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APPENDIX
DESCRIPTION OF RATINGS
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The following descriptions are summaries of certain published ratings.
Description of Commercial Paper Ratings
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The following descriptions of commercial paper ratings have been published by
Standard and Poor's Ratings Group ("S&P"), Xxxxx'x Investors Service, Inc.
("Moody's"), Fitch Investors Service, Inc. ("Fitch") and Duff & Xxxxxx Credit
Rating Company ("Duff").
S&P's ratings are graded into several categories of which A is the highest.
This category is divided into sub-categories as follows:
A-1 This highest sub-category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality, respectively, on the
basis of relative repayment capacity.
Commercial paper issues rated F-1+, F-1 and F-2 by Fitch are judged by Fitch to
be of "exceptionally strong" quality, "very strong" quality, and "good"quality,
respectively, on the basis of relative repayment capacity.
Duff's ratings are graded into several categories of which 1 is the highest.
This category is divided into sub-categories as follows:
Duff 1+ This rating indicates the highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
Duff 1 This rating indicates very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
Duff 1- This rating indicates a high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Duff 2 This rating indicates a good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
Description of Corporate Bond Ratings
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Bonds rated AAA by S&P have the highest rating S&P assigns to debt obligations.
Such a rating indicates an extremely strong capacity to repay principal and pay
interest. Bonds rated AA also qualify as high-quality debt obligations.
Capacity to repay principal and pay interest is very strong, and differs from
AAA issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher rated categories.
Bonds rated BBB by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
A-1
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Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than with Aaa securities.
Bonds which are rated A by Moody's possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated Baa by Moody's are considered to be medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over and great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
Bonds rated AA by Fitch are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
Bonds rated A by Fitch are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Bonds rated AAA by Duff are judged to be of the highest credit quality. The
risk factors are negligible.
Bonds rated AA by Duff are judged to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly because of economic
conditions.
Bonds rated A by Duff possess protection factors that are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
Bonds rated BBB by Duff possess below average protection factors but still
considered sufficient for prudent investments. There may be considerable
variability in risk during economic cycles.
A-2
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PROSPECTUS
[LOGO OF 1784 FUNDS APPEARS HERE]
Investment Adviser:
THE FIRST NATIONAL BANK OF BOSTON
1784 FUNDS (the "Trust") is a mutual fund consisting of several professionally
managed portfolios, or funds, of securities. The Trust provides a convenient
way to invest in one or more of these funds. This Prospectus relates to shares
of the following fixed income funds (the "Funds" or the "Fixed Income Funds"):
1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
1784 INCOME FUND
1784 SHORT-TERM INCOME FUND
Shares of the Funds are offered primarily to individuals and institutional
investors, including accounts for which The First National Bank of Boston
("Bank of Boston"), its affiliates and correspondents, and other financial
institutions act in a fiduciary, agency or custodial capacity. Investors in
shares of the Funds are referred to hereinafter as "Shareholders." Shares of
the Funds are currently offered without any sales charges.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANK OF BOSTON OR ANY OF ITS AFFILIATES. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING RISK
TO PRINCIPAL.
This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing in the Funds.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information, dated October 2, 1995, has
been filed with the Securities and Exchange Commission (the "SEC") and is
available without charge through the Distributor, SEI Financial Services
Company, 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
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Following are (i) a tabular summary of expenses relating to purchases and sales
of shares of each of the Fixed Income Funds and annual operating expenses of
the Funds, and (ii) an example illustrating the dollar cost of such expenses on
a hypothetical $1,000 investment in each of the Funds.
Shareholder Transaction Expenses
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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
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(As a percentage of average net assets)
1784 U.S.
Government
Medium- 1784
Term 1784 Short-Term
Income Fund Income Fund Income Fund
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Advisory Fees (after
fee waiver) (2) 0.60% 0.60% 0.45%
12b-1 Fee (after fee waiver) (2) None None None
Other Expenses 0.20% 0.20% 0.20%
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Total Operating Expenses (2) 0.80% 0.80% 0.65%
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(1) If proceeds of a redemption of Fund shares are paid by wire transfer, a
wire transfer charge (presently $12.00) will be imposed.
(2) Bank of Boston, which serves as the Adviser for the Trust, has agreed to
waive its fee in an amount that operates to limit total operating expenses of
each of the Fixed Income Funds to not more than 1.25% (1.00% for the 1784
Short-Term Income Fund) of average daily net assets on an annualized basis;
this limitation would not apply to any brokerage commissions, interest expense
or taxes or to extraordinary expense items, including but not limited to
litigation expenses. SEI Financial Services Company, which acts as Distributor
of the Trust's shares, has agreed to waive its 12b-1 fee, which is computed at
an annual rate of 0.25% of each Fund's average daily net assets. If the
Distributor should terminate this waiver, after a substantial period of time
annual payment of this fee may total more than the maximum sales charge that
would have been permissible if imposed entirely as an initial sales charge. SEI
Financial Management Corporation, which acts as the Trust's Administrator, has
agreed to waive its fee from certain funds of the Trust to assist these funds
in maintaining a competitive expense ratio. Bank of Boston contributes to the
Funds in order to limit other operating expenses and to assist the Funds in
maintaining a competitive expense ratio. Fee waivers by the Adviser,
Administrator and Distributor, and contributions by the Bank of Boston, are
voluntary and may be terminated at any time. From time to time the Adviser may
also waive additional portions of its fees to reduce net operating expenses to
less than that shown in the table above. Certain other parties may also agree
to waive portions of their fees from time to time on a month to month basis.
Additional information may be found under "The Adviser," "The Administrator"
and "The Distributor." Absent waivers, the Adviser's investment advisory fee is
calculated at an annual rate of 0.74% (0.50% for the 1784 Short-Term Income
Fund) of average daily net assets of each Fund. Absent the waiver of fees by
the Distributor, Adviser and Administrator, and voluntary contributions by the
Bank of Boston, other expenses and estimated total operating expenses would be
as follows: 0.28% and 1.27% of average daily net assets of the 1784 U.S.
Government Medium-Term Income Fund, 0.28% and 1.23% of average daily net assets
of the 1784 Income Fund, and 0.69% and 1.27% of average daily net assets of the
1784 Short-Term Income Fund, in each case on an annualized basis. Other
expenses are based on actual expenses for each Fund's fiscal year ended May 31,
1995, and include expense items described under "General Information -- The
Trust." A person who purchases shares through a financial institution may be
charged separate fees by the financial institution.
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Example
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An investor would pay the following expenses on a hypothetical $1,000
investment assuming a 5% annual total return and redemption at the end of each
time period:
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------------
1784 U.S. Government Medium-Term Income Fund $ 8 $26 $44 $99
1784 Income Fund $8 $26 $44 $99
1784 Short-Term Income Fund $7 $21 $36 $81
Absent voluntary waivers by the Adviser, Distributor and Administrator and
contributions made by the Bank of Boston, the amounts for this example for one
year, three years, five years and ten years would be $13, $40, $70, $153 for
the 1784 U.S. Government Medium-Term Income Fund, $13, $40, $70 and $153 for
the 1784 Income Fund and $15, $46, $79 and $172 for the 1784 Short-Term Income
Fund. The example is based on actual expenses for each Fund's fiscal year ended
May 31, 1995. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RETURN, AND ACTUAL EXPENSES AND RETURN MAY BE GREATER OR
LESS THAN THOSE SHOWN. The purpose of this table is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in the Funds. Additional information may be found under
"General Information -- The Trust," "The Adviser," "The Administrator" and "The
Distributor."
SUMMARY
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The following information is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information.
1784 Funds (the "Trust") is an open-end management investment company which
provides a convenient way to invest in one or more professionally managed funds
of securities. The following provides basic information about the 1784 U.S.
Government Medium-Term Income Fund, 1784 Income Fund and 1784 Short-Term Income
Fund (each, a "Fund" or a "Fixed Income Fund," and collectively, the "Funds" or
the "Fixed Income Funds"). Each of the Fixed Income Funds is a diversified
fund.
What Is the Investment Objective? The investment objective of the 1784 U.S.
Government Medium-Term Income Fund is current income consistent with
preservation of capital. The investment objective of the 1784 Income Fund and
the 1784 Short-Term Income Fund is to maximize current income. Preservation of
capital is a secondary objective for these two Funds. Each Fund's investment
objective may be changed only with the consent of holders of a majority of that
Fund's outstanding shares. There can be no assurance that any Fixed Income Fund
will achieve its investment objective. See "Investment Objective" and
"Investment Limitations."
What Are the Permitted Investments? The 1784 U.S. Government Medium-Term Income
Fund under normal circumstances invests at least 65% of its total assets in
U.S. Government securities, which include obligations issued or guaranteed as
to principal and interest by the U.S. Government or any of its agencies or
instrumentalities, and repurchase agreements involving U.S. Government
securities. Distributions of the 1784 U.S. Government Medium-Term Income Fund
derived from interest on obligations of the U.S. Government and certain of its
agencies and instrumentalities may be exempt from state and local taxes in
certain states. See "Taxes." Each of the 1784 Income Fund and the 1784 Short-
Term Income Fund under normal circumstances invests at least 80% of its net
assets in debt securities or securities with debt-like characteristics, such as
bonds, debentures, notes, mortgage-backed securities and asset-backed
securities of domestic and foreign issuers and municipal obligations. The Trust
expects each of these Funds,
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under normal circumstances, to invest at least 65% of its net assets in debt
securities described above rated A or better by Standard & Poor's Ratings
Group, Duff & Xxxxxx Credit Rating Company, Fitch Investors Service, Inc. or
Xxxxx'x Investors Service, Inc. or of comparable quality at the time of
purchase as determined by the Adviser. Under normal circumstances, the 1784
Income Fund maintains a dollar-weighted average portfolio maturity of from
seven to thirty years, with no security having a maturity of longer than thirty
years. Under normal circumstances, the 1784 Short-Term Income Fund maintains a
dollar-weighted average effective portfolio maturity of not more than three
years. Within this limitation, the Fund may purchase individual securities with
effective maturities greater than three years. Effective maturity takes into
account estimates of average life of mortgage-backed and asset-backed
securities and anticipated exercises of calls and prepayment rights.
What Are Some of the Risks? The investment policies of each of the Fixed Income
Funds entail certain risks and considerations of which an investor should be
aware. For example, the net asset value per share of each of the Fixed Income
Funds is not fixed and should be expected to fluctuate. In addition, values of
fixed income securities tend to vary inversely with interest rates and may be
affected by other market and economic factors as well; mortgage-backed
securities are subject to prepayment of the underlying mortgages and may not be
an effective means of locking in long-term interest rates; the longer maturity
securities in which the 1784 Income Fund may invest are subject to greater
market fluctuations as a result of changes in interest rates; and foreign
securities may subject the 1784 Income and 1784 Short-Term Income Funds to
different risks than those attendant to investments in securities of U.S.
issuers.
For further information, see "Investment Policies," "Certain Investment
Policies and Guidelines" and "Description of Permitted Investments and
Techniques" herein and in the Statement of Additional Information.
Who Is the Adviser? The First National Bank of Boston ("Bank of Boston" or the
"Adviser") serves as the Adviser for the Trust and is entitled to a fee which
is calculated daily and paid monthly at an annual rate of 0.74% (0.50% for the
1784 Short-Term Income Fund) of the average daily net assets of each of the
Fixed Income Funds. The Adviser has agreed for an indefinite period of time to
waive all or a portion of its fee in order to limit the total operating
expenses of the Fixed Income Funds to not more than 1.25% (1.00% for the 1784
Short-Term Income Fund) of each Fund's average daily net assets. Bank of Boston
contributes to the Funds in order to limit operating expenses and to assist the
Funds in maintaining a competitive expense ratio. Fee waivers and contributions
may be terminated at any time. See "The Adviser."
Who Is the Administrator? SEI Financial Management Corporation serves as the
Administrator for the Trust under an Administration Agreement and is entitled
to a fee which is calculated daily and paid monthly at an annual rate of 0.15%
of the Trust's first $300 million of average daily net assets, 0.12% of the
Trust's second $300 million of average daily net assets and 0.10% of the
Trust's average daily net assets over $600 million. Each Fixed Income Fund's
portion of such fee is based on that Fund's average daily net assets. The
Administrator has agreed to waive a portion of its fees on a month to month
basis under certain circumstances. See "The Administrator."
Who 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."
Who Is the Distributor? SEI Financial Services Company acts as distributor of
the Trust's shares. The Trust has adopted a distribution plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan
provides for payments to the Distributor of a fee, calculated daily and paid
monthly, at an annual rate of 0.25% of each Fixed Income Fund's
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average daily net assets; the Distributor can use all or a portion of this fee
to compensate broker-dealers and other financial institutions that provide
services to Shareholders or to their customers who beneficially own shares of
the Fixed Income Funds. The Distributor has agreed to waive its 12b-1 fee.
However, distribution fees may be imposed in the event that the Distributor
determines to terminate its waiver of such fees. The Trust may create one or
more additional classes of shares, without distribution fees, of one or more of
the Funds. See "The Distributor."
How Do I Purchase Shares? Purchases of Fund shares may be made through the
Distributor by the close of business Monday through Friday except on days when
the New York Stock Exchange or the Federal Reserve Bank of Boston is closed
("Business Days"). Shares may also be purchased through broker-dealers which
have established dealer agreements with the Distributor. Purchase orders
submitted through broker-dealers normally will be received by the Distributor
on the Business Day after they are received by the broker-dealer.
A purchase order for shares representing an investment in a Fixed Income Fund
will be effective as of the Business Day the order is received by the
Distributor if the Distributor receives a purchase order in good form for the
shares and payment (by wire transfer or check) for the shares before 4:00 p.m.
Eastern Time ("ET") on that day. Shares are sold at their net asset value
determined as of the end of the day the order is effective. Shares purchased
will begin accruing dividends on the day following the date of purchase.
The minimum initial investment in a Fixed Income Fund is $1,000; all subsequent
purchases must be at least $250. Minimum investment requirements are lower for
accounts established for automatic investment programs and under tax-deferred
retirement programs (including IRAs). See "Purchase of Shares."
Shares of each of the Fixed Income Funds are currently being offered without
any sales charges. See "The Distributor."
How Do I Redeem Shares? Redemptions of shares of a Fixed Income Fund may be
made through the 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 payments in cash. See "Dividends and Distributions."
How Do I Make Exchanges? Once payment for shares of a Fixed Income Fund has
been received by the Distributor, those shares may be exchanged for shares of
one or more other portfolios of the Trust at net asset value, provided the
amount of the exchange meets the minimum investment requirements for the other
portfolio of the Trust. There are no charges for an exchange. If an exchange
request in good order is received by the Distributor by 4:00 p.m. ET on any
Business Day, the exchange usually will occur on that day; however, requests
for exchange for shares of a money market fund must be received earlier than
4:00 p.m. ET (in cases when regular trading on the New York Stock Exchange
closes earlier than 4:00 p.m. ET, as early as 12:00 noon ET) for the exchange
to occur on that day. A Shareholder must obtain and should read the prospectus
of the other portfolio and consider the differences in investment objectives
and policies before making any exchange. An exchange is treated, for federal
and state income tax purposes, as a sale of
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the Fixed Income Fund shares exchanged, and could result in gain or loss to the
Shareholder. See "Exchanges."
CONDENSED FINANCIAL INFORMATION
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The following table provides condensed financial information about the 1784
U.S. Government Medium-Term Income Fund for the period from June 7, 1993
(commencement of operations) through May 31, 1995, and about the 1784 Short-
Term Income Fund and 1784 Income Fund for the period from July 1, 1994
(commencement of operations) through May 31, 1995. The information should be
read in conjunction with the financial statements appearing in the Funds'
Annual Report to Shareholders, which is incorporated by reference in the
Statement of Additional Information. The financial statements and notes, as
well as the table below, covering the period through May 31, 1995 have been
audited by Coopers & 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
--------- ---------- ----------------- ---------- ----------- ------- --------- ----------- ----------
U.S. GOVERNMENT
MEDIUM-TERM
INCOME(1)
====================
6/7/93-5/31/94 $10.00 0.59 (0.64) (0.59) $ 9.36 (0.65)%* $ 92,387 0.31%** 6.08%**
6/1/94-5/31/95 $ 9.36 0.58 0.21 (0.58) $ 9.57 8.79% $130,081 0.80% 6.24%
SHORT-TERM
INCOME FUND(2)
=================
7/1/94-5/31/95 $10.00 0.56 0.09 (0.56) $10.09 6.74%* $ 52,581 0.48%** 6.31%**
INCOME FUND(2)
=================
7/1/94-5/31/95 $10.00 0.62 0.39 (0.62) $10.39 10.69%* $196,515 0.55%** 7.01%**
Ratio Ratio of
of Expenses Net Income
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ---------- ---------
U.S. GOVERNMENT
MEDIUM-TERM
INCOME(1)
====================
6/7/93-5/31/94 1.35%** 5.04%** 144.77%
6/1/94-5/31/95 1.27% 5.77% 142.14%
SHORT-TERM
INCOME FUND(2)
=================
7/1/94-5/31/95 1.27%** 5.52%** 84.54%
INCOME FUND(2)
=================
7/1/94-5/31/95 1.23%** 6.33%** 80.53%
* Returns are for the period indicated and have not been annualized.
** Ratios for this period have been annualized.
(1) The U.S. Government Medium-Term Income Fund commenced operations on June 7,
1993.
(2) The Short-Term Income Fund and the Income Fund commenced operations on July
1, 1994.
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THE TRUST
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1784 Funds (the "Trust") is an open-end management investment company that
currently offers units of beneficial interest ("shares") in several separate
professionally managed investment portfolios, or funds. Each share of each fund
represents an undivided, proportionate interest in that fund. This Prospectus
relates to shares of the Trust's 1784 U.S. Government Medium-Term Income Fund,
1784 Short-Term Income Fund, and 1784 Income Fund, each of which is a
diversified fund. The Trust's other funds include the 1784 U.S. Treasury Money
Market Fund, 1784 Institutional U.S. Treasury Money Market Fund, 1784 Tax-Free
Money Market Fund, 1784 Growth and Income Fund, 1784 Asset Allocation Fund,
1784 International Equity Fund, 1784 Tax-Exempt Medium-Term Income Fund, 1784
Massachusetts Tax-Exempt Income Fund, 1784 Connecticut Tax-Exempt Income Fund,
and 0000 Xxxxx Xxxxxx Tax-Exempt Income Fund. Information regarding the Trust's
other funds is contained in separate prospectuses that may be obtained from the
Trust's distributor, SEI Financial Services Company (the "Distributor"), 000
Xxxx Xxxxxxxxxx Xxxx, Xxxxx, Xxxxxxxxxxxx 00000, or by calling 1-800-BKB-1784.
INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
The investment objective of the 1784 U.S. Government Medium-Term Income Fund is
current income consistent with preservation of capital.
The investment objective of the 1784 Short-Term Income Fund is to maximize
current income. Preservation of capital is a secondary objective. This Fund is
designed for investors seeking a higher yield than from a money market fund and
more price stability than a longer-term bond fund.
The investment objective of the 1784 Income Fund is to maximize current income.
Preservation of capital is a secondary objective.
There is no assurance that the investment objective of any Fund will be met.
The investment objective of each Fund is a fundamental policy of that Fund, and
therefore cannot be changed without the consent of holders of a majority of
that Fund's outstanding shares. See "Investment Limitations."
INVESTMENT POLICIES
--------------------------------------------------------------------------------
The 1784 U.S. Government Medium-Term Income Fund is a diversified fund which
under normal circumstances invests at least 65% of its total assets in U.S.
Government securities, i.e., obligations issued or guaranteed as to principal
and interest by the U.S. Government or any of its agencies and
instrumentalities, and repurchase agreements involving U.S. Government
securities. The Fund may also invest in receipts evidencing separately traded
interest and principal component parts of U.S. Government obligations. The Fund
may write (sell) covered call options and enter into fixed income futures
contracts and options (in each case for hedging purposes only).
The 1784 U.S. Government Medium-Term Income Fund may purchase mortgage-backed
securities issued or guaranteed as to payment of principal and interest by the
U.S. Government or any of its agencies or instrumentalities and mortgage-backed
securities issued by private issuers rated A or better by Xxxxx'x Investors
Service, Inc. ("Moody's") or by Standard & Poor's Ratings Group ("S&P") or of
comparable quality at the time of purchase as determined by the Adviser and
backed by mortgage pass-through certificates issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities. The principal
governmental issuers or guarantors of mortgage-backed securities are the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), and Federal Home Loan Mortgage Corporation ("FHLMC").
Obligations of GNMA are backed by the full faith and credit of the U.S.
Government while obligations of FNMA and FHLMC are supported by the respective
agency only. The Fund may purchase mortgage-backed securities that are backed
or collateralized by fixed, adjustable or floating rate mortgages. Not more
than 35% of the Fund's total assets are invested in mortgage-backed securities
which are not issued or guaranteed as
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to payment of principal and interest by the U.S. Government or any of its
agencies or instrumentalities.
The Trust expects the Fund to maintain an average weighted remaining maturity
of three to ten years. The Adviser may shorten the average maturity
substantially in anticipation of a change in the interest rate environment for
temporary defensive purposes by investing in money market instruments and in
money market funds. To the extent the Fund is invested in money market
instruments and/or money market funds for temporary defensive purposes, the
Fund will not be pursuing its investment objective. Under normal circumstances,
it is anticipated that the annual portfolio turnover rate for the Fund will not
exceed 100%; for the Fund's fiscal years ended May 31, 1994 and May 31, 1995,
this rate was 145% and 142%, respectively.
For more information regarding the permitted investments and investment
practices of the 1784 U.S. Government Medium-Term Income Fund, the purpose of
these investments and investment practices and certain risks associated with
certain of these investments and investment practices, and information
regarding the ratings listed above, see "Certain Investment Policies and
Guidelines," "Description of Permitted Investments and Techniques," the
Appendix--"Description of Ratings" and the Statement of Additional Information.
Under normal circumstances, each of the 1784 Income Fund and the 1784 Short-
Term Income Fund invests at least 80% of its net assets in debt securities and
securities with debt-like characteristics, such as bonds, debentures, notes,
mortgage-backed securities and asset-backed securities of domestic and foreign
issuers and municipal obligations. Each Fund may invest up to 30% of its net
assets in securities of foreign issuers. The Trust expects each Fund, under
normal circumstances, to invest at least 65% of its net assets in debt
securities described above rated A or better by S&P, Duff & Xxxxxx Credit
Rating Company ("Duff"), Fitch Investors Service, Inc. ("Fitch") or Moody's or
of comparable quality at the time of purchase as determined by the Adviser.
Each Fund is a diversified fund.
The securities in which the 1784 Income Fund and the 1784 Short-Term Income
Fund may invest include: (1) bonds, debentures, or other debt instruments of
U.S. or foreign issuers rated BBB or better by S&P, Duff, or
Fitch or Baa or better by Moody's or of comparable quality at the time of
purchase as determined by the Adviser; (2) debt obligations issued or
guaranteed as to principal and interest by the U.S. Government or any of its
agencies and instrumentalities; (3) debt securities issued or guaranteed by
foreign governments, their political subdivisions, agencies or
instrumentalities and debt securities of supranational entities, in each case
which the Adviser deems to be of comparable credit quality at the time of
purchase to the corporate debt instruments in which the Fund may invest; (4)
mortgage-backed securities and asset-backed securities rated A or better by
S&P, Duff, Fitch or Moody's or of comparable quality at the time of purchase as
determined by the Adviser; (5) zero coupon securities issued by the U.S.
Treasury or by corporations, and receipts evidencing separately traded interest
and principal component parts of U.S. Government obligations; (6) municipal
securities issued by the states, territories and possessions of the United
States and the District of Columbia and their respective political
subdivisions, agencies and instrumentalities; (7) bank obligations described
under "Description of Permitted Investments and Techniques;" (8) short-term
commercial paper rated A-2 or better by S&P, P-2 or better by Moody's, F-2 or
better by Fitch, or Duff 2 or better by Duff, or of comparable quality at the
time of purchase as determined by the Adviser; and (9) repurchase agreements
involving the foregoing types of securities. Debt securities rated Baa by
Moody's or BBB by S&P may have speculative characteristics. See the Appendix
for a description of the above ratings.
The Funds may, for hedging purposes or in order to generate additional income,
write (sell) covered call options, and may, for hedging purposes, enter into
futures contracts and related options. In addition, the Funds may make
additional types of investments and engage in other investment practices, as
described in "Description of Permitted Investments and Techniques."
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The Trust expects the 1784 Income Fund to maintain a dollar-weighted average
maturity of from seven to thirty years under normal circumstances. While
securities with longer maturities tend to produce higher yields than securities
with shorter maturities, they are also subject to greater market fluctuations
as a result of changes in interest rates.
The Trust expects the 1784 Short-Term Income Fund to maintain a dollar-weighted
average effective maturity of not more than three years under normal
circumstances. Effective maturity takes into account estimates of average life
of mortgage-backed and asset-backed securities and anticipated exercises of
calls and prepayment rights. Securities with shorter maturities generally are
subject to less price movement than securities of comparable quality with
longer maturities.
The Adviser may shorten the average maturity of a Fund substantially in
anticipation of a change in the interest rate environment for temporary
defensive purposes by investing in money market instruments and in money market
funds. To the extent a Fund is invested in money market instruments and/or
money market funds for temporary defensive purposes, the Fund will not be
pursuing its investment objective. Under normal circumstances, it is
anticipated that the annual portfolio turnover rate for each of these Funds
will not exceed 100%; for the fiscal year ended May 31, 1995, this rate was 81%
for the 1784 Income Fund and 85% for the 1784 Short-Term Income Fund.
For more information regarding the permitted investments and investment
practices of the 1784 Income Fund and the 1784 Short-Term Income Fund, the
purposes of these investments and investment practices and certain risks
associated with certain of these investments and investment practices, and
information regarding the ratings listed above, see "Certain Investment
Policies and Guidelines," "Description of Permitted Investments and
Techniques," the Appendix -- "Description of Ratings" and the Statement of
Additional Information.
CERTAIN INVESTMENT POLICIES AND GUIDELINES
--------------------------------------------------------------------------------
The market value of each Fund's fixed income investments (including money
market instruments) changes in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. Moreover,
while securities with longer maturities tend to produce higher yields, the
prices of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates. Securities with shorter
maturities, such as those in which the 1784 Short-Term Income Fund primarily
invests, generally produce lower yields than longer term securities of
comparable quality and tend to be subject to less price movement. Changes by
recognized agencies in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal also affect the
value of these investments. Changes in the value of Fund securities affects the
Fund's net asset value; under most circumstances, changes in the value of Fund
securities will not affect cash income derived from these securities.
Each Fixed Income Fund's investments normally consist primarily of securities
that are listed on recognized exchanges or actively traded in the over-the-
counter market. Each Fixed Income Fund may also hold securities that are
neither so listed nor so traded. However, none of the Fixed Income Funds
invests more than 15% of its net assets in illiquid securities.
In general, mortgage-backed securities are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities the yield of which reflects then-prevailing interest
rates, which may be lower. Thus, mortgage-backed securities may not be an
effective means of locking in long-term interest rates for the Funds.
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For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each of the Fixed Income Funds may invest up to 100% of its
assets in money market instruments described under "Description of Permitted
Investments and Techniques," consisting of the following: (1) securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities; (2)
repurchase agreements; (3) bank obligations described under "Description of
Permitted Investments and Techniques;" (4) commercial paper, other short-term
debt securities or variable or floating rate instruments rated in one of the
two highest short-term rating categories by a "nationally recognized
statistical rating organization" as defined under Securities and Exchange
Commission rules ("NRSRO") or of comparable credit quality as determined by the
Adviser; and (5) asset-backed securities. The Funds may also invest, for
temporary defensive purposes, in money market funds. To the extent a Fund is
invested in money market instruments and/or money market funds for temporary
defensive purposes, the Fund will not be pursuing its investment objective.
Each of the Fixed Income Funds may invest in floating or variable rate
obligations and may purchase securities on a when-issued basis. Each of the
Funds may also, from time to time, engage in securities lending; however, loans
made by a Fund of the securities it holds may not exceed 33 1/3% of that Fund's
total assets. Each of the Funds may enter into interest rate futures contracts
and related options.
Investments in securities of foreign issuers may subject the 1784 Income Fund
and 1784 Short-Term Income Fund to different risks than those attendant to
investments in securities of U.S. issuers, such as changes in currency rates or
exchange control regulations, differences in accounting, auditing and financial
reporting standards, more volatile or less liquid markets, the possibility of
expropriation or confiscatory taxation, and political instability. There may
also be less publicly available information with regard to foreign issuers than
domestic issuers. In addition, foreign markets may be characterized by less
liquidity, greater price volatility, less regulation and higher transaction
costs than U.S. markets.
The 1784 Income Fund and 1784 Short-Term Income Fund may invest in companies
(or governments) of or within developed as well as developing countries
throughout the world. Shareholders should be aware that investing in the fixed
income markets of developing countries involves exposure to economic structures
that are generally less diverse and mature, and to political systems which can
be expected to have less stability, than those of developed countries. A
developing country is generally considered to be one which is in the initial
stage of its industrialization cycle with a low per capita income. Historical
experience indicates that the markets of developing countries have been more
volatile that the markets of developed countries with more mature economies;
such markets often have provided higher rates of return and greater risks to
investors. Such characteristics can be expected to continue in the future.
Investment in securities of issuers based in developing countries entail all of
the risks of investing in securities of foreign issuers but to a heightened
degree. Each of these Funds may invest not more than 15% of its net assets in
securities of issuers in developing countries and not more than 30% of its net
assets in securities of foreign issuers, including the 15% it may invest in
issuers in developing countries.
In the event a security owned by a Fixed Income Fund is downgraded below the
rating categories discussed above, the Adviser will review and take action it
deems appropriate with regard to the security.
INVESTMENT LIMITATIONS
--------------------------------------------------------------------------------
The investment objective of each Fund and the following investment limitations
are fundamental policies of that Fund. Fundamental policies cannot be changed
with respect to a Fund without the consent of the holders of a majority of that
Fund's outstanding shares. The term "majority of the outstanding shares" means
the vote of (i) 67% or more of the Fund's shares present at a meeting, if more
than 50% of the outstanding shares of the Fund are present or
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represented by proxy, or (ii) more than 50% of the Fund's outstanding shares,
whichever is less.
A Fund may not:
1. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation (i)
utility companies will be divided according to their services, for example,
gas, gas transmission, electric and telephone will each be considered a
separate industry; (ii) financial service companies will be classified
according to the end users of their services; for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry; and (iii) supranational entities will be considered to be a separate
industry.
2. Make loans except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objectives and policies; (b) enter into
repurchase agreements; and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
3. Borrow, except that a Fund may borrow money from banks and may enter into
reverse repurchase agreements, in either case in an amount not to exceed 33
1/3% of the Fund's total assets and then only as a temporary measure for
extraordinary or emergency purposes (e.g., to meet Shareholder redemption
requests). A Fund will not purchase any securities for its portfolio at any
time at which its borrowings equal or exceed 5% of its total assets (taken at
market value).
4. With respect to 75% of the total assets of the Fund, purchase securities of
any issuer (except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements involving such
securities) if as a result more than 5% of the total assets of the Fund would
be invested in the securities of such issuer or more than 10% of the
outstanding voting securities of such issuer would be owned by the Fund.
The foregoing percentages apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISER
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The First National Bank of Boston ("Bank of Boston" or the "Adviser") manages
the assets of each Fund pursuant to an Investment Advisory Agreement (the
"Advisory Agreement") with the Trust. Subject to such policies as the Board of
Trustees of the Trust may determine, the Adviser makes investment decisions for
each Fund. Xxxx X. Xxxxx, Senior Fund Manager, has been a manager of the 1784
U.S. Government Medium-Term Income Fund since June, 1993 (commencement of its
operations) and of the 1784 Income Fund since July 1, 1994 (commencement of its
operations). Xx. Xxxxx, who has more than nine years of investment management
experience, has been a Senior Fund Manager at Bank of Boston since 1990. From
1987 to 1990, Xx. Xxxxx was a Fixed Income Portfolio Manager with
Constitutional Capital Management Company. Xxxxxx X. Xxxxxx, Fund Manager, has
been a manager of the 1784 U.S. Government Medium-Term Income Fund and of the
1784 Income Fund since September 1, 1995. Xx. Xxxxxx, who has more than five
years of investment management and research analysis experience, was an
Associate Fund Manager at Bank of Boston from 1993 to 1994 and has been a Fund
Manager at Bank of Boston since 1994. Xxxx X. Xxxxxx has been the manager of
the 1784 Short-Term Income Fund since July 1, 1994 (commencement of its
operations). Xx. Xxxxxx, who has more than six years of investment management
experience, has been a Fund Manager at Bank of Boston since 1993. From 1987 to
1993, Xx. Xxxxxx was an Associate Portfolio Manager with Keystone Custodian
Funds. For its services under the Advisory Agreement, the Adviser receives from
each Fund a fee accrued daily and paid monthly at an annual rate equal to 0.74%
(0.50% for the 1784 Short-Term
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Income Fund) of the Fund's average daily net assets. However, the Adviser has
agreed for an indefinite period of time to waive all or a portion of its fees
in order to limit the total operating expenses of each of the Funds on an
annualized basis to not more than 1.25% (1.00% for the 1784 Short-Term Income
Fund) of its average daily net assets; this limitation would not apply to any
brokerage commissions, interest expense or taxes or to extraordinary expense
items, including but not limited to litigation expenses. Fee waivers may be
terminated at any time. From time to time the Adviser may also waive additional
portions of its fees to reduce net operating expenses to less than the amounts
specified above.
For the fiscal year ended May 31, 1995, the fees payable to the Bank of Boston
under the Advisory Agreement with respect to each of the Funds were as follows:
for the 1784 U.S. Government Medium-Term Income Fund, $837,109, of which
$158,372 was voluntarily waived (after giving effect to such waiver, 0.60% of
such Fund's average daily net assets for that fiscal year); for the 1784 Income
Fund, $1,109,000, of which $588,122 was voluntarily waived (after giving effect
to such waiver, 0.32% of such Fund's average daily net assets for that fiscal
year); and for the 1784 Short-Term Income Fund, $144,000, of which $58,064 was
voluntarily waived (after giving effect to such waiver, 0.27% of such Fund's
average daily net assets for that fiscal year). In addition, the Bank of Boston
contributed $77,295 to the 1784 Government Medium-Term Income Fund, $78,271 to
the 1784 Income Fund and $14,876 to the 1784 Short-Term Income Fund to decrease
the Funds' other operating expenses and to assist the Funds in maintaining a
competitive expense ratio. Management's discussion of the Fixed Income Funds'
performance is included in the Funds' Annual Report to Shareholders which
investors may obtain without charge by contacting the Distributor. The Funds
may execute brokerage or other agency transactions through the Adviser or an
affiliate.
Bank of Boston, a national banking association, is the successor to a number of
banking institutions, the first of which was chartered in 1784. All of the
capital stock of Bank of Boston (except directors' qualifying shares) is owned
by Bank of Boston Corporation, a registered bank holding company. Bank of
Boston and its affiliates are engaged in providing a wide variety of financial
services to individuals, corporate and institutional customers, governments,
and other financial institutions throughout New England, the United States and
internationally. These services include individual and community banking,
consumer finance, mortgage origination and servicing, domestic corporate and
investment banking, leasing, international banking services, commercial real
estate lending, private banking, trust services, correspondent banking, and
securities and payments processing. Bank of Boston's principal business address
is 000 Xxxxxxx Xxxxxx, Xxxxxx, XX 00000. Prior to the organization of the Trust
in 1993, the Adviser had not served as the investment adviser for management
investment companies. The Adviser also manages the other funds comprising the
Trust.
Bank of Boston has been providing asset management services since 1890. Its
portfolio managers are responsible for investing in money market, equity, and
fixed income securities and they have earned national recognition and respect.
The investment management group within Bank of Boston which manages the Fixed
Income Funds is the same group which has managed Bank of Boston's collective
trust funds with similar investment objectives. As of December 31, 1994, Bank
of Boston and its affiliates managed more than $13 billion in assets worldwide.
Bank of Boston and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Funds, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Bank of Boston and its
affiliates deal, trade and invest for their own account in certain types of
securities purchased on behalf of the Funds. Bank of Boston and its affiliates
may sell such securities to and purchase them from other investment companies
sponsored by SEI Financial Services Company or its
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affiliates. The Adviser has informed the Trust that, in making its investment
decisions, it does not obtain or use material inside information in the
possession of any division or department of Bank of Boston or in the possession
of any affiliate of Bank of Boston.
The 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 Fixed Income Fund's portion of such fee is based on the average daily net
assets of such Fund. The Administrator has agreed to waive a portion of its
fees on a month to month basis under certain circumstances for certain of the
portfolios of the Trust.
THE SHAREHOLDER SERVICING 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 daily and paid monthly, at an annual rate of .25% of the
average daily net assets of each Fixed Income Fund. The Distributor may apply
all or a portion of this fee toward: (a) compensation for its services in
connection with distribution assistance or provision of Shareholder services;
or (b) payments to financial institutions and intermediaries such as banks
(including Bank of Boston), savings and loan associations, insurance companies,
investment counselors, broker-dealers and the Distributor's affiliates and
subsidiaries, as compensation for services, reimbursement of expenses incurred
in connection with distribution assistance, or provision of Shareholder
services. The Plan is
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characterized as a "compensation plan" (in contrast to "reimbursement"
arrangements in which a distributor's compensation is linked directly to the
distributor's expenses) since the distribution fee will be paid to the
Distributor without regard to the distribution or Shareholder service expenses
incurred by the Distributor or the amount of payments made to financial
institutions and intermediaries. The Distributor has agreed to waive the 12b-1
fee. This waiver may be terminated by the Distributor at any time.
The Trust may create one or more additional classes of shares of any or all of
the Fixed Income Funds to be offered without distribution fees to certain types
of investors.
The Funds may execute brokerage or other agency transactions through the
Distributor, for which the Distributor receives compensation.
From time to time the Distributor may provide incentive compensation to
employees of banks (including Bank of Boston), broker-dealers and investment
counselors, and to its own employees, in connection with the sale of shares of
the Funds or other portfolios of the Trust. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation, including merchandise, airline vouchers, trips and vacation
packages. Such promotional incentives will be offered uniformly to all program
participants and will be predicated upon the amount of shares of the Funds and
other portfolios of the Trust sold by the participant.
PURCHASE OF SHARES
--------------------------------------------------------------------------------
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 regular trading on the
New York Stock Exchange, 4:00 p.m. ET, on each Business Day. Purchases will be
made in full and fractional shares of a Fund calculated to three decimal
places.
A purchase order for shares of a Fund will be effective as of the Business Day
the order is received by the Distributor if the Distributor receives a purchase
order, in good form, for the shares and payment (by wire transfer or check) for
the shares before 4:00 p.m. ET on that day. Purchase orders submitted through
broker-dealers which have established dealer agreements with the Distributor
normally will be received by the Distributor on the Business Day after they are
received by the broker-dealer. In certain circumstances where the agreement
between the Distributor and the customer's broker so permits, a purchase order
for additional shares of a Fixed Income Fund will be effective as of the
Business Day the order is received by the Distributor if the Distributor
receives a purchase order in good form for the shares before 4:00 p.m. ET on
that day and payment (by wire transfer or check) for the shares is received
before 4:00 p.m. ET within 5 Business Days thereafter.
By Mail
--------------------------------------------------------------------------------
Investors may purchase shares of any Fund by completing and signing an Account
Application and
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mailing it, along with a check (or other negotiable bank instrument or money
order) payable to the Fund in which shares are being purchased, e.g., "1784
U.S. Government Medium-Term Income Fund," "1784 Income Fund" or "1784 Short-
Term Income Fund," to 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
Fixed Income 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.
Tax-Deferred Retirement Programs
--------------------------------------------------------------------------------
The Funds are eligible for purchase by tax-deferred retirement programs such as
IRAs, KEOGHs, and 401(k) plans, and the minimum initial investment requirement
for an account established under such a program is $250. Bank of Boston offers
a number of tax-deferred retirement plans through which shares of a Fund may be
purchased. All Fund accounts established under a tax-deferred retirement
program must elect to have all dividends reinvested in the Fund.
Systematic Investment Plan (SIP)
--------------------------------------------------------------------------------
A Shareholder may also arrange for periodic additional investments in a Fixed
Income Fund through automatic deductions by Direct Deposit (if available from a
Shareholder's employer) or by Automatic Clearing House ("ACH") transactions
from a checking account by completing the appropriate section of the Account
Application. The Systematic Investment Plan is subject to account minimum
initial purchase amounts and minimum maintained balance requirements. The
minimum pre-authorized investment amount is $50 per month. An Account
Application may be obtained by contacting the Distributor at 1-800-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 account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution.
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No certificates representing shares will be issued.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such offer. Each Fund will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. These
procedures will include verification of a caller's identity by asking for his
or her name, address, telephone number, Social Security number, and account
number. If these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine are not followed, the Fund may be liable
for any losses to a Shareholder due to unauthorized or fraudulent instructions.
Otherwise, the investor will bear all risk of loss relating to a purchase,
redemption or exchange by telephone or a wire transfer.
For all purchases, if payment is not made or a check received for shares does
not clear, the purchase will be cancelled and the investor could be liable for
any losses to the Fund, including losses resulting from a decline in the net
asset value of the applicable shares between the date of purchase and the date
of cancellation, and for a check return fee up to $25.00, as applicable. Shares
purchased will begin accruing dividends on the day following the date of
purchase.
The net asset value per share of each Fund is determined by dividing the total
market value of the Fund's investments and other assets, less any liabilities,
by the total outstanding shares of the Fund. Each Fund may use a pricing
service to provide market quotations. A pricing service may use a matrix system
of valuation to value fixed income securities which considers factors such as
securities prices, yield features, ratings, and developments related to a
specific security.
REDEMPTION OF SHARES
--------------------------------------------------------------------------------
Shareholders may redeem their shares on any Business Day and shares may
ordinarily be redeemed by mail or telephone, with proceeds payable by check,
ACH or wire transfer. A redemption is treated, for federal and state income tax
purposes, as a sale of the Fund shares redeemed; a redemption could, therefore,
result in taxable gain or loss to the Shareholder. If proceeds are paid by wire
transfer, a wire transfer charge (presently $12.00) will be imposed.
By Mail
--------------------------------------------------------------------------------
A written request for redemption must be received by the 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
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.
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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. Accounts established under a tax-
deferred retirement program may be subject to involuntary redemption as
described above only if such account has a value of less than $250, the minimum
initial purchase amount for such accounts.
The right of any Shareholder to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or to the extent otherwise
permitted by the Investment Company Act of 1940, if an emergency exists. See
"Purchase and Redemption of
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Shares" in the Statement of Additional Information for examples of when the
right of redemption may be suspended.
SYSTEMATIC WITHDRAWAL PLAN
--------------------------------------------------------------------------------
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 Fixed Income Fund for which payment has been
received by the Distributor (i.e., an established account) may be exchanged at
their net asset value for shares of one or more of the other portfolios of the
Trust, including shares of another Fixed Income Fund. Exchanges will be made
only after instructions in writing or by telephone are received for an
established account by the Distributor.
In the case of shares held of record by Bank of Boston or one of its affiliates
but beneficially owned by a Customer, to exchange such shares the Customer
should contact Bank of Boston or the affiliate, who will contact the
Distributor and effect the exchange on behalf of the Customer. If an exchange
request in good order is received by the Distributor by 4:00 p.m. ET on any
Business Day, the exchange usually will occur on that day; however, requests
for exchange for shares of a money market fund must be received earlier than
4:00 p.m. ET (in cases when regular trading on the New York Stock Exchange
closes earlier than 4:00 p.m. ET, as early as 12:00 noon ET) for the exchange
to occur on that day. Any Shareholder or Customer who wishes to make an
exchange must have received a current prospectus of the portfolio in which he
or she wishes to invest before the exchange will be effected. Residents of any
state may only exchange shares for shares of another portfolio of the Trust if
that portfolio is registered in that state.
Each exchange must involve either shares having an aggregate value of at least
$250 or all the shares in the account, and the amount of the exchange must meet
the minimum investment requirements for the portfolio of the Trust into which
the exchange is being made.
Exchanges may be made by telephone only if that option has been elected by the
Shareholder on the Account Application. Shares may be exchanged by telephone by
calling the Distributor toll free at 1-800-BKB-1784.
No fees are currently charged to Shareholders directly in connection with
exchanges, although each of the Fixed Income Funds reserves the right, upon not
less than 60 days' written notice, to charge Shareholders a nominal fee in
accordance with rules promulgated by the SEC. Each of the Fixed Income Funds
also reserves the right to reject any exchange request in whole or in part. The
exchange privilege (or any aspect of it) may be changed or terminated at any
time.
An exchange is treated, for federal and state income tax purposes, as a sale of
the Fixed Income Fund shares exchanged; an exchange could, therefore, result in
taxable gain or loss to the Shareholder.
CHECKWRITING
--------------------------------------------------------------------------------
A Shareholder in the 1784 Short-Term Income Fund may redeem shares by writing
checks on his or her account for $250 or more. Once a Shareholder has signed
and returned a signature card agreement, that Shareholder will receive a supply
of checks.
A check may be made payable to any person, and the Shareholder's account will
continue to earn dividends until the check clears. The checkwriting privilege
is available on the terms specified in the signature card agreement and may be
terminated or changed by the Fund at any time.
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Because of the difficulty of determining in advance the exact value of a Fund
account, a Shareholder may not use a check to close his or her account. These
checks are currently free, i.e. there is no charge for this service; however,
the Shareholder's account will be charged a fee for stopping payment of a check
upon a Shareholder's request or if the check cannot be honored because of
insufficient funds or for other valid reasons.
A redemption by check is treated, for federal and state income tax purposes, as
a sale of the Fund shares redeemed and could, therefore, result in taxable gain
or loss to the Shareholder.
PERFORMANCE
--------------------------------------------------------------------------------
From time to time, the Trust may advertise a Fund's yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. The yield of a Fund refers to the annualized
income generated by an investment in the Fund over a specified 30-day period.
The yield is calculated by assuming that the income generated by the investment
during that period is generated over one year and is shown as a percentage of
the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, net of any sales charge imposed, for designated time
periods (including but not limited to the period from which the Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all
dividend and capital gain distributions.
A Fund's performance may from time to time be compared to that of other mutual
funds tracked by mutual fund rating services, to that of broad groups of
comparable mutual funds or to that of unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs.
TAXES
--------------------------------------------------------------------------------
The following is a discussion of certain United States federal income tax
considerations relevant to the purchase, ownership, and disposition of shares
in the Funds. The discussion, which is based on current tax laws, regulations,
rulings, and judicial decisions (all of which are subject to change at any time
by legislative, judicial, or administrative action), is not intended to be
complete; therefore, prospective investors should consult their own tax
advisers as to the tax consequences to them of an investment in a Fund.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
Tax Status of the Fixed Income Funds
--------------------------------------------------------------------------------
Each Fund is treated as a separate entity for federal income tax purposes, and
is not combined with the other Funds or the Trust's other portfolios. The Trust
intends to qualify each Fund each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and to make distributions to that Fund's shareholders in accordance
with the timing requirements set out in the Code. As a result, it is expected
that the Funds will not be required to pay any federal income or excise taxes,
although foreign source income received by the 1784 Income Fund or the 1784
Short-Term Income Fund may be subject to foreign withholding taxes.
Tax Treatment of Shareholders
--------------------------------------------------------------------------------
1784 U.S. Government Medium-Term Income Fund
Shareholders of the 1784 U.S. Government Medium-Term Income Fund generally will
have to pay federal income taxes and may be subject to state or local taxes on
the dividends and capital gain distributions they receive from the Fund,
whether paid in cash or in additional shares. Distributions from net investment
income and short-term capital gains will be taxable to Shareholders as ordinary
income, while Fund distributions of net capital gains (the excess of net long-
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term capital gains over net short-term capital losses) will be taxable to
Shareholders as long-term capital gains, regardless of how long the
Shareholders have held their shares.
Distributions that are derived from interest on obligations of the U.S.
Government and certain of its agencies and instrumentalities (but generally not
from capital gains realized upon the disposition of such obligations) may be
exempt from state and local taxes. The Trust intends to advise Shareholders of
the extent, if any, to which Fund distributions consist of such interest.
1784 Short-Term Income Fund and 1784 Income Fund
Shareholders of these Funds normally will have to pay federal income taxes and
any state or local taxes on the dividends and capital gain distributions they
receive from a Fund, whether paid in cash or in additional shares.
Distributions from net investment income and short-term capital gains will be
taxable to Shareholders as ordinary income, while distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) will be taxable to Shareholders as long-term capital gains, regardless
of how long Shareholders have held their shares.
General
The Trust expects that none of the dividends received from the Funds will be
eligible for the dividends received deduction for corporations. Any Fund
dividend that is declared in October, November, or December of a calendar year,
payable to shareholders of record in such a month, and that is paid the
following January will be treated as if received by the Shareholders on
December 31 of the year in which the dividend is declared.
The Trust will make annual reports to Shareholders of the federal income tax
status of all distributions from each Fund.
The exchange or redemption of Fund shares is a taxable event to the
Shareholder; however, under certain circumstances, realized losses may be
disallowed and short-term capital losses may be converted into long-term
capital losses.
The Funds will generally withhold tax payments at the rate of 30% on dividends
and other payments that are subject to such withholding and that are made to
persons who are neither citizens nor residents of the U.S., although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. Each
Fund is also required in certain circumstances to apply backup withholding of
31% of taxable dividends and certain redemption proceeds paid to any
Shareholder (including a Shareholder who is neither a citizen nor a resident of
the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. Backup
withholding will not, however, be applied to payments that have been subject to
30% (or lower treaty rate) withholding.
GENERAL INFORMATION
--------------------------------------------------------------------------------
The Trust
--------------------------------------------------------------------------------
The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated February 5, 1993. The Declaration of Trust permits the Trust to
issue an unlimited number of shares of beneficial interest of each of the
portfolios (referred to as "series") of the Trust, each of which is a separate
fund. In addition to the Fixed Income Funds, the Trust includes the following
funds: 1784 Institutional U.S. Treasury Money Market Fund, 1784 U.S. Treasury
Money Market Fund, 1784 Tax-Free Money Market Fund, 1784 Growth and Income
Fund, 1784 Asset Allocation Fund, 1784 International Equity Fund, 1784 Tax-
Exempt Medium-Term Income Fund, 1784 Massachusetts Tax-Exempt Income Fund, 1784
Connecticut Tax-Exempt Income Fund, and 0000 Xxxxx Xxxxxx Tax-Exempt Income
Fund. All consideration received by the Trust for shares of any
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fund and all assets of such fund belong to that fund and are subject to
liabilities related thereto. The Trust reserves the right to create and issue
additional series of shares, and reserves the right to create and issue shares
of additional classes of any or all series.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses and reports to Shareholders,
costs of custodian services and registering the shares of the Funds and other
series under federal and state securities laws, pricing, insurance expenses,
brokerage costs, interest charges, taxes, and amortization of organization
expenses, and any extraordinary expenses including but not limited to
litigation expenses. For the fiscal year ended May 31, 1995, the total expenses
of each of the Funds were as follows: for the 1784 U.S. Government Medium-Term
Income Fund, $1,449,843, of which $544,860 was voluntarily waived or reimbursed
by the Bank of Boston (after giving effect to such waiver or reimbursement,
0.80% of such Fund's average daily net assets for that fiscal year); for the
1784 Income Fund, $1,808,186, of which $985,091 was voluntarily waived or
reimbursed by the Bank of Boston (after giving effect to such waiver or
reimbursement, 0.55% of such Fund's average daily net assets for that fiscal
year); and for the 1784 Short-Term Income Fund, $357,999, of which $221,254 was
voluntarily waived or reimbursed by the Bank of Boston (after giving effect to
such waiver or reimbursement, 0.48% of such Fund's average daily net assets for
that fiscal year).
Under applicable law, Shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the risk of a
Shareholder incurring financial loss on account of such Shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations and inadequate insurance existed. The Trust believes that the
likelihood of such circumstances is remote.
Trustees of the Trust
--------------------------------------------------------------------------------
The management and affairs of the Trust are supervised by its Board of
Trustees. The Trustees have approved contracts under which, as described above,
certain companies provide essential management, administrative and Shareholder
services to the Trust.
Voting Rights
--------------------------------------------------------------------------------
Each share held entitles the Shareholder of record to one vote. Each fund or
class will vote separately on matters relating solely to that fund or class. As
a Massachusetts business trust, the Trust is not required to hold annual
meetings of Shareholders but approval will be sought for certain changes in the
operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested, the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
Reporting
--------------------------------------------------------------------------------
The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
Shareholder Inquiries
--------------------------------------------------------------------------------
Shareholder inquiries should be directed to SEI Financial Management
Corporation, 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 Fixed Income Funds is distributed in the form of dividends which are
declared daily and paid monthly. Shareholders of record will be entitled to
receive the dividend, except that shares will not begin accruing dividends
until the day following the date of their purchase. On redemption, a
shareholder will receive dividends through and
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including the day a valid redemption request is received by the 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.
Dividends and distributions of the Funds are paid on a per-share basis. The
value of each share will be reduced by the amount of the payment. If the shares
are purchased shortly before the record date for a dividend or the distribution
of capital gains, a Shareholder will pay the full price for the shares and
receive some portion of the price back as a taxable dividend or distribution.
If dividend payments are returned and unclaimed within 30 days, they will be
reinvested and the Shareholder will be deemed to have elected to receive future
dividend and capital gain distributions in additional shares.
Counsel and Independent Accountants
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
Bank of Boston, 000 Xxxxxxx Xxxxxx, Xxxxxx, XX 00000, acts as Custodian of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940. Foreign securities may be held
through subcustodians approved by the Trust's Board of Trustees. Under a
separate agreement, Bank of Boston also provides certain accounting services
for the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS AND TECHNIQUES
--------------------------------------------------------------------------------
The following is a description of certain of the permitted investments and
investment techniques for the Funds. Not all of the Funds will normally invest
in all of the investments, nor engage in all of the investment techniques,
listed below. See "Investment Policies." Except as specifically stated below or
elsewhere in this Prospectus or in the Statement of Additional Information with
respect to certain of the Funds' permitted investments and investment
techniques, there are no limits on the amount of assets a Fund may invest in
particular types of securities.
U.S. Treasury Obligations -- U.S. Treasury obligations include bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS"). STRIPS are sold as zero coupon securities. These
securities are usually structured with two classes that receive different
portions of the interest and principal payments from the underlying obligation.
The yield to maturity on the interest-only class is extremely sensitive to the
rate of principal payments on the underlying obligation. The market value of
the principal-only class generally is unusually volatile in response to changes
in interest rates. See "Zero Coupon Securities" below for more information on
these securities.
Receipts -- A Fund may purchase interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
or brokerage firms and are created by depositing U.S. Treasury obligations into
a special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts" ("TIGRs"),
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and "Certificates of Accrual on Treasury Securities" ("CATS"). TRs, TIGRs, and
CATS are sold as zero coupon securities. See "Zero Coupon Securities" below for
more information on these securities.
U.S. Government Agencies -- Certain Federal agencies such as the Government
National Mortgage Association ("GNMA") have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States (e.g., GNMA) or supported by the issuing agencies' right to borrow from
the Treasury. The issues of other agencies are supported only by the credit of
the instrumentality (e.g., Federal National Mortgage Association, "FNMA").
Bank Obligations -- A Fund may invest in bank obligations, i.e., certificates
of deposit, time deposits (including Eurodollar time deposits) and bankers'
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and
foreign branches of foreign banks, domestic savings and loan associations and
other banking institutions. A Fund may invest in such obligations, however,
only if the issuer (or the parent company, in the case of subsidiaries or
branches) has assets of at least $1 billion, and only if the Adviser deems the
bank obligation to be of comparable credit quality to the commercial paper in
which the applicable Fund may invest.
Bankers' Acceptances -- A banker's acceptance is a 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.
Certificates of Deposit -- A certificate of deposit is a negotiable interest-
bearing instrument with a specific maturity. Certificates of deposit are issued
by banks and savings and loan institutions in exchange for the deposit of funds
and normally can be traded in the secondary market prior to maturity.
Money Market Funds -- A money market fund is an investment company that limits
its investments to high quality money market instruments with a weighted
average maturity of 90 days or less. A Fund may not invest more than 5% of its
assets in any one money market fund or more than 10% of its assets in other
investment companies, including money market funds. When a Fund invests in a
money market fund, a Shareholder bears not only his or her proportionate share
of the Fund's expenses, but also indirectly his or her share of the expenses of
the money market fund, including management fees.
Time Deposits -- A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities; therefore, no Fund will invest more than
15% of its net assets in such time deposits and other illiquid securities.
Options -- A Fund may engage in writing call options from time to time as the
Adviser deems appropriate. Under a call option, the purchaser of the option has
the right to purchase, and the writer (the Fund) the obligation to sell, the
underlying security at the exercise price during the option period. Call
options written on individual securities are written solely as covered call
options (such as options written on securities owned by the Fund) and may be
written in order to generate additional income or for hedging purposes. Such
options must be listed on a national securities exchange. In order to close out
an option position, the Fund may enter into a "closing purchase transaction" --
the purchase of a call option on the same security with the same exercise
price and expiration date as any call option which it may previously have
written on any particular security. When the Fund security is sold, the Fund
effects a closing purchase transaction so as to close out any existing call
option on that security. If the Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
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option expires or the Fund delivers the underlying security upon exercise.
Each Fund may write covered call options on its securities provided the
aggregate value of such options does not exceed 10% of the Fund's net assets as
of the time such options are entered into by the Fund.
Each Fund may purchase put options on its securities provided the aggregate
value of such options does not exceed 10% of the Fund's net assets as of the
time such options are entered into by the Fund. Under a put option, the
purchaser of the option has the right to sell the underlying security at the
exercise price during the option period.
There are risks associated with options transactions, including the following:
(1) the success of a hedging strategy may depend on the ability of the Adviser
to predict movements in the prices of individual securities, market
fluctuations and movements in interest rates; (2) there may be an imperfect
correlation between the movement in prices of securities held by a Fund and
price movements of the related options; (3) there may not be a liquid secondary
market for options; and (4) while a Fund will receive a premium when it writes
covered call options, it may not participate fully in a rise in the market
value of the underlying security.
Futures and Options on Futures -- A Fund may also enter into bond and interest
rate futures contracts and options on futures contracts provided that the sum
of the Fund's initial margin deposits on open futures contracts plus the amount
paid for premiums for unexpired options on futures contracts does not exceed 5%
of the market value of the Fund's total assets and the outstanding obligations
to purchase securities under futures contracts do not exceed 20% of the Fund's
total assets. Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific security at a
specified future time and at a specified price. An option on a futures contract
gives the purchaser the right, in exchange for a premium, to assume a position
in a futures contract at a specified exercise price during the term of the
option. A Fund will minimize the risk that it will be unable to close out a
futures contract by entering into only those futures contracts which are traded
on national futures exchanges.
It is intended that the Funds would use futures contracts and related options
only for bona fide hedging purposes, i.e., to offset unfavorable changes in the
value of securities otherwise held or expected to be acquired for investment
purposes. There are risks associated with these hedging activities, including
the following: (1) the success of a hedging strategy may depend on the ability
of the Adviser to predict movements in the prices of individual securities,
fluctuations in markets, and movements in interest rates; (2) there may be an
imperfect or no correlation between the changes in market value of the
securities held by the Fund and the prices of futures and options on futures;
(3) there may not be a liquid secondary market for a futures contract or
futures option; (4) trading restrictions or limitations may be imposed by an
exchange; and (5) government regulations may restrict trading in futures
contracts and futures options.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by the Funds may carry variable or floating rates of interest and may involve a
conditional or unconditional demand feature permitting the holder to demand
payment of principal at any time, or at specified intervals. Such obligations
may include variable amount master demand notes. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a Federal Reserve composite index. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security; a Fund will not
invest more than 15% of its net assets in illiquid securities.
The interest rates on these securities may be reset daily, weekly, quarterly or
some other reset period, and may have a floor or ceiling on interest rate
charges. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates.
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Interest Rate Swaps -- An interest rate swap is a transaction in which the
parties involved exchange variable-rate instruments for fixed-rate instruments.
A Fund would undertake a swap if it believed that interest rates were moving in
a manner that made holding one type of instrument more advantageous than the
other. Thus, the success of a swap depends on the Adviser's ability to predict
correctly the movement of interest rates.
Commercial Paper -- Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from one to 270 days.
Securities of Foreign Issuers -- Investments in securities of foreign issuers
are subject to special risks such as future adverse political and economic
developments, possible seizure, nationalization or expropriation of foreign
investments, less stringent disclosure requirements, more volatile or less
liquid markets, the possible establishment of exchange controls or taxation at
the source, greater fluctuation in value due to changes in exchange rates, or
the adoption of other foreign governmental restrictions. These risks are
heightened for securities of issuers in developing countries. Such investments
may also entail higher custodial fees than domestic investments. Foreign
securities issuers are often subject to accounting treatment and engage in
business practices different from those of domestic securities issuers. Each of
the 1784 Income Fund and 1784 Short-Term Income Fund may invest up to 15% of
its net assets in securities of issuers in developing countries and up to 30%
of its net assets in securities of foreign issuers, including the 15% it may
invest in the securities of issuers in developing countries.
Foreign Currency Transactions -- Each of the 1784 Income Fund and 1784 Short-
Term Income Fund may engage in currency exchange transactions to protect
against uncertainty in the level of future exchange rates in connection with
hedging and other non-speculative strategies involving specific settlement
transactions, so long as such transactions do not exceed 20% of the Fund's
total assets. A Fund will conduct currency exchange transactions either on a
spot (i.e., cash) basis at the rate prevailing in the currency exchange market,
or through entering into forward contracts to purchase or sell currencies. A
forward currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which must be more than two days from the
date of the contract, at a price set at the time of the contract. Transaction
hedging is the purchase or sale of forward currency with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities. These contracts are entered into
in the interbank market conducted directly between currency traders (typically
commercial banks or other financial institutions) and their customers.
Loan Participations -- The 1784 Short-Term Income Fund and 1784 Income Fund may
invest in interests in loans to U.S. corporations (i.e., borrowers) which are
administered by the lending bank or agent for a syndicate of lending banks, and
sold by the lending bank or syndicate member ("intermediary bank"). In a loan
participation, the borrower of the underlying loan will be deemed to be the
issuer of the participation interest except to the extent the Fund derives its
rights from the intermediary bank. The Fund may only purchase interests in loan
participations issued by a bank in the United States with assets exceeding $1
billion and for which the underlying loan is issued by borrowers in whose
obligations the Fund may invest. Because the intermediary bank does not
guarantee a loan participation in any way, a loan participation is subject to
the credit risk generally associated with the underlying corporate borrower. In
addition, in the event the underlying corporate borrower fails to pay principal
and interest when due, the Fund may be subject to delays, expenses and risks
that are greater than those that would have been involved if the Fund had
purchased a direct obligation (such as commercial paper) of such borrower
because it may be necessary under the terms of the loan participation for the
Fund to assert its rights against the borrower through the intermediary bank.
Moreover, under the terms of a loan participation the purchasing Fund may be
regarded as a creditor of the intermediary bank (rather
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than the underlying corporate borrower), so that the Fund may also be subject
to the risk that the issuing bank may become insolvent. Further, in the event
of the bankruptcy or insolvency of the corporate borrower, a loan participation
may be subject to certain defenses that can be asserted by such borrower as a
result of improper conduct by the issuing bank. The secondary market, if any,
for these loan participations is limited and any such participation purchased
by a Fund may be regarded as illiquid; no Fund will invest more than 15% of its
net assets in illiquid securities.
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933 or an exemption from
registration are referred to as "restricted securities." Each of the Fixed
Income Funds may invest up to 15% of its net assets in illiquid securities,
including restricted securities; however, this limit will not apply to a
restricted security if it is determined by or under the direction of the
Trust's Board of Trustees, based on trading markets for the specific restricted
security, that such security is liquid. The liquidity of these investments
could be impaired if trading does not develop or declines. In the case of
illiquid securities, the absence of a trading market can make it difficult to
ascertain a market value for these investments. Disposing of illiquid
securities may involve time-consuming negotiation and legal expense, and it may
be difficult or impossible for a Fund to sell them promptly at an acceptable
price.
Repurchase Agreements -- A repurchase agreement is an agreement by which a
person obtains a security and simultaneously commits to return the security to
the seller at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days from the date of purchase. The
Custodian or its agent will hold the security as collateral for the repurchase
agreement. Collateral must be maintained at a value at least equal to 100% of
the purchase price. A Fund bears a risk of loss in the event the other party
defaults on its obligations and the Fund is delayed or prevented from its right
to dispose of the collateral securities or if the Fund realizes a loss on the
sale of the collateral securities. The Adviser will enter into repurchase
agreements on behalf of a Fund only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
guidelines established and periodically reviewed by the Trustees. Pursuant to
an exemptive order from the SEC, each of the Funds may enter into repurchase
agreements on a pooled basis with other portfolios of the Trust.
Mortgage-Backed Securities -- Each of the Funds may acquire securities
representing an interest in a pool of mortgage loans that are issued or
guaranteed by a U.S. Government agency. The primary issuers or guarantors of
these mortgage-backed securities are GNMA, FNMA and the Federal Home Loan
Mortgage Corporation. The 1784 Income Fund and 1784 Short-Term Income Fund may
also invest in mortgage-backed securities issued by non-governmental entities
which consist of collateralized mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICs") that are rated in one of the top three
categories by S&P or Moody's or are of comparable quality as determined by the
Adviser. The mortgages backing these securities include conventional thirty-
year fixed rate mortgages, graduated payment mortgages, and adjustable rate
mortgages. The Funds will purchase only CMOs and REMICs that are backed solely
by GNMA certificates or other mortgage pass-through certificates issued or
guaranteed by the U.S. Government or its agencies and instrumentalities.
However, the guarantees do not extend to the mortgage-backed securities' value,
which is likely to vary inversely with fluctuations in interest rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yield of a particular issue of pass-
through certificates. During periods of declining interest rates, prepayment of
mortgages underlying
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mortgage-backed securities can be expected to accelerate. When the mortgage
obligations are prepaid, the Fund reinvests the prepaid amounts in securities,
the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life. The
Adviser believes that the estimated average life is the most appropriate
measure of the maturity of a mortgage-backed security. Accordingly, in order to
determine the average maturity of a Fund, the Adviser will use an estimate of
the average life of a mortgage-backed security. An average life estimate is a
function of an assumption regarding anticipated prepayment patterns. The
assumption is based upon current interest rates, current conditions in the
relevant housing markets and other factors. The assumption is necessarily
subjective, and thus different market participants could produce somewhat
different average life estimates with regard to the same security. There can be
no assurance that the average life as estimated by the Adviser will be the
actual average life.
Mortgage "Dollar Roll" Transactions -- Each of the 1784 Income and the 1784
Short-Term Income Funds may enter into mortgage "dollar roll" transactions with
selected banks and broker-dealers pursuant to which the Fund sells mortgage-
backed securities for delivery in the future (generally within 30 days) and
simultaneously contracts to purchase substantially similar (same type, coupon
and maturity) securities on a specified future date. The Funds will only enter
into covered rolls. A "covered roll" is a specific type of dollar roll for
which there is an offsetting cash position or a cash equivalent security
position which matures on or before the forward settlement date of the dollar
roll transaction. Each Fund will not commit more than 20% of its total assets
to dollar roll transactions.
Asset-Backed Securities -- Asset-backed securities consist of securities
secured by company receivables, truck and auto loans, leases, and credit card
receivables. These issues are normally traded over-the-counter and typically
have a short-intermediate maturity structure depending on the paydown
characteristics of the underlying financial assets which are passed through to
the security holder. Because prepayment of those underlying financial assets
affects the maturity of asset-backed securities, the Adviser will use estimates
of the average life of asset-backed securities in order to determine the
effective maturity of the Funds. See "Mortgage-Backed Securities" for more
information on estimates of average life. There can be no assurance that the
average life of an asset-backed security as estimated by the Adviser will be
the actual average life.
Standby Commitments -- A Fund may acquire securities subject to a standby
commitment which permits a Fund to sell the security at a fixed price prior to
maturity. The underlying municipal securities subject to a standby commitment
may be sold at any time at the market rates. In certain cases, a premium may be
paid for a standby commitment. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving standby commitments is to maintain flexibility and
liquidity to permit the Fund to meet redemptions and remain as fully invested
as possible in municipal securities. Each Fund will limit standby commitment
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Trust's Board of Trustees.
There is no limit to the percentage of Fund securities that any Fund may
purchase subject to a standby commitment but the amount paid directly or
indirectly for a standby commitment held by any Fund will not exceed 1/2 of 1%
of the value of the total assets of the Fund.
Municipal Securities -- Municipal securities which the 1784 Income and the 1784
Short-Term Income Funds may purchase include (i) debt obligations issued by or
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on behalf of public authorities to obtain funds to be used for various public
facilities, for refunding outstanding obligations, for general operating
expenses, and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair, or improvement of privately operated
facilities. Municipal notes include (but are not limited to) general obligation
notes, tax anticipation notes, revenue anticipation notes, bond obligation
notes, certificates of indebtedness, demand notes, and construction loan notes.
Municipal bonds include (but are not limited to) general obligation bonds,
revenue or special obligation bonds, private activity and industrial
development bonds. General obligation bonds are backed by the taxing power of
the issuing municipality. Revenue bonds are backed by the revenues of a project
or facility, e.g., tolls from a toll bridge. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed
as security for such payment.
Municipal securities also include participations in municipal leases. These are
undivided interests in a portion of an obligation in the form of a lease or
installment purchase issued by a state or local government to acquire equipment
or facilities. Municipal leases frequently have special risks not normally
associated with general obligation bonds or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by
the appropriate legislative body on a yearly or other periodic basis. Although
the obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In light of these concerns, the Trust
has adopted and follows procedures for determining whether municipal lease
securities purchased by a Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures require
that a number of factors be used in evaluating the liquidity of a municipal
lease security, including the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number
of other potential purchasers, the willingness of dealers to undertake to make
a market in the security, the nature of the marketplace in which the security
trades, the credit quality of the security, and other factors which the Adviser
may deem relevant.
Forward Commitments or Purchases on a When-Issued Basis -- Each of the Funds
may enter into forward commitments or purchase securities on a when- issued
basis, which means that the price of the securities is fixed at the time of
commitment and that the delivery and payment will ordinarily take place beyond
customary settlement time. The interest rate realized on these securities is
fixed as of the purchase date and no interest accrues to the Fund before
settlement. These securities are subject to market fluctuation due to changes
in market interest rates and will have the effect of leveraging the Fund's
assets; the securities are also subject to fluctuation in value pending
settlement based upon public perception of the creditworthiness of the issuer
of these securities. Securities purchased on a when-issued or forward
commitment basis may expose a Fund to risk because such securities may
experience such fluctuations in value prior to their actual delivery.
Agreements to purchase securities on a when-issued or forward commitment basis
will only be made with the intention of taking delivery and not for speculative
purposes. A Fund may invest up to 25% of its assets in forward commitments or
commitments to purchase securities on a when-issued basis. While awaiting
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delivery of securities purchased on such bases, a Fund will establish a
segregated account consisting of cash, short-term money market instruments or
high quality debt securities equal to the amount of the commitments to purchase
securities on such bases.
Zero Coupon Securities -- A zero coupon security pays no interest or principal
to its holder during its life. A zero coupon security is sold at a discount,
frequently substantial, and redeemed at face value at its maturity date. The
amount of the discount is accrued over the life of the security and constitutes
the income earned on the security for both accounting and tax purposes. The
market prices of zero coupon securities are generally more volatile than the
market prices of securities of similar maturity that pay interest periodically,
and zero coupon securities are likely to respond to a greater degree to
interest rate changes than are non-zero coupon securities with similar maturity
and credit qualities.
Securities Lending -- In order to generate additional income, a Fund may lend
the securities in which it is invested pursuant to agreements requiring that
the loan be continuously secured by cash, securities of the U.S. Government or
its agencies or any combination of cash and such securities as collateral equal
at all times to 100% of the market value of the securities lent plus accrued
interest. A Fund may lend up to 33 1/3% of its total assets. The Fund will
continue to receive interest on the securities lent while simultaneously
earning interest on the investment of cash collateral in U.S. Government
securities. There may be risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from such securities loans
justifies the attendant risk.
Convertible Securities -- The 1784 Income and 1784 Short-Term Income Funds may
invest in convertible securities. Convertible securities have characteristics
similar to both fixed income and equity securities. Because of the conversion
feature, the market value of convertible securities tends to move together with
the market value of the underlying stock. As a result, a Fund's selection of
convertible securities is based, to a great extent, on the potential for
capital appreciation that may exist in the underlying stock. The value of
convertible securities is also affected by prevailing interest rates, the
credit quality of the issuer, and any call provisions. The convertible
securities in which the Fund may invest include both debt obligations and
preferred stock. Each Fund will not invest more than 20% of its total assets in
these securities.
Guaranteed Investment Contracts ("GIC") -- The 1784 Income and 1784 Short-Term
Income Funds may invest in GICs. A GIC is contract between an insurance company
and, generally, an institutional investor that guarantees the investor a
specified interest rate for a specified period and the return of the investor's
principal. Each Fund will not invest more than 20% of its total assets in GICs.
Warrants -- The 1784 Income and 1784 Short-Term Income Funds may invest in
warrants. Each Fund may invest up to 2% of its net assets in warrants, except
that this limitation does not apply to warrants acquired in units or attached
to securities. A warrant is an instrument issued by a corporation which gives
the holder the right to subscribe for a specified amount of the corporation's
capital stock at a set price for a specified period of time.
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