB-1784.
INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
The investment objective of the 1784 Tax-Exempt Medium-Term Income Fund is
current income, exempt from federal income taxes, consistent with preservation
of capital.
The investment objective of the 1784 Massachusetts Tax-Exempt Income Fund is
current income, exempt from both federal and Massachusetts personal income
taxes, consistent with the preservation of capital.
The investment objective of the 1784 Rhode Island Tax-Exempt Income Fund is
current income exempt from federal income tax, from Rhode Island personal
income tax, and from the Rhode Island business corporation tax. Preservation of
capital is a secondary objective.
The investment objective of the 1784 Connecticut Tax-Exempt Income Fund is
current income exempt from both federal and Connecticut personal income tax.
Preservation of capital is a secondary objective.
There is no assurance that the investment objective of any Tax-Exempt Fund will
be met. The investment objective of each Fund is a fundamental policy of that
Fund, and therefore cannot be changed without the consent of holders of a
majority of that Fund's outstanding shares. See "Investment Limitations."
INVESTMENT POLICIES
--------------------------------------------------------------------------------
The 1784 Tax-Exempt Medium-Term Income Fund is a diversified fund which, as a
matter of fundamental policy, invests at least 80% of its net assets under
normal market conditions in obligations issued by or on behalf of the states,
territories and possessions of the United States and the District of Columbia
and their respective political subdivisions, agencies and instrumentalities,
the interest on which, in the opinion of counsel for the issuer, is exempt from
federal income tax and not included as a preference item under the alternative
minimum tax (collectively, "Municipal Securities"). Municipal Securities in
which the Fund invests include (i) municipal notes which are rated MIG-2 or
VMIG-2 or better by Xxxxx'x Investors Service, Inc. ("Moody's") or SP-2 or
better by Standard & Poor's Ratings Group ("S&P") at the time of investment, or
which, if not rated by Moody's or by S&P, are of at least comparable quality,
as determined by the Adviser; (ii) municipal bonds which are rated BBB or
better by S&P or Baa or better by Moody's at the time of investment or which,
if not rated by Moody's or by S&P, are of at least comparable quality, as
determined by the Adviser; and (iii) tax-exempt commercial paper which is rated
at least A-2 by S&P or Prime-2 by Moody's at the time of investment or which is
of comparable quality as determined by the Adviser. Bonds rated BBB by S&P or
Baa by Moody's may have speculative characteristics.
The securities other than Municipal Securities in which the 1784 Tax-Exempt
Medium-Term Income Fund may
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I784 FUNDS
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invest include (1) U.S. Government securities, i.e., obligations issued or
guaranteed as to principal and interest by the U.S. Government or any of its
agencies and instrumentalities; (2) bonds, debentures or other debt instruments
rated BBB or better by S&P or Baa or better by Moody's or of comparable quality
at the time of purchase as determined by the Adviser; (3) short-term commercial
paper rated A-2 or better by S&P or P-2 or better by Moody's or of comparable
quality at the time of purchase as determined by the Adviser; (4) bank
obligations described under "Description of Permitted Investments and
Techniques;" (5) mortgage-backed securities and asset-backed securities rated A
or better by S&P or Moody's or of comparable quality at the time of purchase as
determined by the Adviser; (6) receipts evidencing separately traded interest
and principal component parts of U.S. Government obligations; and (7)
repurchase agreements. Securities rated BBB by S&P or Baa by Moody's may have
speculative characteristics. The Fund may write (sell) covered call options and
enter into fixed income futures contracts and options (in each case for hedging
purposes only).
The Fund may also invest up to 5% of its net assets in securities of closed-end
investment companies traded on a recognized securities exchange or actively
traded in the over-the-counter market. The Fund may also invest up to 20% of
its net assets in securities the interest on which is subject to federal income
tax or the federal alternative minimum tax. Up to 15% of the net assets of the
Fund may be invested in illiquid securities.
The Trust expects the 1784 Tax-Exempt Medium-Term Income Fund to maintain an
average weighted maturity of three to ten years. The Adviser may shorten the
average maturity substantially in anticipation of a change in the interest rate
environment for temporary defensive purposes by investing in money market
instruments and in money market funds. To the extent the Fund is invested in
money market instruments and/or money market funds for temporary defensive
purposes, the Fund will not be pursuing its investment objective. Under normal
circumstances, it is anticipated that the annual portfolio turnover rate for
the Fund will not exceed 100%; for the Fund's fiscal years ended May 31, 1994
and May 31, 1995, this rate was 99% and 75%, respectively.
For more information regarding the permitted investments and investment
practices of the 1784 Tax-Exempt Medium-Term Income Fund, the purposes of these
investments and investment practices and certain risks associated with certain
of these investments and investment practices, and information regarding the
ratings listed above, see "Certain Investment Policies and Guidelines,"
"Description of Permitted Investments and Techniques" and Appendix A --
"Description of Ratings."
Each of the 1784 Massachusetts Tax-Exempt Income Fund, 1784 Rhode Island Tax-
Exempt Income Fund, and 1784 Connecticut Tax-Exempt Income Fund (each, a "State
Fund"), as a matter of fundamental policy, invests at least 80% of its net
assets under normal market conditions in Municipal Securities, and normally
invests at least 65% of its total assets in Municipal Securities the interest
on which, in the opinion of counsel for the issuer, is exempt from both federal
income tax and that state's personal income tax and not included as a
preference item under the alternative minimum tax (collectively, "State
Municipal Securities"). State Municipal Securities in which a State Fund
invests include (i) municipal notes which are rated MIG-2 or VMIG-2 or better
by Xxxxx'x, XX-2 or better by S&P or F-2 or better by Fitch Investors Service,
Inc. ("Fitch") at the time of investment or which, if not rated by Moody's, S&P
or Fitch are of at least comparable quality, as determined by the Adviser; (ii)
municipal bonds which are rated BBB or better by S&P or Fitch or Baa or better
by Moody's at the time of investment or which, if not rated by Moody's, S&P, or
Fitch are of at least comparable quality, as determined by the Adviser; and
(iii) tax-exempt commercial paper which is rated at least A-2 by S&P, F-2 by
Fitch or Prime-2 by Moody's at the time of investment or which, if not rated by
S&P, Fitch, or Xxxxx'x is of at least comparable quality, as determined by the
Adviser. Bonds rated BBB by S&P or Baa by Moody's may have speculative
characteristics.
8
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I784 FUNDS
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The securities other than State Municipal Securities in which each State Fund
may invest include: (1) Municipal Securities the interest on which is not
exempt from that state's income tax; (2) U.S. Government securities, i.e.,
obligations issued or guaranteed as to principal and interest by the U.S.
Government or any of its agencies and instrumentalities; (3) bonds, debentures
or other debt instruments rated BBB or better by S&P or Fitch or Baa or better
by Moody's or of comparable quality at the time of purchase as determined by
the Adviser; (4) short-term commercial paper rated A-2 or better by S&P, P-2 or
better by Moody's or F-2 or better by Fitch or of comparable quality at the
time of purchase as determined by the Adviser; (5) bank obligations described
under "Description of Permitted Investments and Techniques;" (6) mortgage-
backed securities and asset-backed securities rated A or better by S&P, Moody's
or Fitch or of comparable quality at the time of purchase as determined by the
Adviser; (7) receipts evidencing separately traded interest and principal
component parts of U.S. Government obligations; and (8) repurchase agreements
involving any of the foregoing securities. Securities rated BBB by S&P or Baa
by Moody's may have speculative characteristics. Each State Fund may write
(sell) covered call options and may enter into fixed income futures contracts
and options (in each case for hedging purposes only).
Each State Fund may also invest up to 20% of its net assets in securities the
interest on which is subject to federal income tax or the federal alternative
minimum tax. Up to 15% of the net assets of each State Fund may be invested in
illiquid securities.
The Trust expects the State Funds to maintain average weighted maturities of
from five to ten years. The Adviser may shorten the average maturity of a State
Fund substantially in anticipation of a change in the interest rate environment
for temporary defensive purposes by investing in money market instruments and
money market funds. To the extent a State Fund is invested in money market
instruments and/or money market funds for temporary defensive purposes, the
Fund will not be pursuing its investment objective. Under normal circumstances,
it is anticipated that the annual portfolio turnover rate for each State Fund
will not exceed 100%. For the fiscal years ended May 31, 1994 and May 31, 1995,
this rate was 14% and 35%, respectively, for the 1784 Massachusetts Tax-Exempt
Income Fund. For the fiscal year ended May 31, 1995 the portfolio turnover rate
for the 1784 Rhode Island Tax-Exempt Income Fund was 58% and for the 1784
Connecticut Tax-Exempt Income Fund was 36%.
Each State Fund is a non-diversified investment company, which means that more
than 5% of its total assets may be invested in one or more issuers, although
the Adviser does not expect to invest more than 25% of the total assets of a
State Fund in any one issuer. Since a relatively high percentage of assets of
these Funds may be invested in the obligations of a limited number of issuers,
the value of the shares of the Funds may be more susceptible to any single
economic, political or regulatory occurrence than the shares of a diversified
investment company. The Trust intends that each State Fund satisfy the
diversification requirements necessary to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended. Under these
requirements, at the close of each quarter of the Fund's taxable year, (A) at
least 50% of its total assets must be represented by cash and cash items,
Government securities and securities of other regulated investment companies
and other securities limited in respect of any one issuer to not more than 5%
of the total assets of the Fund and not more than 10% of the outstanding voting
securities of such issuer, and (B) not more than 25% of the Fund's total assets
may be invested in the securities (other than Government securities or the
securities of other regulated investment companies) of any one issuer.
For more information regarding the permitted investments and investment
practices of the State Funds, the purposes of these investments and investment
practices and certain risks associated with certain of these investments and
investment practices, and information regarding the ratings listed above, see
"Certain Investment Policies and Guidelines," "Description of Permitted
Investments and Techniques" and Appendix A -- "Description of Ratings."
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CERTAIN INVESTMENT POLICIES AND GUIDELINES
--------------------------------------------------------------------------------
The market value of each Fund's fixed income investments (including money
market instruments) changes in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. Moreover,
while securities with longer maturities tend to produce higher yields, the
values of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates. Changes by recognized
agencies in the rating of any fixed income security and in the ability of an
issuer to make payments of interest and principal also affect the value of
these investments. Changes in the value of Fund securities will affect the
Fund's net asset value; under most circumstances, changes in the value of Fund
securities will not affect cash income derived from these securities.
Each Tax-Exempt Fund's investments normally consist primarily of securities
that are listed on recognized exchanges or actively traded in the over-the-
counter market. Each Tax-Exempt Fund may also hold securities that are neither
so listed nor so traded. However, none of the Tax-Exempt Funds invests more
than 15% of its net assets in illiquid securities.
In general, mortgage-backed securities are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities the yield of which reflects then-prevailing interest
rates, which may be lower. Thus, mortgage-backed securities may not be an
effective means of locking in long-term interest rates for the Funds.
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each of the Tax-Exempt Funds may invest up to 100% of its
assets in money market instruments described under "Description of Permitted
Investments and Techniques," consisting of the following: (1) securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities; (2)
repurchase agreements; (3) bank obligations described under "Description of
Permitted Investments and Techniques;" (4) commercial paper, other short-term
debt securities or variable or floating rate instruments rated in one of the
two highest short-term rating categories by a "nationally recognized
statistical rating organization" as defined under Securities and Exchange
Commission rules ("NRSRO") or of comparable credit quality as determined by the
Adviser; and (5) asset-backed securities. The Funds may also invest, for
temporary defensive purposes, in money market funds. To the extent a Fund is
invested in money market instruments and/or money market funds for temporary
defensive purposes, the Fund will not be pursuing its investment objective.
Each of the Tax-Exempt Funds may invest in floating or variable rate
obligations and may purchase securities on a when-issued basis. Each of the
Funds may also, from time to time, engage in securities lending; however, loans
made by a Fund of the securities it holds may not exceed 33 1/3% of that Fund's
total assets. Each of the Funds may enter into interest rate futures contracts
and related options.
In the event a security owned by a Tax-Exempt Fund is downgraded below the
rating categories discussed above, the Adviser will review and take action it
deems appropriate with regard to the security.
Special Factors Relating to Massachusetts, Rhode Island and Connecticut
Municipal Securities
--------------------------------------------------------------------------------
Each State Fund intends to invest a significant portion of its assets in
Municipal Securities, the interest on which, in the opinion of bond counsel, is
exempt from both federal income tax and that state's income tax and is not
included as a preference item under the federal alternative minimum tax. The
payment of interest on and the preservation of principal of these securities is
dependent upon the continuing ability of issuers within that state and/or
obligors of state, municipal and public
10
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authority debt obligations to meet their obligations thereunder. Investors
should consider the greater risk inherent in a State Fund's concentration in
such obligations versus the safety that comes with a less geographically
concentrated investment portfolio and should compare the yield available on a
portfolio of Massachusetts, Rhode Island or Connecticut issues with the yield
of a more diversified portfolio including out-of-state issues before making an
investment decision. Many of a State Fund's Municipal Securities are likely to
be obligations of state governmental issuers which rely in whole or in part,
directly or indirectly, on real property taxes as a source of revenue.
In the late 1980s and early 1990s, Massachusetts, Rhode Island, and Connecticut
each suffered economic slowdowns. In the Commonwealth of Massachusetts, during
such time, economic performance slowed significantly, particularly in the
construction, real estate, financial and manufacturing sectors (including
technology), with especially adverse results in 1990 and the first half of
1991. The economy appears to be recovering with small growth reported in some
sectors during 1993 and 1994. However, the manufacturing sector (including high
technology) continues to decline. Additionally, in the recent past, the
Commonwealth experienced fiscal difficulties. In each of the five fiscal years
commencing fiscal 1987, the Commonwealth's spending exceeded its revenues. In
the fiscal years 1992, 1993 and 1994, however, the Commonwealth's revenues
exceeded spending. In 1989, as a result of the budgetary difficulties of the
Commonwealth at that time, S&P and Xxxxx'x lowered their ratings of long-term
bonds issued by the Commonwealth. However, in September, 1992 both S&P and
Xxxxx'x raised their ratings of such bonds to A.
In Rhode Island, manufacturing in general and defense-related industries in
particular have declined significantly and employment has decreased in recent
years. As a result, the state government and other issuers of Rhode Island
Municipal Securities have experienced serious budgetary constraints. In order
to balance its budget, as it is required to do by the state constitution, the
Rhode Island state government has reduced expenditures and raised taxes, among
other measures. The recession seems to have stabilized. The state projects
continued recovery at a slow pace over the next five years.
In Connecticut as well, manufacturing in general and defense-related industries
in particular have declined significantly, and unemployment has risen. Despite
the serious economic problems facing the State, Connecticut has essentially
maintained its credit standing. General Fund surpluses in the State's 1986 and
1987 fiscal years were followed by operating deficits in its 1988, 1989, 1990,
and 1991 fiscal years. As a result of the recurring budgetary problems, S&P in
1991 downgraded the State's general obligation bonds from AA to AA-, although
Xxxxx'x continues to confirm its rating of Aa, for these bonds. Fitch gives
these obligations a rating of AA. Effective in 1991, the state legislature
enacted a personal income tax and reduced some state sales taxes. As a result
of these and other budgetary actions, the General Fund had operating surpluses
for the fiscal years ending in 1992, 1993 and 1994. The 1995 state budget
anticipates a small deficit. The 1996 state budget anticipates an operating
surplus.
A more detailed description of certain special factors affecting investment in
State Municipal Securities of which investors should be aware is set forth in
the Statement of Additional Information. See "Special Factors Relating to
Massachusetts, Rhode Island and Connecticut Municipal Securities" in the
Statement of Additional Information.
The foregoing discussion of special factors relating to Municipal Securities of
issuers in Massachusetts, Rhode Island and Connecticut is a summary of certain
information contained in certain official statements relating to securities
offerings by such issuers. The foregoing summaries do not purport to be a
complete description and are current as of the date of the corresponding
official statement.
INVESTMENT LIMITATIONS
--------------------------------------------------------------------------------
The investment objective of each Fund and the following investment limitations
are fundamental
11
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policies of that Fund. Fundamental policies cannot be changed with respect to a
Fund without the consent of the holders of a majority of that Fund's
outstanding shares. The term "majority of the outstanding shares" means the
vote of (i) 67% or more of the Fund's shares present at a meeting, if more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the Fund's outstanding shares, whichever is less.
A Fund may not:
1. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation (i)
utility companies will be divided according to their services, for example,
gas, gas transmission, electric and telephone will each be considered a
separate industry; and (ii) financial service companies will be classified
according to the end users of their services; for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry.
2. Make loans except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objectives and policies; (b) enter into
repurchase agreements; and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
3. Borrow, except that a Fund may borrow money from banks and may enter into
reverse repurchase agreements, in either case in an amount not to exceed 33
1/3% of the Fund's total assets and then only as a temporary measure for
extraordinary or emergency purposes (e.g., to meet Shareholder redemption
requests). A Fund will not purchase any securities for its portfolio at any
time at which its borrowings equal or exceed 5% of its total assets (taken at
market value).
In addition, the 1784 Tax-Exempt Medium-Term Income Fund may not purchase
securities of any issuer (except securities issued or guaranteed by the United
States, its agencies or instrumentalities and repurchase agreements involving
such securities) if as a result more than 5% of the total assets of the Fund
would be invested in the securities of such issuer or more than 10% of the
outstanding voting securities of such issuer would be owned by the Fund. This
restriction applies to 75% of the total assets of this Fund.
The foregoing percentages apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISER
--------------------------------------------------------------------------------
The First National Bank of Boston ("Bank of Boston" or the "Adviser") manages
the assets of each Fund pursuant to an Investment Advisory Agreement (the
"Advisory Agreement") with the Trust. Subject to such policies as the Board of
Trustees of the Trust may determine, the Adviser makes investment decisions for
each Fund. Xxxxx X. Xxxxxxxx, Director of Fund Management, has been the manager
of the 1784 Tax-Exempt Medium-Term Income Fund since June, 1993 and a co-
manager of the 1784 Rhode Island Tax-Exempt Income Fund and the 1784
Connecticut Tax-Exempt Income Fund since September of 1995. Xx. Xxxxxxxx, who
has more than 22 years of experience in investment management, research
analysis and securities trading, has been the Director of Fund Management at
Bank of Boston since 1985. Xxxxx X. Xxxxxxxxx, Senior Fund Manager, has been
the manager of the 1784 Massachusetts Tax-Exempt Income Fund since June, 1993.
Xx. Xxxxxxxxx, who has more than 15 years of experience in investment
management and securities trading, was an Associate Fund Manager at Bank of
Boston from 1987 to 1991 and has been a Fund Manager since 1991. Xxxxx X.
Xxxxxxx, Senior Fund Manager, has been a co-manager of the 1784 Rhode Island
Tax-Exempt Income Fund and the 1784 Connecticut Tax-Exempt Income Fund since
July, 1994 (commencement of these Funds' operations). Xx. Xxxxxxx, who has more
than five years of experience in investment management and research analysis,
has been a Fund Manager and Senior Fund
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Manager at Bank of Boston since 1989. From 1988 to 1989, Xx. Xxxxxxx was a vice
president with First Funding Corporation.
For its services under the Advisory Agreement, the Adviser receives from each
Fund a fee accrued daily and paid monthly at an annual rate equal to 0.74% of
the Fund's average daily net assets. However, the Adviser has agreed for an
indefinite period of time to waive all or a portion of its fees in order to
limit the total operating expenses of each of the Funds on an annualized basis
to not more than 1.25% of its average daily net assets; this limitation would
not apply to any brokerage commissions, interest expense or taxes or to
extraordinary expense items, including but not limited to litigation expenses.
Fee waivers may be terminated at any time. From time to time the Adviser may
also waive additional portions of its fees to reduce net operating expenses to
less than the amount specified above.
For the fiscal year ended May 31, 1995, the fees payable to the Bank of Boston
under the Advisory Agreement with respect to each of the Funds were as follows:
for the 1784 Tax-Exempt Medium-Term Income Fund, $741,971, of which $140,373
was voluntarily waived (after giving effect to such waiver, 0.60% of such
Fund's average daily net assets for that fiscal year); for the 1784
Massachusetts Tax-Exempt Income Fund, $447,676, of which $84,695 was
voluntarily waived (after giving effect to such waiver, 0.60% of such Fund's
average daily net assets for that fiscal year); for the 1784 Rhode Island Tax-
Exempt Income Fund, $163,926, of which $87,263 was voluntarily waived (after
giving effect to such waiver, 0.29% of such Fund's average daily net assets for
that fiscal year); and for the 1784 Connecticut Tax-Exempt Income Fund,
$300,587, of which $163,399 was voluntarily waived (after giving effect to such
waiver, 0.28% of such Fund's average daily net assets for that fiscal year). In
addition, the Bank of Boston contributed $67,730 to the 1784 Tax-Exempt Medium-
Term Income Fund, $79,426 to the 1784 Massachusetts Tax-Exempt Income Fund,
$22,451 to the 1784 Rhode Island Tax-Exempt Income Fund and $1,285 to the 1784
Connecticut Tax-Exempt Income Fund to decrease the Funds' other operating
expenses and to assist the Funds in maintaining a competitive expense ratio.
Management's discussion of the Funds' performance is included in the Funds'
Annual Report to Shareholders which investors may obtain without charge by
contacting the Distributor. The Funds may execute brokerage or other agency
transactions through the Adviser or an affiliate.
Bank of Boston, a national banking association, is the successor to a number of
banking institutions, the first of which was chartered in 1784. All of the
capital stock of Bank of Boston (except directors' qualifying shares) is owned
by Bank of Boston Corporation, a registered bank holding company. Bank of
Boston and its affiliates are engaged in providing a wide variety of financial
services to individuals, corporate and institutional customers, governments,
and other financial institutions throughout New England, the United States and
internationally. These services include individual and community banking,
consumer finance, mortgage origination and servicing, domestic corporate and
investment banking, leasing, international banking services, commercial real
estate lending, private banking, trust services, correspondent banking, and
securities and payments processing. Bank of Boston's principal business address
is 000 Xxxxxxx Xxxxxx, Xxxxxx, XX 00000. Prior to the origination of the Trust
in 1993, the Adviser had not served as the investment adviser for management
investment companies. The Adviser also manages the other funds comprising the
Trust.
Bank of Boston has been providing asset management services since 1890. Its
portfolio managers are responsible for investing in money market, equity, and
fixed income securities and they have earned national recognition and respect.
The investment management group within Bank of Boston which manages the Fixed
Income Funds is the same group which has managed Bank of Boston's collective
trust funds with similar investment objectives. As of December 31, 1994, Bank
of Boston and its affiliates managed more than $13 billion in assets worldwide.
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Bank of Boston and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Funds, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Bank of Boston and its
affiliates deal, trade and invest for their own account in certain types of
securities purchased on behalf of the Funds. Bank of Boston and its affiliates
may sell such securities to and purchase them from other investment companies
sponsored by SEI Financial Services Company or its affiliates. The Adviser has
informed the Trust that, in making its investment decisions, it does not obtain
or use material inside information in the possession of any division or
department of Bank of Boston or in the possession of any affiliate of Bank of
Boston.
The Xxxxx-Xxxxxxxx Act prohibits certain financial institutions, such as Bank
of Boston, from engaging in the business of underwriting securities of open-end
investment companies, such as the Funds. Bank of Boston takes the position,
based on the advice of counsel, that the investment advisory services it
provides under the Advisory Agreement do not constitute underwriting activities
and are consistent with the requirements of the Xxxxx-Xxxxxxxx Act and other
relevant federal and state legal and regulatory precedent. State laws on this
issue may differ from applicable federal law, and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Future changes in either federal or state statutes or
regulations relating to the permissible activities of banks, as well as future
judicial or administrative decisions and interpretations of present and future
federal and state statutes and regulations, could prevent Bank of Boston from
continuing to perform such services for the Trust. If Bank of Boston were to be
prevented from acting as the Adviser, the Trust would seek alternative means
for obtaining such services.
THE ADMINISTRATOR
--------------------------------------------------------------------------------
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), and the Trust are parties to an
administration agreement dated as of June 1, 1993 (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
provides the Trust with administrative services other than investment advisory
services, including all regulatory reporting, necessary office space,
equipment, personnel, and facilities.
The Administrator is entitled to a fee which is calculated daily and paid
monthly at an annual rate of 0.15% of the Trust's first $300 million of average
daily net assets, 0.12% of the Trust's second $300 million of average daily net
assets and 0.10% of the Trust's average daily net assets over $600 million.
Each Tax-Exempt Fund's portion of such fee is based on the average daily net
assets of such Fund. The Administrator has agreed to waive a portion of its
fees on a month to month basis under certain circumstances for certain of the
portfolios of the Trust.
THE SHAREHOLDER SERVICING AND TRANSFER AGENT
--------------------------------------------------------------------------------
SEI Financial Management Corporation acts as dividend disbursing agent and
shareholder servicing agent for the Trust. Compensation for these services is
paid under the Administration Agreement. SEI Financial Management Corporation
also acts as transfer agent (the "Transfer Agent") under a separate transfer
agent agreement. The principal business address of the Transfer Agent is 000
Xxxx Xxxxxxxxxx Xxxx, Xxxxx, XX 00000.
THE DISTRIBUTOR
--------------------------------------------------------------------------------
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") dated as of June 1, 1993, and the Trust has adopted a
distribution plan (the "Plan") dated as of June 1, 1993 pursuant to Rule 12b-1
under the Investment Company Act of 1940. As provided in the Distribution
Agreement and the Plan, the Trust will pay the Distributor a fee for its
services, calculated
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daily and paid monthly, at an annual rate of .25% of the average daily net
assets of each Tax-Exempt Fund. The Distributor may apply all or a portion of
this fee toward: (a) compensation for its services in connection with
distribution assistance or provision of Shareholder services; or (b) payments
to financial institutions and intermediaries such as banks (including Bank of
Boston), savings and loan associations, insurance companies, investment
counselors, broker-dealers and the Distributor's affiliates and subsidiaries,
as compensation for services, reimbursement of expenses incurred in connection
with distribution assistance, or provision of Shareholder services. The Plan is
characterized as a "compensation plan" (in contrast to "reimbursement"
arrangements in which a distributor's compensation is linked directly to the
distributor's expenses) since the distribution fee will be paid to the
Distributor without regard to the distribution or Shareholder service expenses
incurred by the Distributor or the amount of payments made to financial
institutions and intermediaries. The Distributor has agreed to waive the 12b-1
fee. This waiver may be terminated by the Distributor at any time.
The Trust may create one or more additional classes of shares of any or all of
the Tax-Exempt Funds to be offered without distribution fees to certain types
of investors.
The Funds may execute brokerage or other agency transactions through the
Distributor, for which the Distributor receives compensation.
From time to time the Distributor may provide incentive compensation to
employees of banks (including Bank of Boston), broker-dealers and investment
counselors, and to its own employees, in connection with the sale of shares of
the Funds or other portfolios of the Trust. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation, including merchandise, airline vouchers, trips and vacation
packages. Such promotional incentives will be offered uniformly to all program
participants and will be predicated upon the amount of shares of the Funds and
other portfolios of the Trust sold by the participant.
PURCHASE OF SHARES
--------------------------------------------------------------------------------
Shares of the Funds are sold on a continuous basis and may be purchased
directly from the Trust's Distributor either by mail or by telephone. Shares
may also be purchased through a broker-dealer which has established a dealer
agreement with the Distributor.
Purchases of shares of each Fund may be made Monday through Friday except on
days when the New York Stock Exchange or the Federal Reserve Bank of Boston is
closed ("Business Days"). Current holidays for the New York Stock Exchange
and/or the Federal Reserve Bank of Boston are New Year's Day, Xxxxxx Xxxxxx
Xxxx Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Thanksgiving and Christmas. Except as provided below, the
minimum initial investment in the shares is $1,000, and all subsequent
purchases of shares must be at least $250. Minimum purchase amounts may be
waived by the Distributor in its discretion. No minimum purchase amount applies
to subsequent purchases made by reinvestment of dividends.
The purchase price for shares of a Fund is their net asset value next
determined after the Distributor receives a purchase order in good form. Net
asset value per share is determined as of the close of trading on the New York
Stock Exchange, 4:00 p.m. ET, on each Business Day. Purchases will be made in
full and fractional shares of a Fund calculated to three decimal places.
A purchase order for shares of a Fund will be effective as of the Business Day
the order is received by the Distributor if the Distributor receives a purchase
order, in good form, for the shares and payment (by wire transfer or check) for
the shares before 4:00 p.m. ET on that day. Purchase orders submitted through
broker-dealers which have established dealer agreements with the Distributor
normally will be received by the Distributor on the Business Day after they are
received
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by the broker-dealer. In certain circumstances where the agreement between the
Distributor and the customer's broker so permits, a purchase order for
additional shares of a Tax-Exempt Fund will be effective as of the Business Day
the order is received by the Distributor if the Distributor receives a purchase
order in good form for the shares before 4:00 p.m. ET on that day and payment
(by wire transfer or check) for the shares is received before 4:00 p.m. ET
within 5 Business Days thereafter.
By Mail
--------------------------------------------------------------------------------
Investors may purchase shares of any Fund by completing and signing an Account
Application and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to the Fund in which shares are being
purchased, e.g., "1784 Tax-Exempt Medium-Term Income Fund," "1784 Massachusetts
Tax-Exempt Income Fund," "1784 Rhode Island Tax-Exempt Income Fund" or "1784
Connecticut Tax-Exempt Income Fund," to SEI Financial Management Corporation
(the "Transfer Agent"), X.X. Xxx 0000, Xxxxx, XX 00000-0000. Subsequent
purchases of shares may be made at any time by mailing a check (or other
negotiable bank draft or money order) to the Transfer Agent.
Account Applications can be obtained by calling the Distributor at 1-800-BKB-
1784.
By Telephone
--------------------------------------------------------------------------------
If a Shareholder has previously submitted an Account Application, that
Shareholder may also purchase shares by telephone by calling the Distributor
toll-free at 0-000-XXX-0000. Orders by telephone will not be executed until an
Account Application and payment have been received. In certain circumstances
where the agreement between the Distributor and the customer's broker so
permits, orders by telephone representing subsequent purchases of shares of a
Tax-Exempt Fund will be executed prior to receipt of payment, but payment must
be received before 4:00 p.m. ET within 5 Business Days thereafter.
Systematic Investment Plan (SIP)
--------------------------------------------------------------------------------
A Shareholder may also arrange for periodic additional investments in a Tax-
Exempt Fund through automatic deductions by Direct Deposit (if available from a
Shareholder's employer) or by Automatic Clearing House ("ACH") transactions
from a checking account by completing the appropriate section of the Account
Application. The Systematic Investment Plan is subject to account minimum
initial purchase amounts and minimum maintained balance requirements. The
minimum pre-authorized investment amount is $50 per month. An Account
Application may be obtained by contacting the Distributor at 1-800-BKB-1784.
Other Information Regarding Purchases
--------------------------------------------------------------------------------
Shares of a Fund may also be purchased through financial institutions,
including Bank of Boston, which provide shareholder service or other assistance
to the Trust. Texas residents may only purchase shares through the Distributor.
Shares purchased by persons ("Customers") through financial institutions may be
held of record by the financial institution. Financial institutions may impose
cut-off times for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Distributor. Customers should
contact their financial institution for information as to the institution's
procedures for transmitting purchase, exchange or redemption orders to the
Distributor. The Distributor's receipt of an order may be delayed by one or
more Business Days.
Customers who desire to transfer the registration of shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change. Other Shareholders who desire to
transfer the registration of their shares should contact the Administrator.
Purchases may be made by ACH transactions, as well as by check or wire
transfer.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer
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account fees. Information concerning these services and any charges will be
provided to the Customer by the financial institution.
No certificates representing shares will be issued.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such offer. Each Fund will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. These
procedures will include verification of a caller's identity by asking for his
or her name, address, telephone number, Social Security number, and account
number. If these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine are not followed, the Fund may be liable
for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
For all purchases, if payment is not made or a check received for shares does
not clear, the purchase will be cancelled and the investor could be liable for
any losses to the Fund, including losses resulting from a decline in the net
asset value of the applicable shares between the date of purchase and the date
of cancellation, and for a check return fee up to $25.00, as applicable. Shares
purchased will begin accruing dividends on the day following the date of
purchase.
The net asset value per share of each Fund is determined by dividing the total
market value of the Fund's investments and other assets, less any liabilities,
by the total outstanding shares of the Fund. The Fund may use a pricing service
to provide market quotations. A pricing service may use a matrix system of
valuation to value fixed income securities which considers factors such as
securities prices, yield features, ratings, and developments related to a
specific security.
REDEMPTION OF SHARES
--------------------------------------------------------------------------------
Shareholders may redeem their shares on any Business Day and shares may
ordinarily be redeemed by mail or telephone, with proceeds payable by check,
ACH or wire transfer. A redemption is treated, for federal and state income tax
purposes, as a sale of the Fund shares redeemed; a redemption could, therefore,
result in taxable gain or loss to the Shareholder. If proceeds are made by wire
transfer, a wire transfer charge (presently $12.00) will be imposed.
By Mail
--------------------------------------------------------------------------------
A written request for redemption must be received by the Transfer Agent in good
form in order to constitute a valid request for redemption. All account holders
must sign the redemption request. Under certain circumstances, the Transfer
Agent may require that the signatures on the request be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange, or by another
eligible guarantor institution. Redemption requests may be mailed to SEI
Financial Management Corporation, X.X. Xxx 0000, Xxxxx, XX 00000-0000, or 000
Xxxx Xxxxxxxxxx Xxxx, Xxxxx, XX 00000.
By Telephone
--------------------------------------------------------------------------------
Shares may be redeemed by telephone if the Shareholder elects that option on
the Account Application (unless a written redemption request, with the
Shareholder's signature guaranteed, is required; see "Signature Guarantees"
below). Telephone redemption orders must be placed with the Transfer Agent
prior to 4:00 p.m. ET on any Business Day to be effective on such day. The
Shareholder may have the proceeds mailed to his or her address or wired to a
commercial bank account previously designated on the Account Application.
Telephone redemption requests may be made by calling the Transfer Agent at 1-
800-BKB-1784. Shareholders may not close their account by telephone. During
periods of drastic economic or market changes or severe weather or other
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emergencies, Shareholders may find it difficult to implement a telephone
redemption. If such a case should occur, another method of redemption, such as
written request sent via an overnight delivery service, should be considered.
Signature Guarantees
--------------------------------------------------------------------------------
If a Shareholder requests a redemption for an amount in excess of $25,000, a
redemption of any amount to be payable to anyone other than the Shareholder of
record or a redemption of any amount to be sent to any address other than the
Shareholder's address of record with the applicable Fund (or in the case of ACH
or wire transfers, other than as provided in the Shareholder's Account
Application), all account holders on the Shareholder's account must sign a
written redemption request and their signatures must be guaranteed by a
commercial bank, by a member firm of a domestic stock exchange or by another
eligible guarantor institution. The Trust and the Transfer Agent reserve the
right to amend these requirements for the applicable Fund at any time without
notice. For questions about the proper form of redemption requests, call 1-800-
BKB-1784.
Other Information Regarding Redemptions
--------------------------------------------------------------------------------
All redemption orders for shares of the Funds are effected at the net asset
value per share next determined after receipt, by the Transfer Agent, of a
valid request for redemption in good form, as described above. Payment to
Shareholders for shares redeemed will be made within seven days after receipt
by the Transfer Agent of the request for redemption. A redemption must involve
either shares having an aggregate value of at least $250 or all the shares in
an account. Each Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures will
include verification of a caller's identity by asking for his or her name,
address, telephone number, Social Security number, and account number. If these
or other reasonable procedures to confirm that instructions communicated by
telephone are genuine are not followed, the Fund may be liable for any losses
to a Shareholder due to unauthorized or fraudulent instructions. Otherwise, the
investor will bear all risk of loss relating to a purchase, redemption or
exchange by telephone or a wire transfer.
Forwarding of redemption proceeds for shares purchased, or received in exchange
for shares purchased, by check (including certified or cashier's checks) may be
delayed for 15 or more days to ensure that payment has been collected for the
purchase of such shares. Each Fund intends to pay cash for all shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in Fund securities with a market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem, at net asset value, the shares of any Shareholder
if, because of redemptions of shares by or on behalf of the Shareholder (and
not solely because of market declines), the account of such Shareholder in the
Fund has a value of less than the minimum initial purchase amount (normally
$1,000). Accordingly, an investor purchasing shares of the Fund in only the
minimum investment amount may be subject to such involuntary redemption if he
or she thereafter redeems any of these shares. Before the Fund exercises its
right to redeem such shares and to send the proceeds to the Shareholder, the
Shareholder will be given notice that the value of the shares in his or her
account is less than the minimum amount and will be allowed 60 days to make an
additional investment in the Fund in an amount which will increase the value of
the account to at least the minimum amount.
The right of any Shareholder to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or to the extent otherwise
permitted by the Investment Company Act of 1940, if
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an emergency exists. See "Purchase and Redemption of Shares" in the Statement
of Additional Information for examples of when the right of redemption may be
suspended.
SYSTEMATIC WITHDRAWAL PLAN
--------------------------------------------------------------------------------
A shareholder may direct the shareholder servicing agent to send him or her
regular monthly, quarterly, semi-annual or annual payments, as designated on
the Account Application and based upon the value of his or her account. Each
payment under a systematic withdrawal plan must be at least $100, except in
certain limited circumstances. A withdrawal payment under the plan is treated,
for federal and state income tax purposes, as a sale of a number of Fund shares
sufficient to fund the payment; such payment could, therefore, result in
taxable gain or loss to the Shareholder.
EXCHANGES
--------------------------------------------------------------------------------
Some or all of the shares of a Tax-Exempt Fund for which payment has been
received by the Distributor (i.e., an established account) may be exchanged at
their net asset value for shares of one or more of the other portfolios of the
Trust, including shares of another Tax-Exempt Fund. Exchanges will be made only
after instructions in writing or by telephone are received for an established
account by the Distributor.
In the case of shares held of record by Bank of Boston or one of its affiliates
but beneficially owned by a Customer, to exchange such shares the Customer
should contact Bank of Boston or the affiliate, who will contact the
Distributor and effect the exchange on behalf of the Customer. If an exchange
request in good order is received by the Distributor by 4:00 p.m. ET on any
Business Day, the exchange usually will occur on that day; however, requests
for exchanges for shares of a money market fund must be received earlier than
4:00 p.m. ET (in cases when regular trading on the New York Stock Exchange
closes earlier than 4:00 p.m. ET, as early as 12:00 noon ET) for the exchange
to occur on that day. Any Shareholder or Customer who wishes to make an
exchange must have received a current prospectus of the portfolio in which he
or she wishes to invest before the exchange will be effected. Residents of any
state may only exchange shares for shares of another portfolio of the Trust if
that portfolio is registered in that state.
Each exchange must involve either shares having an aggregate value of at least
$250 or all the shares in the account, and the amount of the exchange must meet
the minimum investment requirements for the portfolio of the Trust into which
the exchange is being made.
Exchanges may be made by telephone only if that option has been elected by the
Shareholder on the Account Application. Shares may be exchanged by telephone by
calling the Distributor toll free at 1-800-BKB-1784.
No fees are currently charged to Shareholders directly in connection with
exchanges, although each of the Tax-Exempt Funds reserves the right, upon not
less than 60 days' written notice, to charge Shareholders a nominal fee in
accordance with rules promulgated by the SEC. Each of the Tax-Exempt Funds also
reserves the right to reject any exchange request in whole or in part. The
exchange privilege (or any aspect of it) may be changed or terminated at any
time.
An exchange is treated, for federal and state income tax purposes, as a sale of
the Tax-Exempt Fund shares exchanged; an exchange could, therefore, result in
taxable gain or loss to the Shareholder.
PERFORMANCE
--------------------------------------------------------------------------------
From time to time, the Trust may advertise a Fund's yield, tax-equivalent yield
and total return. These figures will be based on historical earnings and are
not intended to indicate future performance. The yield of a Fund refers to the
annualized income generated by an investment in the Fund over a specified 30-
day period. The yield is calculated by assuming that the income generated by
the investment during that period is generated over one year and is shown as a
percentage of the investment. Each Fund's tax-equivalent yield
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I784 FUNDS
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refers to the yield that a taxable fund would have to generate in order to
produce an equivalent after-tax yield.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, net of any sales charge imposed, for designated time
periods (including but not limited to the period from which the Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all
dividend and capital gain distributions.
A Fund's performance may from time to time be compared to that of other mutual
funds tracked by mutual fund rating services, to that of broad groups of
comparable mutual funds or to that of unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs.
TAXES
--------------------------------------------------------------------------------
The following is a discussion of certain United States federal income tax
considerations relevant to the purchase, ownership, and disposition of shares
in the Funds. The discussion, which is based on current tax laws, regulations,
rulings, and judicial decisions (all of which are subject to change at any time
by legislative, judicial, or administrative action), is not intended to be
complete; therefore, prospective investors should consult their own tax
advisers as to the tax consequences to them of an investment in a Fund.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
Tax Status of the Tax-Exempt Funds
--------------------------------------------------------------------------------
Each Fund is treated as a separate entity for federal income tax purposes, and
is not combined with the other Funds or the Trust's other portfolios. The Trust
intends to qualify each Fund each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and to make distributions to that Fund's shareholders in accordance
with the timing requirements set out in the Code. As a result, it is expected
that the Funds will not be required to pay any federal income or excise taxes.
Federal Tax Treatment of Shareholders
--------------------------------------------------------------------------------
The Trust expects that dividends paid to Shareholders by the Tax-Exempt Funds
from interest on Municipal Securities (referred to as "exempt-interest
dividends") will be exempt from federal income tax because these Funds each
intend to satisfy certain requirements of the Code. One such requirement is
that at the close of each quarter of its taxable year, at least 50% of the
value of a Fund's total assets consists of obligations whose interest is exempt
from federal income tax.
Distributions of income from capital gains, from investments in taxable
securities (including repurchase agreements), and from certain other
transactions will be taxable to Shareholders, whether paid in cash or in
additional shares. Distributions from taxable net investment income and short-
term capital gains will be taxable to Shareholders as ordinary income, while
distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) will be taxable to Shareholders as long-
term capital gains, regardless of how long the Shareholders have held their
shares.
Interest on indebtedness incurred by Shareholders to purchase or carry shares
of a Tax-Exempt Fund
will not be deductible for federal income tax purposes. Exempt-interest
dividends are taken into account in calculating the amount of social security
and railroad retirement benefits that may be subject to federal income tax.
Certain distributions of exempt-interest dividends may also be a tax preference
item for purposes of the federal alternative minimum tax and all exempt-
interest dividends may increase a corporate shareholder's alternative minimum
tax. Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by private activity bonds should
consult their tax advisers before purchasing shares of the Funds.
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The Trust expects that none of the dividends received from the Funds will be
eligible for the dividends received deduction for corporations. Any Fund
dividend that is declared in October, November, or December of a calendar year,
payable to Shareholders of record in such a month, and that is paid the
following January will be treated as if received by the Shareholders on
December 31 of the year in which the dividend is declared.
The Trust will make annual reports to Shareholders of the federal income tax
status of all distributions from each Fund; the Trust will also make annual
reports to Shareholders of the State Funds of the applicable state tax status
of each State Fund's distributions.
The exchange or redemption of Fund shares is a taxable event to the
Shareholders; however, under certain circumstances, realized losses may be
disallowed and short-term capital losses may be converted into long-term
capital losses.
The Funds will generally withhold tax payments at the rate of 30% on dividends
and other payments that are subject to such withholding and that are made to
persons who are neither citizens nor residents of the U.S., although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. Each
Fund is also required in certain circumstances to withhold 31% of taxable
dividends and certain redemption proceeds paid to any Shareholder (including a
Shareholder who is neither a citizen nor a resident of the U.S.) who does not
furnish to the Fund certain information and certifications or who is otherwise
subject to backup withholding. Backup withholding will not, however, be applied
to payments that have been subject to 30% (or lower treaty rate) withholding.
State Taxes
--------------------------------------------------------------------------------
Depending on the nature of the distribution of income and the residence of the
Shareholder, certain distributions by the Funds may be subject to state and
local income taxes. Shareholders of the 1784 Massachusetts Tax-Exempt Income
Fund who are subject to Massachusetts personal income taxation will not,
however, be required to include in their Massachusetts gross income that
portion of their exempt-interest dividends that the Trust identifies as
directly attributable to interest received by the Fund on obligations issued by
the Commonwealth of Massachusetts, its counties and municipalities,
authorities, political subdivisions, or instrumentalities. Such shareholders
also will not be required to include in their Massachusetts gross income that
portion of ordinary dividends that the Trust properly and timely identifies in
a written notice as being attributable to interest earned on obligations of the
United States or its agencies or possessions that are exempt from state
taxation. Exempt-interest dividends paid to a corporate shareholder will be
subject to the Massachusetts corporate excise tax, and shares of the 1784
Massachusetts Tax-Exempt Income Fund may be included in the net worth base of
that tax. Any capital gains distributed by the 1784 Massachusetts Tax-Exempt
Income Fund (except for cases in which capital gains are specifically exempted
from income taxation under the legislation authorizing issuance of the
obligations the sale of which produces the capital gains), and gains realized
by the Shareholder from a redemption or sale of shares of the Fund, will be
subject to Massachusetts personal income or the corporate excise tax, as
applicable.
Shareholders of the 1784 Rhode Island Tax-Exempt Income Fund who are subject to
Rhode Island personal income taxation or to the Rhode Island business
corporation tax will not be required to include in their Rhode Island taxable
income that portion of their exempt-interest dividends that the Trust
identifies as directly attributable to interest received by the Fund on
obligations issued by the State of Rhode Island and Providence Plantations, its
counties and municipalities, authorities, political subdivisions, or
instrumentalities. Shareholders of the Fund who are subject to Rhode Island
personal income taxation or to the Rhode Island business corporation tax will
be required to include in their Rhode Island income or net income, as
applicable, any capital gains or losses from a redemption or sale of shares of
the Fund, and any capital gains distributed by the Fund other than any such
distributions derived from
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the sale of underlying obligations issued by Rhode Island issuers that are
specifically exempted from Rhode Island taxation of capital gains by the Rhode
Island law authorizing issuance of the obligations.
Shareholders of the 1784 Connecticut Tax-Exempt Income Fund who are subject to
Connecticut personal income taxation will not be required to include in their
Connecticut gross income that portion of their exempt-interest dividends that
the Trust identifies as directly attributable to interest received by the Fund
on obligations issued by the State of Connecticut, its counties and
municipalities, authorities, political subdivisions, or instrumentalities. Any
capital gains distributed by the Fund may be subject to Connecticut personal
income taxes if received by Shareholders subject to such taxes, although
currently proposed regulations would exempt distributions of net capital gains
derived from the sale or exchange of obligations of Connecticut and its
political subdivisions. Exempt-interest dividend distributions by the Fund
derived from interest income of the Fund that is treated as a preference item
for Federal income tax purposes may be subject to the net Connecticut minimum
tax in the case of any Shareholder subject to both the Connecticut personal
income tax and the federal alternative minimum tax. Distributions of capital
gains and exempt-interest dividends derived from interest exempt from
Connecticut personal income tax and federal income tax will be subject to the
Connecticut Corporation Business Tax if received by a corporation subject to
such tax. Gains from the redemption or other sale of Fund shares may be subject
to Connecticut personal income taxes or the Connecticut corporation business
tax if the Shareholder is otherwise subject to those taxes.
GENERAL INFORMATION
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The Trust
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The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated February 5, 1993. The Declaration of Trust permits the Trust to
issue an unlimited number of shares of beneficial interest of each of the
portfolios (referred to as "series") of the Trust, each of which is a separate
fund. In addition to the Tax-Exempt Funds, the Trust includes the following
funds: 1784 Institutional U.S. Treasury Money Market Fund, 1784 U.S. Treasury
Money Market Fund, 1784 Tax-Free Money Market Fund, 1784 Growth and Income
Fund, 1784 Asset Allocation Fund, 1784 International Equity Fund, 1784 U.S.
Government Medium-Term Income Fund, 1784 Short-Term Income Fund, and 1784
Income Fund. All consideration received by the Trust for shares of any fund and
all assets of such fund belong to that fund and are subject to liabilities
related thereto. The Trust reserves the right to create and issue additional
series of shares, and reserves the right to create and issue shares of
additional classes of any or all series.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses and reports to Shareholders,
costs of custodian services and registering the shares of the Funds and other
series under federal and state securities laws, pricing, insurance expenses,
brokerage costs, interest charges, taxes, and amortization of organization
expenses, and any extraordinary expenses including but not limited to
litigation expenses. For the fiscal year ended May 31, 1995, the total expenses
of each of the Funds were as follows: for the 1784 Tax-Exempt Medium-Term
Income Fund, $1,265,285, of which $464,922 was voluntarily waived or reimbursed
by the Bank of Boston (after giving effect to such waiver or reimbursement,
0.80% of such Fund's average daily net assets for that fiscal year); for the
1784 Massachusetts Tax-Exempt Income Fund, $814,052, of which $330,080 was
voluntarily waived or reimbursed by the Bank of Boston (after giving effect to
such waiver or reimbursement, 0.80% of such Fund's average daily net assets for
that fiscal year); for the 1784 Rhode Island Tax-Exempt Income Fund, $354,367,
of which $235,443 was voluntarily waived or reimbursed by the Bank of Boston
(after giving effect to such waiver or reimbursement, 0.54% of such Fund's
average daily net assets for that fiscal year); and for the 1784 Connecticut
Tax-Exempt Income Fund,
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$570,242, of which $357,499 was voluntarily waived or reimbursed by the Bank of
Boston (after giving effect to such waiver or reimbursement, 0.52% of such
Fund's average daily net assets for that fiscal year).
Under applicable law, Shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the risk of a
Shareholder incurring financial loss on account of such Shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations and inadequate insurance existed. The Trust believes that the
likelihood of such circumstances is remote.
Trustees of the Trust
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The management and affairs of the Trust are supervised by its Board of
Trustees. The Trustees have approved contracts under which, as described above,
certain companies provide essential management, administrative and Shareholder
services to the Trust.
Voting Rights
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Each share held entitles the Shareholder of record to one vote. Each fund or
class will vote separately on matters relating solely to that fund or class. As
a Massachusetts business trust, the Trust is not required to hold annual
meetings of Shareholders but approval will be sought for certain changes in the
operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested, the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
Reporting
--------------------------------------------------------------------------------
The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
Shareholder Inquiries
--------------------------------------------------------------------------------
Shareholder inquiries should be directed to SEI Financial Management
Corporation, X.X. Xxx 0000, Xxxxx, Xxxxxxxxxxxx 00000-0000, at 1-800-BKB-1784.
Dividends and Distributions
--------------------------------------------------------------------------------
Substantially all of the net investment income (not including capital gains) of
the Tax-Exempt Funds is distributed in the form of dividends which are declared
daily and paid monthly. Shareholders of record will be entitled to receive the
dividend, except that shares purchased will not begin accruing dividends until
the day following the date of their purchase. On redemption, a shareholder will
receive dividends through and including the day a valid redemption request is
received by the Transfer Agent. Currently, capital gains of the Funds, if any,
will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the Shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Administrator at least 15 days prior to the distribution.
If dividend payments are returned and unclaimed within 30 days, they will be
reinvested and the Shareholder will be deemed to have elected to receive future
dividend and capital gain distributions in additional shares.
Counsel and Independent Accountants
--------------------------------------------------------------------------------
Xxxxxxx, Xxxx & Xxxxx, Boston, MA, serve as counsel to the Trust. Coopers &
Xxxxxxx L.L.P., Boston, MA, serve as the independent accountants of the Trust.
Custodian
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Bank of Boston, 000 Xxxxxxx Xxxxxx, Xxxxxx, XX 00000, acts as Custodian of the
Trust. The Custodian
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holds cash, securities and other assets of the Trust as required by the
Investment Company Act of 1940. Under a separate agreement, Bank of Boston also
provides certain accounting services for the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS AND TECHNIQUES
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The following is a description of certain of the permitted investments and
investment techniques for the Funds. Not all of the Funds will normally invest
in all of the permitted investments, nor engage in all of the investment
techniques, listed below. See "Investment Policies." Except as specifically
stated below or elsewhere in this Prospectus or in the Statement of Additional
Information with respect to certain of the Funds' permitted investments and
investment techniques, there are no limits on the amount of assets a Fund may
invest in particular types of securities.
U.S. Treasury Obligations -- U.S. Treasury obligations include bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS"). STRIPS are sold as zero coupon securities. These
securities are usually structured with two classes that receive different
portions of the interest and principal payments from the underlying obligation.
The yield to maturity on the interest-only class is extremely sensitive to the
rate of principal payments on the underlying obligation. The market value of
the principal-only class generally is unusually volatile in response to changes
in interest rates. See "Zero Coupon Securities" below for more information on
these securities.
Receipts -- A Fund may purchase interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
or brokerage firms and are created by depositing U.S. Treasury obligations into
a special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts" ("TIGRs"),
and "Certificates of Accrual on Treasury Securities" ("CATS"). TRs, TIGRs, and
CATS are sold as zero coupon securities. See "Zero Coupon Securities" below for
more information on these securities.
U.S. Government Agencies -- Certain Federal agencies such as the Government
National Mortgage Association ("GNMA") have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States (e.g., GNMA) or supported by the issuing agencies' right to borrow from
the Treasury. The issues of other agencies are supported only by the credit of
the instrumentality (e.g., Federal National Mortgage Association, "FNMA").
Bank Obligations -- A Fund may invest in bank obligations, i.e., certificates
of deposit, time deposits (including Eurodollar time deposits) and bankers'
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and
foreign branches of foreign banks, domestic savings and loan associations and
other banking institutions. A Fund may invest in such obligations, however,
only if the issuer (or the parent company, in the case of subsidiaries or
branches) has assets of at least $1 billion, and only if the Adviser deems the
bank obligation to be of comparable credit quality to the commercial paper in
which the applicable Fund may invest.
Bankers' Acceptances -- A banker's acceptance is a xxxx of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
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Certificates of Deposit -- A certificate of deposit is a negotiable interest-
bearing instrument with a specific maturity. Certificates of deposit are issued
by banks and savings and loan institutions in exchange for the deposit of funds
and normally can be traded in the secondary market prior to maturity.
Money Market Funds -- A money market fund is an investment company that limits
its investments to high quality money market instruments with a weighted
average maturity of 90 days or less. A Fund may not invest more than 5% of its
assets in any one money market fund or more than 10% of its assets in other
investment companies, including money market funds. When a Fund invests in a
money market fund, a Shareholder bears not only his or her proportionate share
of the Fund's expenses, but also indirectly his or her share of the expenses of
the money market fund, including management fees.
Time Deposits -- A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities; therefore, no Fund will invest more than
15% of its net assets in such time deposits and other illiquid securities.
Futures and Options on Futures -- A Fund may also enter into bond and interest
rate futures contracts and options on futures contracts provided that the sum
of the Fund's initial margin deposits on open futures contracts plus the amount
paid for premiums for unexpired options on futures contracts does not exceed 5%
of the market value of the Fund's total assets and the outstanding obligations
to purchase securities under futures contracts do not exceed 20% of the Fund's
total assets. Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific security at a
specified future time and at a specified price. An option on a futures contract
gives the purchaser the right, in exchange for a premium, to assume a position
in a futures contract at a specified exercise price during the term of the
option. A Fund will minimize the risk that it will be unable to close out a
futures contract by entering into only those futures contracts which are traded
on national futures exchanges.
It is intended that the Funds would use futures contracts and related options
only for bona fide hedging purposes, i.e., to offset unfavorable changes in the
value of securities otherwise held or expected to be acquired for investment
purposes. There are risks associated with these hedging activities, including
the following: (1) the success of a hedging strategy may depend on the ability
of the Adviser to predict movements in the prices of individual securities,
fluctuations in markets, and movements in interest rates; (2) there may be an
imperfect or no correlation between the changes in market value of the
securities held by the Fund and the prices of futures and options on futures;
(3) there may not be a liquid secondary market for a futures contract or
futures option; (4) trading restrictions or limitations may be imposed by an
exchange; and (5) government regulations may restrict trading in futures
contracts and futures options.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by the Funds may carry variable or floating rates of interest and may involve a
conditional or unconditional demand feature permitting the holder to demand
payment of principal at any time or at specified intervals. Such obligations
may include variable amount master demand notes. A demand instrument with a
demand notice period exceeding seven days may be considered illiquid if there
is no secondary market for such security; a Fund will not invest more than 15%
of its net assets in illiquid securities.
The interest rates on these securities may be reset daily, weekly, quarterly or
some other reset period, and may have a floor or ceiling on interest rate
charges. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates.
Commercial Paper -- Commercial paper is the term used to designate unsecured
short-term promissory notes
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issued by corporations and other entities. Maturities on these issues vary from
one to 270 days.
Loan Participations -- The Funds may invest in interests in loans to U.S.
corporations (i.e., borrowers) which are administered by the lending bank or
agent for a syndicate of lending banks, and sold by the lending bank or
syndicate member ("intermediary bank"). In a loan participation, the borrower
of the underlying loan will be deemed to be the issuer of the participation
interest except to the extent the Fund derives its rights from the intermediary
bank. The Fund may only purchase interests in loan participations issued by a
bank in the United States with assets exceeding $1 billion and for which the
underlying loan is issued by borrowers in whose obligations the Fund may
invest. Because the intermediary bank does not guarantee a loan participation
in any way, a loan participation is subject to the credit risks generally
associated with the underlying corporate borrower. In addition, in the event
the underlying corporate borrower fails to pay principal and interest when due,
the Fund may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Fund had purchased a direct
obligation (such as commercial paper) of such borrower because it may be
necessary under the terms of the loan participation for the Fund to assert its
rights against the borrower through the intermediary bank. Moreover, under the
terms of a loan participation the purchasing Fund may be regarded as a creditor
of the intermediary bank (rather than of the underlying corporate borrower), so
that the Fund may also be subject to the risk that the issuing bank may become
insolvent. Further, in the event of the bankruptcy or insolvency of the
corporate borrower, a loan participation may be subject to certain defenses
that can be asserted by such borrower as a result of improper conduct by the
issuing bank. The secondary market, if any, for these loan participations is
limited and any such participation purchased by a Fund may be regarded as
illiquid; no Fund will invest more than 15% of its net assets in illiquid
securities.
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933 or an exemption from
registration are referred to as "restricted securities." Each of the Tax-Exempt
Funds may invest up to 15% of its net assets in illiquid securities, including
restricted securities; however, this limit will not apply to a restricted
security if it is determined by or under the direction of the Trust's Board of
Trustees, based on trading markets for the specific restricted security, that
such security is liquid. The liquidity of these investments could be impaired
if trading does not develop or declines. In the case of illiquid securities,
the absence of a trading market can make it difficult to ascertain a market
value for these investments. Disposing of illiquid securities may involve time-
consuming negotiation and legal expense, and it may be difficult or impossible
for a Fund to sell them promptly at an acceptable price.
Repurchase Agreements -- A repurchase agreement is an agreement by which a
person obtains a security and simultaneously commits to return the security to
the seller at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days from the date of purchase. The
Custodian or its agent will hold the security as collateral for the repurchase
agreement. Collateral must be maintained at a value at least equal to 100% of
the purchase price. A Fund bears a risk of loss in the event the other party
defaults on its obligations and the Fund is delayed or prevented from its right
to dispose of the collateral securities or if the Fund realizes a loss on the
sale of the collateral securities. The Adviser will enter into repurchase
agreements on behalf of a Fund only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
guidelines established and periodically reviewed by the Trustees. Pursuant to
an exemptive order from the SEC, each of the Funds may enter into repurchase
agreements on a pooled basis with other portfolios of the Trust.
Mortgage-Backed Securities -- Each of the Funds may acquire securities
representing an interest in a pool of mortgage loans that are issued or
guaranteed by a U.S. Government agency. The primary issuers or guarantors
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of these mortgage-backed securities are GNMA, FNMA and the Federal Home Loan
Mortgage Corporation. The Funds may also invest in mortgage-backed securities
issued by non-governmental entities which consist of collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs")
that are rated in one of the top three rating categories by S&P or Moody's or
are of comparable quality as determined by the Adviser. The mortgages backing
these securities include conventional thirty-year fixed rate mortgages,
graduated payment mortgages, and adjustable rate mortgages. The Funds will
purchase only CMOs and REMICs that are backed solely by GNMA certificates or
other mortgage pass-through certificates issued or guaranteed by the U.S.
Government or its agencies and instrumentalities. However, the guarantees do
not extend to the mortgage-backed securities' value, which is likely to vary
inversely with fluctuations in interest rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yield of a particular issue of pass-
through certificates. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When the mortgage obligations are prepaid, the Fund reinvests the prepaid
amounts in securities, the yield of which reflects interest rates prevailing at
the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life. The
Adviser believes that the estimated average life is the most appropriate
measure of the maturity of a mortgage-backed security. Accordingly, in order to
determine the average maturity of a Fund, the Adviser will use an estimate of
the average life of a mortgage-backed security. An average life estimate is a
function of an assumption regarding anticipated prepayment patterns. The
assumption is based upon current interest rates, current conditions in the
relevant housing markets and other factors. The assumption is necessarily
subjective, and thus different market participants could produce somewhat
different average life estimates with regard to the same security. There can be
no assurance that the average life as estimated by the Adviser will be the
actual average life.
Asset-Backed Securities -- Asset-backed securities consist of securities
secured by company receivables, truck and auto loans, leases, and credit card
receivables. These issues are normally traded over-the-counter and typically
have a short-intermediate maturity structure depending on the paydown
characteristics of the underlying financial assets which are passed through to
the security holder. Because prepayment of those underlying financial assets
affects the maturity of asset-backed securities, the Adviser will use estimates
of the average life of asset-backed securities in order to determine the
effective maturity of the Funds. See "Mortgage-Backed Securities" for more
information on estimates of average life. There can be no assurance that the
average life of an asset-backed security as estimated by the Adviser will be
the actual average life.
Standby Commitments -- A Fund may acquire securities subject to a standby
commitment which permits a Fund to sell the security at a fixed price prior to
maturity. The underlying municipal securities subject to a standby commitment
may be sold at any time at the market rates. In certain cases, a premium may be
paid for a standby commitment. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving standby commitments is to maintain flexibility and
liquidity to permit the Fund to meet redemptions and remain as fully invested
as
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possible in municipal securities. Each Fund will limit standby commitment
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Trust's Board of Trustees.
There is no limit to the percentage of Fund securities that any Fund may
purchase subject to a standby commitment but the amount paid directly or
indirectly for a standby commitment held by any Fund will not exceed 1/2 of 1%
of the value of the total assets of the Fund.
Municipal Securities -- Municipal securities which the Funds may purchase
include (i) debt obligations issued by or on behalf of public authorities to
obtain funds to be used for various public facilities, for refunding
outstanding obligations, for general operating expenses, and for lending such
funds to other public institutions and facilities, and (ii) certain private
activity and industrial development bonds issued by or on behalf of public
authorities to obtain funds to provide for the construction, equipment, repair,
or improvement of privately operated facilities. Municipal notes include (but
are not limited to) general obligation notes, tax anticipation notes, revenue
anticipation notes, bond obligation notes, certificates of indebtedness, demand
notes, and construction loan notes. Municipal bonds include (but are not
limited to) general obligation bonds, revenue or special obligation bonds,
private activity and industrial development bonds. General obligation bonds are
backed by the taxing power of the issuing municipality. Revenue bonds are
backed by the revenues of a project or facility, e.g., tolls from a toll
bridge. The payment of principal and interest on private activity and
industrial development bonds generally is dependent solely on the ability of
the facility's user to meet its financial obligations and the pledge, if any,
of real and personal property so financed as security for such payment.
Municipal Securities also include participations in municipal leases. These are
undivided interests in a portion of an obligation in the form of a lease or
installment purchase issued by a state or local government to acquire equipment
or facilities. Municipal leases frequently have special risks not normally
associated with general obligation bonds or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by
the appropriate legislative body on a yearly or other periodic basis. Although
the obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In light of these concerns, the Trust
has adopted and follows procedures for determining whether municipal lease
securities purchased by a Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures require
that a number of factors be used in evaluating the liquidity of a municipal
lease security, including the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number
of other potential purchasers, the willingness of dealers to undertake to make
a market in the security, the nature of the marketplace in which the security
trades, the credit quality of the security, and other factors which the Adviser
may deem relevant.
Forward Commitments or Purchases on a When-Issued Basis -- Each of the Funds
may enter into forward commitments or purchase securities on a when-issued
basis, which means that the price of the securities is fixed at the time of
commitment and that the delivery and payment will ordinarily take place beyond
customary settlement time. The interest rate realized on these securities is
fixed as of the purchase date and no interest accrues to the Fund before
settlement.
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These securities are subject to market fluctuation due to changes in market
interest rates and will have the effect of leveraging the Fund's assets; the
securities are also subject to fluctuation in value pending settlement based
upon public perception of the creditworthiness of the issuer of these
securities. Securities purchased on a when-issued or forward commitment basis
may expose a Fund to risk because such securities may experience such
fluctuations in value prior to their actual delivery. Agreements to purchase
securities on a when-issued or forward commitment basis will only be made with
the intention of taking delivery and not for speculative purposes. A Fund may
invest up to 25% of its assets in forward commitments or commitments to
purchase securities on a when-issued basis. While awaiting delivery of
securities purchased on such bases, a Fund will establish a segregated account
consisting of cash, short-term money market instruments or high quality debt
securities equal to the amount of the commitments to purchase securities on
such bases.
Zero Coupon Securities -- A zero coupon security pays no interest or principal
to its holder during its life. A zero coupon security is sold at a discount,
frequently substantial, and redeemed at face value at its maturity date. The
amount of the discount is accrued over the life of the security and constitutes
the income earned on the security for both accounting and tax purposes. The
market prices of zero coupon securities are generally more volatile than the
market prices of securities of similar maturity that pay interest periodically,
and zero coupon securities are likely to respond to a greater degree to
interest rate changes than are non-zero coupon securities with similar maturity
and credit qualities.
Securities Lending -- In order to generate additional income, a Fund may lend
the securities in which it is invested pursuant to agreements requiring that
the loan be continuously secured by cash, securities of the U.S. Government or
its agencies or any combination of cash and such securities as collateral equal
at all times to 100% of the market value of the securities lent plus accrued
interest. A Fund may lend up to 33 1/3% of its total assets. The Fund will
continue to receive interest on the securities lent while simultaneously
earning interest on the investment of cash collateral in U.S. Government
securities. There may be risk of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will only be made to borrowers deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from such securities loans
justifies the attendant risk.
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