A permanently flame-retardant and anti-microbial air-textured yarn is formed of a plurality of substantially longitudinally extending, permanently flame-retardant filaments defining a core, and a plurality of substantially randomly extending, permanently anti-microbial filaments disposed at least about the core, the anti-microbial filaments at least partially defining a boucle-like sheath about the core. A knit or woven fabric formed with the yarn and having at lease 5% by weight of the anti-microbial filaments is characterized by an ability to pass, both after one commercial laundering and after 100 commercial launderings, both National Fire Protection Agency vertical flame retardancy test NFPA 701-1989 and at least the 85% reduction level of gram positive and gram negative bacteria of anti-microbial test NYS 63.