As Filed with the Securities and Exchange
Commission on December 30, 1996
1933 Act File No. 2-70863
1940 Act File No. 811-3126
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
-----
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 25 / X /
-- ----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
-----
Amendment No. 27 / X /
-- ----
(Check appropriate box or boxes.)
FREEDOM MUTUAL FUND
(Exact Name of Registrant)
One Beacon Street, Boston, MA 02108
(Address of Principal Executive Offices)
(617) 523-3170
(Registrant's Telephone Number)
Edward T. O'Dell, P.C.
Goodwin, Procter & Hoar
Exchange Place, Boston, MA 02109
(Name and Address of Agent for Service of Process)
Approximate date of proposed public offering:
It is proposed that this filing will become effective under Rule 485
(check appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/ / On _____________, pursuant to paragraph (b)
/ X / 60 days after filing pursuant to paragraph (a)(1)
/ / On _____ pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On _____ pursuant to paragraph (a)(2).
If appropriate check the following box:
/ / This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
The Registrant, pursuant to Rule 24f-2 promulgated under the Investment
Company Act of 1940, has previously registered an indefinite number of shares of
the Freedom Cash Management Fund series and the Freedom Government Securities
Fund series. A Rule 24f-2 Notice for the Registrant's most recent fiscal year
with respect to the Freedom Cash Management Fund series and Freedom Government
Securities Fund series will be filed on or about February 22, 1997.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
<TABLE>
<CAPTION>
Form N-1A Item No. Caption or Location
Part A in Prospectuses
- ------------------ -------------------
<S> <C>
1. Cover Page Same
2. Synopsis Summary of Our Expenses
3. Condensed Financial Our Financial Highlights
Information
4. General Description of Our Investment
Registrant Objective and Policies; Our
Organization and Special Considerations
and Risk Factors
5. Management of the Fund Our Management; Additional
Information
5A Management's Discussion of Fund Performance [To be included in Annual Report to
Shareholders]
6. Capital Stock and Other Our Organization and
Securities Shares; Additional Information;
Dividends; Taxes
7. Purchase of Securities Being How to Purchase Shares
Offered
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
</TABLE>
<TABLE>
<CAPTION>
Caption or Location in
Form N-1A Item No.
Statements of
Part B Additional Information
- ------------------ -----------------------
<S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information
13. Investment Objectives and Investment Objectives
Policies and Policies; Investment Restrictions
14. Management of the Fund Management of the Trusts/Fund
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Caption or Location in
Form N-1A Item No. Statements of
Part B Additional Information
- ------------------ -----------------------
<S> <C>
15. Control Persons and Principal Management of the Trusts/Fund
Holders of Securities
16. Investment Advisory and Other The Investment Adviser;
Services Distribution of Shares of the
Trusts/Fund; Custodian; Financial
Statements and Independent
Accountants
17. Brokerage Allocation and Portfolio Transactions
Other Practices
18. Capital Stock and Other General Information
Securities
19. Purchase, Redemption and Pricing Additional Information on Redemption;
of Securities Being Offered Net Asset Value
20. Tax Status Additional Information on
Taxes
21. Underwriters Distribution of Shares of the
Trusts/Fund
22. Calculations of Performance Data Current Yield
23. Financial Statements Financial Statements and Independent
Accountants
</TABLE>
(iii)
<PAGE>
FREEDOM MUTUAL FUND [FLAG
LOGO]
FREEDOM GROUP OF TAX EXEMPT FUNDS
ONE BEACON STREET - BOSTON, MASSACHUSETTS 02108
(800) 453-8206 NATIONWIDE
We are two investment companies offering three separate portfolios,
commonly known as mutual funds (the "Funds"), each of which is a no-load money
market fund with its own specific investment objectives.
Freedom Cash Management Fund -- A money market fund investing in a
diversified portfolio of high-grade money market instruments.
Freedom Government Securities Fund -- A money market fund investing
exclusively in obligations issued or guaranteed as to both principal and
interest by the U.S. Government and its agencies or instrumentalities.
Freedom Tax Exempt Money Fund -- A money market fund investing in a
diversified portfolio of high quality short-term municipal securities.
INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
STABLE $1.00 PER SHARE NET ASSET VALUE.
This Prospectus sets forth concisely the information about the Funds that you
ought to know before investing. Please read the Prospectus and retain it for
future reference. Additional information, contained in a Statement of Additional
Information also dated February 28, 1996, has been filed with the Securities and
Exchange Commission and is available upon request without charge by writing to
the Funds at the address set forth above. The Statement of Additional
Information having the same date as this Prospectus is incorporated by reference
into this Prospectus.
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.
PROSPECTUS AND ANNUAL REPORT -- February 28, 1996
<PAGE>
TABLE OF CONTENTS
Page Introduction ......................................................... 1
Benefits to Our Investors ................................................. 1
Summary of Our Expenses ................................................... 2
Our Financial Highlights .................................................. 3
Our Investment Objectives ................................................. 4
Freedom Cash Management Fund ......................................... 4
Freedom Government Securities Fund ................................... 5
Freedom Tax Exempt Money Fund ........................................ 5
Certain Investment Strategies ............................................. 6
Special Considerations -- Tax Exempt Money Fund ........................... 6
How to Purchase Shares .................................................... 7
How to Redeem Shares ...................................................... 9
Freedom Asset Account ..................................................... 11
Pricing of Our Shares ..................................................... 12
Dividends ................................................................. 12
Current Yield ............................................................. 12
Taxes ..................................................................... 12
Our Organization and Shares ............................................... 14
Our Management ............................................................ 15
Shareholder Services ...................................................... 15
Additional Information .................................................... 17
Annual Report -- December 31, 1996 ........................................ 18
<PAGE>
INTRODUCTION
We are two open-end diversified management investment companies offering three
separate portfolios, commonly known as mutual funds (the "Funds"). Each Fund is
a no-load money market fund which provides a stable net asset value and high
current income by investing in a portfolio of high-quality money market
obligations. The Funds described in this Prospectus are Freedom Cash Management
Fund ("Cash Management Fund"), Freedom Government Securities Fund ("Government
Securities Fund") and Freedom Tax Exempt Money Fund ("Tax Exempt Money Fund").
BENEFITS TO OUR INVESTORS
Our money market funds offer you important benefits and conveniences:
No Sales Charge, No Redemption Fee.
Minimum Initial Investment: $1,000.
Minimum Subsequent Investment: $100. See "How to Purchase Shares" and "How
to Redeem Shares".
Liquidity and Share Price Stability: Investment liquidity through
convenient purchase and redemption procedures. Stability of principal through
maintenance of a constant net asset value of $1.00 per share.
Checkwriting Privilege: You have the convenience of making redemptions
without charge merely by writing a check. Such checks may be payable to anyone
you wish and there is no limit on the number of checks you may write.
Professional Management: Freedom Capital Management Corporation, founded in
1930, serves as the Funds' investment adviser (the "Adviser"). The Adviser
provides a number of mutual funds and other clients with investment research and
portfolio management services. Assets under the Adviser's supervision currently
exceed $4 billion. The Adviser is an indirect, wholly-owned subsidiary of JHFSC
Acquisition Corp.
Free Exchange Privilege: You may exchange shares of any Fund without charge
for shares of any other Fund described in this Prospectus.
Investments in the Funds are neither insured nor guaranteed by the U.S.
Government. There is no assurance that the Funds will be able to maintain a
stable $1.00 per share net asset value.
1
<PAGE>
SUMMARY OF OUR EXPENSES
<TABLE>
<CAPTION>
Cash Government Tax Exempt
Management Fund Securities Fund Money Fund
--------------- --------------- ----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None
Sales Load Imposed on Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)*
Management Fees .47% .50% .50%
12b-1 Fees None None None
Other Expenses .26% .15% .14%
Total Fund Operating Expenses .73% .65% .64%
</TABLE>
- --------------
* For the fiscal year ended December 31, 1996
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly as an investor in
each Fund. For further information on management fees, see "Our Management."
EXAMPLE
The following example illustrates the effect of each Fund's expenses on the
value of a hypothetical $1,000 investment at the end of one, three, five and ten
year periods in that Fund. As noted in the table above, none of the Funds charge
redemption fees of any kind. THE EXAMPLE SHOULD NOT BE CONSIDERED AS A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR INVESTMENT RETURNS. ACTUAL EXPENSES
AND INVESTMENT RETURNS MAY BE GREATER OR LESS THAN SHOWN.
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period: 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Cash Management Fund $7 $23 $41 $91
Government Securities Fund $7 $21 $36 $81
Tax Exempt Money Fund $7 $20 $36 $80
2
<PAGE>
OUR FINANCIAL HIGHLIGHTS
The table of Financial Highlights below represents a summary history of our
operations. The table uses the Funds' fiscal year (which ends December 31) and
expresses the information in terms of a single share outstanding throughout each
year. The table has been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report covering the fiscal years appears
elsewhere in this Prospectus. The financial highlights information should be
read in conjunction with the financial statements and related notes also
included in this Prospectus.
<TABLE>
<CAPTION>
NET RATIO OF RATIO OF NET
NET ASSET DIVIDENDS NET ASSET ASSETS EXPENSES INVESTMENT
VALUE NET FROM NET VALUE END OF TO AVERAGE INCOME TO
YEAR BEGINNING INVESTMENT INVESTMENT END OF TOTAL YEAR DAILY AVERAGE DAILY
ENDED OF YEAR INCOME INCOME YEAR RETURN (THOUSANDS) NET ASSETS NET ASSETS
----- ------- ------ ------ ---- ------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH MANAGEMENT FUND
December 31, 1996* - - - - - - - -
December 31, 1995 $1.00 $0.0526 $(0.0526) $1.00 5.38% $1,346,625 0.73% 5.26%
December 31, 1994 1.00 0.0353 (0.0353) 1.00 3.59 1,083,661 0.75 3.54
December 31, 1993 1.00 0.0247 (0.0247) 1.00 2.50 1,138,578 0.75 2.47
December 31, 1992 1.00 0.0309 (0.0309) 1.00 3.13 1,069,472 0.78 3.09
December 31, 1991 1.00 0.0546 (0.0546) 1.00 5.60 1,183,684 0.77 5.46
December 31, 1990 1.00 0.0753 (0.0753) 1.00 7.80 1,103,050 0.78 7.49
December 31, 1989 1.00 0.0844 (0.0844) 1.00 8.78 1,111,954 0.80 8.45
December 31, 1988 1.00 0.0679 (0.0679) 1.00 7.01 800,970 0.85 6.81
December 31, 1987 1.00 0.0588 (0.0588) 1.00 6.04 691,151 0.84 5.88
December 31, 1986 1.00 0.0602 (0.0602) 1.00 6.19 700,841 0.85 5.93
GOVERNMENT SECURITIES FUND
December 31, 1996* - - - - - - - -
December 31, 1995 $1.00 $0.0500 $(0.0500) $1.00 5.10% $317,400 0.65% 5.00%
December 31, 1994 1.00 0.0331 (0.0331) 1.00 3.36 268,434 0.65 3.31
December 31, 1993 1.00 0.0246 (0.0246) 1.00 2.49 349,808 0.59 2.47
December 31, 1992 1.00 0.0315 (0.0315) 1.00 3.18 336,804 0.60 3.15
December 31, 1991 1.00 0.0521 (0.0521) 1.00 5.34 352,803 0.57 5.30
December 31, 1990 1.00 0.0743 (0.0743) 1.00 7.69 266,179 0.66 7.41
December 31, 1989 1.00 0.0817 (0.0817) 1.00 8.48 179,730 0.69 8.21
December 31, 1988 1.00 0.0647 (0.0647) 1.00 6.67 169,967 0.71 6.47
December 31, 1987 1.00 0.0550 (0.0550) 1.00 5.64 195,394 0.72 5.53
December 31, 1986 1.00 0.0587 (0.0587) 1.00 6.03 208,498 0.70 5.89
TAX EXEMPT MONEY FUND
December 31, 1996* - - - - - - - -
December 31, 1995 $1.00 $0.0319 $(0.0319) $1.00 3.23% $274,076 0.64% 3.19%
December 31, 1994 1.00 0.0216 (0.0216) 1.00 2.19 248,045 0.65 2.16
December 31, 1993 1.00 0.0171 (0.0171) 1.00 1.73 270,474 0.63 1.71
December 31, 1992 1.00 0.0232 (0.0232) 1.00 2.35 243,333 0.63 2.32
December 31, 1991 1.00 0.0389 (0.0389) 1.00 3.96 252,393 0.61 3.90
December 31, 1990 1.00 0.0522 (0.0522) 1.00 5.35 251,439 0.59 5.20
December 31, 1989 1.00 0.0555 (0.0555) 1.00 5.69 229,859 0.60 5.58
December 31, 1988 1.00 0.0459 (0.0459) 1.00 4.69 205,166 0.57(a) 4.57(a)
December 31, 1987 1.00 0.0398 (0.0398) 1.00 4.05 222,820 0.53(a) 3.98(a)
December 31, 1986 1.00 0.0434 (0.0434) 1.00 4.43 230,799 0.49(a) 4.31(a)
</TABLE>
- ------------
(a) Net of fees waived by the Adviser which amounted to $0.0008, $0.0016, and
$0.0019 per share in the years 1988, 1987, and 1986, respectively.
* Information to be filed by amendment.
3
<PAGE>
OUR INVESTMENT OBJECTIVES
In order to provide you with liquidity, the Funds follow practices to
maintain a $1.00 share price: limiting their portfolios' average maturity to 90
days or less; buying securities which mature in 397 days or less; and buying
only high quality securities with minimal credit risks. Of course, the Funds
cannot guarantee a $1.00 share price, but these practices help to minimize any
price fluctuations that might result from rising or declining interest rates.
While each Fund invests in high quality securities, you should be aware that
your investment is not without risk even if all the securities in the portfolio
are paid in full at maturity. Each of the Funds has a fundamental investment
objective with an investment program to aid in achieving its objective. There is
no assurance that the Funds will achieve their investment objectives. All money
market instruments and debt securities, including U.S. Government securities,
can change in value when interest rates change or when an issuer's
creditworthiness changes.
Each of the Funds will limit its portfolio investments to high quality
money market obligations that, at the time of acquisition, (i) are rated in the
two highest categories by at least two nationally recognized statistical rating
organizations ("NRSROs") (or by one NRSRO if only one NRSRO has rated the
security), (ii) if not rated, are obligations of an issuer whose other
outstanding short-term debt obligations are so rated, or (iii) if not rated, are
of comparable quality as determined by the Adviser in accordance with procedures
established by the Trustees (collectively, "Eligible Securities"). Each Fund
will limit its investments to Eligible Securities that present minimal credit
risk, as determined by the Adviser in accordance with procedures established by
the Trustees.
All Eligible Securities may be classified as "first tier" securities and
"second tier" securities. In general, first tier securities consist of Eligible
Securities that have received the highest rating by at least two NRSROs (or by
one NRSRO if only one NRSRO has rated the security) or which are unrated but
determined to be of comparable quality. All other Eligible Securities are
classified as second tier securities. Neither the Cash Management Fund nor the
Government Securities Fund may invest more than 5% of its total assets in second
tier securities or invest more than 1% of its total assets or $1.0 million
(whichever is greater) in the second tier securities of any single issuer. A
description of the ratings of the NRSROs is contained in the Statement of
Additional Information.
FREEDOM CASH MANAGEMENT FUND
Investment Objective. The Cash Management Fund seeks to achieve as high a
rate of current income as is consistent with maintenance of liquidity and
preservation of capital.
Investment Program. To achieve its objectives, the Fund invests in a
diversified portfolio of short-term, U.S. dollar-denominated instruments of U.S.
and foreign issuers. These instruments include securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, foreign
governments, certificates of deposit, time deposits, bankers' acceptances and
other short-term obligations issued by domestic banks, foreign branches of
domestic banks, foreign subsidiaries of domestic banks, and domestic and foreign
branches of foreign banks, asset-backed securities, repurchase agreements, and
high-quality domestic and foreign commercial paper and other short-term
corporate obligations, including those with floating or variable rates of
interest.
Foreign obligations, including obligations of foreign banks, U.S. branches
and agencies of foreign banks, and foreign branches of U.S. banks, may involve
different risks than domestic obligations, including unfavorable political and
economic developments, currency controls or other governmental restrictions
which could affect the payment of principal or interest. Additionally, foreign
issuers may be subject to less governmental regulation and supervision than U.S.
issuers.
4
<PAGE>
FREEDOM GOVERNMENT SECURITIES FUND
Investment Objective. The Government Securities Fund seeks to achieve as
high a rate of current income as is consistent with maintenance of liquidity and
preservation of capital.
Investment Program. To achieve its objectives, the Fund invests exclusively
in short-term U.S. Treasury securities, U.S. Government agency securities and
repurchase agreements with respect to such securities. Some U.S. Government
agency securities, such as Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the United States
Treasury; others, such as securities of Federal Home Loan Banks, by the right of
the issuer to borrow from the Treasury.
FREEDOM TAX EXEMPT MONEY FUND
Investment Objective.
The Tax Exempt Money Fund seeks to achieve as high a rate of current income
exempt from federal income taxes as is consistent with maintenance of liquidity
and preservation of capital. Investment Program. To protect its capital, the
Fund invests only in highly rated securities. The Fund may invest in "Municipal
Securities", which, as used in this Prospectus, means obligations issued by or
on behalf of states, territories, and possessions of the United States,
including the District of Columbia, and their political subdivisions, agencies
and instrumentalities, the interest from which is exempt from federal income
tax. Municipal Securities include tax anticipation notes, revenue anticipation
notes, general obligation bonds, industrial revenue bonds, construction loan
notes, bond anticipation notes, tax exempt commercial paper and short-term
municipal bonds. The tax exempt status of a Municipal Security is determined by
the issuer's bond counsel at the time of the issuance of the security. Interest
income of the Fund which is exempt from federal income tax is expected to retain
its tax-free status when distributed to shareholders. Such income may be subject
to state and local taxes.
The Fund may also invest in when-issued securities and certain variable and
floating rate demand notes. Variable and floating rate demand notes generally
have a maturity in excess of one year, but permit their holder to demand
prepayment upon a specified number of days' notice.
Certain of the Municipal Securities may be backed by a letter of credit
issued by a domestic or a foreign bank in order to improve their credit rating.
In that case, the Fund considers the bank to be the ultimate obligor and credit
risk. See "Special Considerations -- Tax Exempt Money Fund."
It is a fundamental policy of the Fund that during normal market conditions
the Fund's assets will be invested so that at least 80% of the Fund's income
during its fiscal year will be exempt from federal personal income taxes. Up to
20% of the Fund's portfolio may be invested in issues which are not exempt from
federal income tax such as commercial paper, corporate notes, certificates of
deposit, obligations of the U.S. Government, its agencies or instrumentalities
(and repurchase agreements secured by these obligations). Under federal tax
legislation, the interest on certain tax exempt securities which the Fund may
purchase will be included in income subject to the federal individual
alternative minimum tax. The Fund's present policy is to invest no more than 20%
of its total assets in taxable securities including those subject to the
alternative minimum tax. During periods of uncertain market conditions, the Fund
may place more than 20% of its total assets for temporary defensive purposes in
taxable investments or cash reserves.
5
<PAGE>
CERTAIN INVESTMENT STRATEGIES
Repurchase Agreements. Each of the Funds may enter into repurchase
agreements with a bank, financial institution or broker-dealer as a means of
earning income for periods as short as overnight. A repurchase agreement
provides for a Fund to purchase securities, subject to the seller's agreement to
repurchase such securities at a specified time (normally the next business day)
and price. Each repurchase agreement entered into by a Fund will provide that
the value of the collateral underlying the repurchase agreement will always be
at least equal to the repurchase price, including any accrued interest. A Fund's
right to liquidate its collateral, in the event of a default by the seller,
could involve certain costs, losses or delays and, to the extent that proceeds
from any sale upon a default of the obligation to repurchase are less than the
repurchase price, a Fund could suffer a loss. No Fund will invest more than 10%
of its net assets in repurchase agreements of more than one week's duration.
Borrowing. Each Fund may borrow up to 10% of the value of its net assets
from banks for temporary purposes (not for leveraging or investment) but will
not make any new investments so long as such borrowings exceed 5% of the value
of its net assets.
Illiquid Securities. Each Fund may invest up to 10% of its net assets in
securities for which no readily available market exists (including repurchase
agreements maturing in more than one week). Each Fund may purchase restricted
securities eligible for resale to "qualified institutional buyers" pursuant to
Rule 144A under the Securities Act of 1933. The Cash Management Fund may also
purchase commercial paper issued as part of a non-public offering pursuant to
Section 4(2) of the Securities Act of 1933 ("Section 4(2) Paper"). However, if
the Trustees determine that these Rule 144A Securities are liquid, based upon a
continuing review of the trading markets for specific Rule 144A securities, then
they may be purchased without regard to the 10% limit. In addition, if the
Trustees determine that specific Section 4(2) Paper is liquid, based upon a
continuing review of the trading markets for such Section 4(2) Paper, then such
securities may be purchased by the Cash Management Fund without regard to the
10% limit. The Trustees will carefully monitor each Fund's investments in Rule
144A securities, and the Cash Management Fund's investments in Section 4(2)
Paper, focusing on factors, among others, such as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Funds to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
When-Issued Securities. The Tax Exempt Money Fund may invest in
"when-issued" securities. When-issued securities involve commitments to buy a
new issue with settlement up to 45 days later. During the time between the
commitment and settlement, the Fund does not accrue interest but the market
value may fluctuate. This can result in the Fund's share value increasing or
decreasing. If the Fund invests in securities of this type, it will maintain a
segregated account to pay for them and mark it to market daily.
SPECIAL CONSIDERATIONS -- TAX EXEMPT MONEY FUND
The ability of the Tax Exempt Money Fund to achieve its investment
objective is dependent on the continuing ability of the issuers of Municipal
Securities in which the Fund invests to meet their obligations for the payment
of principal and interest when due. It should also be pointed out that, unlike
other types of investments, Municipal Securities traditionally have not been
subject to regulation by, or registration with, the Securities and Exchange
Commission, although there have been proposals which would provide for
regulation in the future.
With respect to Municipal Securities that are backed by a letter of credit
issued by a foreign bank, the ultimate source of payment is the foreign bank.
Investment in foreign banks may involve risks not present in domestic
investments. These include the fact that the foreign bank may be subject to
different, and in some cases less comprehensive, regulatory, accounting,
financial reporting and disclosure standards than are domestic banks.
6
<PAGE>
HOW TO PURCHASE SHARES
GENERAL
Shares of the Funds are distributed by Tucker Anthony Incorporated ("Tucker
Anthony") and Freedom Distributors Corporation ("Freedom", and together with
Tucker Anthony, the "Distributors") and Sutro & Co., Incorporated ("Sutro"), an
authorized securities dealer which has entered into a sales agreement with the
Distributors. State Street Bank and Trust Company ("State Street") acts as the
Funds' custodian. John Hancock Investor Services Corp. ("JHIS") acts as the
Funds' transfer and shareholder services agent.
You may open an account in any Fund by placing an order for at least
$1,000. You may then make subsequent investments for $100 or more.
Shares of the Funds are offered on a continuing basis without a sales
charge at a public offering price equal to the net asset value next determined
after a purchase order is received in proper form as described below. Shares may
be purchased either (1) through the Distributors, utilizing an existing or new
securities brokerage account with a Tucker Anthony or Sutro account executive,
or (2) directly through JHIS. Orders to purchase shares do not become effective
until receipt of "Federal Funds" (monies credited to JHIS's account with its
registered Federal Reserve Bank) by JHIS.
There is no minimum amount for initial or subsequent investment (i) by a
tax-deferred retirement plan (Cash Management Fund and Government Securities
Fund only) or (ii) in connection with purchases through the automatic "sweep"
program (described below) sponsored by Tucker Anthony and Sutro (all Funds).
Where a bank, investment adviser or similar institution has a large number of
accounts and is willing to receive a monthly summary of accounts in lieu of the
regular statement for each account under its control, the minimum amount for
initial investments by individual accounts covered by the summary of accounts is
reduced to $100. All payments will be invested in full and fractional shares.
PURCHASES BY CLIENTS OF TUCKER ANTHONY AND SUTRO
If you have a brokerage account with Tucker Anthony or Sutro, and have not
elected the automatic "sweep" program described below, you may purchase any
Fund's shares through your account executive. In order to purchase through your
account, your account must have a free credit balance (i.e. immediately
available funds). If a properly completed order to purchase Fund shares is
received at any Tucker Anthony or Sutro office after 12:00 noon New York time
and paid utilizing a free credit balance available on a brokerage account,
Tucker Anthony or Sutro will transfer Federal Funds to the Fund and your order
will be executed on the next business day and dividends on such shares will
begin on that day. Accordingly, Tucker Anthony or Sutro may benefit from the use
of free credit balances in your account prior to their transfer to a Fund.
Certificates for shares owned generally are not issued to you if you have
purchased your shares through Tucker Anthony or Sutro. Tucker Anthony and Sutro
will receive statements and dividends directly from the Funds and will in turn
provide you with account statements reflecting a Fund's purchases, redemptions
and dividend payments.
7
<PAGE>
"Sweep" Program. You may also purchase any Fund's shares by participating
in the "sweep" program of Tucker Anthony and Sutro in which any free credit cash
balance (in available funds) of any amount in your Tucker Anthony/Sutro
brokerage account is invested in one of the Funds automatically no less
frequently than weekly. Under the terms of this program, you may have your free
credit balance invested in shares of any Fund although at any one time your free
credit balance may be invested automatically in only one Fund (the "Designated
Fund"). Free credit cash balances (in available funds) of $2,000 or more will be
invested in shares of the Designated Fund automatically on the next business
day. Automatic purchases using free credit balances of less than $2,000 will be
made weekly, generally on Monday (or the next business day if any Monday is a
holiday) of each week based upon the free credit balance in the account at the
close of business on the preceding Friday. Unless you have elected cash
dividends, dividends on your shares in the Designated Fund will be automatically
reinvested in shares monthly. Redemptions will be effected automatically to
satisfy debit balances in your brokerage account created by activity therein.
Each brokerage account will be scanned automatically for debits each business
day as of the close of business on that day and, after application of any free
credit cash balances in the account to such debits, a sufficient number of
shares of the Designated Fund owned by you will be redeemed at 12:00 noon the
following business day to satisfy any remaining debits in the brokerage account.
Tucker Anthony or Sutro may benefit from the use of free credit balances in your
account prior to their transfer to a Fund.
If you wish additional information concerning the "sweep" program, please
call your account executive.
OTHER INVESTORS -- PURCHASE BY CHECK OR WIRE
Purchase by Mail. On an initial purchase, complete the Purchase Application
included in this Prospectus, indicating which of the Funds you wish to invest in
and each of the services to be used, and mail it, together with a check written
against a U.S. bank and payable to Freedom Cash Management Fund, Freedom
Government Securities Fund or Freedom Tax Exempt Money Fund, to:
John Hancock Investor Services Corp.
[Name of Fund(s)]
Attn: Dealer Services
P.O. Box 9102
Boston, Massachusetts 02205-9102
Subsequent purchases of $100 or more may also be made through JHIS by
forwarding payment, together with the detachable stub from your account
statement or a letter containing your account number. When you pay by check,
your order for additional shares of a Fund will be executed at the price next
determined after Federal Funds become immediately available to the applicable
Fund. Federal Funds normally do not become available to a Fund when payment is
by check until two business days or more after the check is deposited. Checks
drawn on banks which are not members of the Federal Reserve System may take
longer to be converted into Federal Funds. When you purchase shares by check,
the Funds can hold payment on redemptions until they are reasonably satisfied
that the investment has been collected (which can take up to ten days).
Purchase by Wire Transfer. You may also purchase shares of any Fund through
JHIS by means of a wire order. Please call JHIS toll free at (800) 257-3336 for
instructions. You should then give
8
<PAGE>
instructions to your wiring bank to transmit the specified amount in Federal
Funds to: First Signature Bank & Trust, Portsmouth, New Hampshire -- Freedom
Group of Money Funds, Attention: [Name of Fund(s)], ABA #211475000, specifying
on the wire your account number and your name.
If you transfer Federal Funds by wire in this manner, the transfer may be
subject to a service charge by your bank. If notice from your bank of the wire
transfer is received by JHIS before 12:00 noon New York time, your order will be
executed at 12:00 noon New York time on that day. If notice from your bank of
the wire transfer is received by JHIS after 12:00 noon New York time, your order
will be executed at 12:00 noon New York time on the next business day.
HOW TO REDEEM SHARES
GENERAL
Redemption orders are effected at the net asset value next determined after
receipt of the order by JHIS. For your convenience, and so that you can continue
earning daily dividends for as long as possible, the Funds have established
several different redemption procedures described below. SHOULD THE REDEMPTION
INCLUDE SHARES PURCHASED BY CHECK, PAYMENT MAY BE DELAYED FOR UP TO TEN DAYS
AFTER THE PURCHASE IN ORDER TO ALLOW THE PURCHASE CHECK TO CLEAR. A redemption
of shares purchased by wire will not be subject to this period of delay.
The shares of any Fund may be redeemed in several ways: (1) shares
purchased through a Tucker Anthony or Sutro brokerage account can be redeemed by
placing a redemption order with your account executive or by check redemption,
and (2) shares purchased directly may be redeemed by mail, by expedited
redemption (i.e., wire redemption if you have elected this option on your
Purchase Application) or by check redemption.
REDEMPTION THROUGH YOUR TUCKER ANTHONY OR SUTRO BROKERAGE ACCOUNT
In order to redeem shares purchased through a Tucker Anthony or Sutro
brokerage account, you should advise your account executive, by telephone or
mail, to execute the redemption. If a properly completed order to redeem Fund
shares is received by a Tucker Anthony or Sutro office after 12:00 noon New York
time, your order will be forwarded to the appropriate Fund and will be executed
on the following business day. Redemption proceeds will be held in your
brokerage account unless you give instructions to your account executive to
reinvest or remit the proceeds to you. Generally, redemption proceeds will not
be invested for your benefit without specific instruction, and Tucker Anthony or
Sutro may benefit from the use of temporarily uninvested funds.
DIRECT REDEMPTION
Redemptions by mail and expedited redemptions are not available for shares
purchased through a Tucker Anthony or Sutro brokerage account. Any such
redemption requests received by JHIS will be forwarded to the appropriate Tucker
Anthony or Sutro account executive who will process them as described above.
Redemption By Mail. You may redeem shares by mail. Payment of the
redemption proceeds will ordinarily be made within seven days after the request
for redemption is received in "good order" at
9
<PAGE>
the net asset value next determined. If you send your redemption order to JHIS
by mail, you must assume responsibility for assuring that the request for
redemption is received in "good order". "Good order" means that the request must
be accompanied by the following:
(a) A letter of instruction specifying the number of shares or amount of
investment to be redeemed (or that all shares credited to a Fund account be
redeemed), signed by all registered owners of the shares in the exact names
in which they are registered;
(b) For a redemption order over $25,000, or for any amount if the
proceeds are to be sent elsewhere than the address of record, a guarantee of
the signature of each registered owner by a commercial bank which is a
member of the Federal Deposit Insurance Corporation, a trust company or a
member of a recognized stock exchange (a signature guarantee by a savings
bank or notarization by a notary public are not acceptable); and
(c) Additional legal documents concerning authority and related matters
in the case of estates, trusts, guardianships, custodianships, partnerships
and corporations.
All proceeds from redemptions are mailed to your address of record. If you
are uncertain as to the requirements for redemption, please call JHIS toll free
at (800) 257-3336. All redemption requests by mail should be mailed to:
John Hancock Investor Services Corp.
[Name of Fund(s)]
Attention: Dealer Services
P.O. Box 9102
Boston, Massachusetts 02205-9102
Expedited Redemptions. If you have elected the expedited redemption option
on the Purchase Application on file with JHIS and wish to redeem $5,000 or more
from any Fund, you may request that payment be made in Federal Funds.
Shareholders may place orders for expedited redemption with JHIS without a
signature guarantee and have the proceeds sent by wire to a bank or trust
company account previously designated in writing. Please call JHIS toll free at
(800) 257-3336 for instructions. If the expedited redemption order is received
by JHIS's Boston office prior to 12:00 noon New York time on a day on which the
New York Stock Exchange is open, payment will be wired to your bank on the same
business day, provided that it is a member of the Federal Reserve System and
that the federal wire system is open. However, if your bank is not a member of
the Federal Reserve System, Federal Funds may not reach your bank until the next
business day. If the redemption order is received after 12:00 noon New York
time, the redemption will be executed and payment will be wired in Federal Funds
on the next business day.
CHECK REDEMPTIONS
You can redeem shares by writing checks drawn on State Street payable in
any amount. In order to redeem shares by writing a check, you must complete a
Purchase Application electing the checkwriting feature and return it either to
your investment executive if you have a brokerage account or directly to JHIS if
you do not have a brokerage account. If you have elected the checkwriting
service on the Purchase Application on file with JHIS, you will be provided with
an initial order of checks free of charge. You may write checks payable to the
order of any person (including any corporation, bank,
10
<PAGE>
trust, etc.) in any amount. When your check is presented for payment, JHIS as
transfer agent will cause the Fund to redeem a sufficient number of shares to
cover the amount of the check. This procedure entitles you to continue receiving
dividends on those shares equal to the amount of the check until such time as
the check is presented to JHIS for payment. If you do not own sufficient shares
of the Fund to cover a check, the check will be returned to the payee marked
"insufficient funds." Should the redemption include shares purchased by check,
payment may be delayed for up to ten days after the purchase in order to allow
the purchase check to clear. A redemption of shares purchased by wire will not
be subject to this period of delay. As the aggregate amount owned by a
shareholder may change each day, you should not attempt to redeem all shares
held in your account by using the check redemption procedure. Cancelled checks
will be returned to shareholders monthly. For information on account statements,
see "Shareholder Services."
The Funds reserve the right to terminate or alter the check writing service
at any time after giving shareholders 30 days written notice. Your shareholder
account will be charged $20.00 each for stop payment orders or checks returned
for "insufficient funds."
ADDITIONAL INFORMATION ON REDEMPTION
Because the Funds incur certain fixed costs in maintaining shareholder
accounts, the Funds reserve the right to involuntarily redeem shareholder
accounts in any Fund which have less than $500 in them as of the end of any
month. If a Fund elects to redeem such accounts, it will notify the shareholders
of its intention to do so and provide those shareholders with an opportunity to
increase their accounts by investing a sufficient amount to bring their accounts
up to $500 or more within 30 days of the notice. The Funds will not redeem
accounts which fall below $500 as a result of reduction in net asset value per
share.
FREEDOM ASSET ACCOUNT
The Freedom Asset Account provides an alternative method for investing in
shares of the Funds in conjunction with a program of four financial services:
(1) a Sutro or Tucker Anthony securities margin account ("securities account");
(2) one of the Funds; (3) a check writing facility on an account maintained at
Provident National Bank ("Provident"); and (4) a Visa Gold|Pr Card with ATM
access from PNC National Bank ("PNC", an affiliate of Provident).
To participate in the Freedom Asset Account, an investor must place in a
securities account, cash, marketable securities or a combination of the two
having a gross market value of no less than $20,000 and must meet credit
criteria established by PNC. All customary transactional fees incurred in use of
a securities account must be paid by the participant, including brokerage fees
for securities transactions and interest on margin loans, if any.
THIS SECTION IS ONLY A BRIEF DESCRIPTION OF THE FREEDOM ASSET ACCOUNT AND
ITS RELATION TO THE FUNDS AND DOES NOT DESCRIBE ALL OF THE FEATURES OF THE
FREEDOM ASSET ACCOUNT. PLEASE CONTACT YOUR ACCOUNT EXECUTIVE FOR FURTHER
INFORMATION AND REVIEW CAREFULLY THE FREEDOM SERVICES CORPORATION FREEDOM ASSET
ACCOUNT AGREEMENT.
11
<PAGE>
PRICING OF OUR SHARES
The net asset value per share of the Funds for the purpose of pricing
orders for the purchase and redemption of shares is determined daily as of 12:00
noon New York time, Monday through Friday, exclusive of national business
holidays. Purchase or redemption orders accepted by JHIS prior to 12:00 noon New
York time will be priced at 12:00 noon New York time that day. Purchase or
redemption orders accepted by JHIS subsequent to 12:00 noon New York time will
be priced at 12:00 noon New York time the next day that net asset value is
computed. Net asset value per share is computed by taking the value of all
assets of any Fund, less liabilities, and dividing by the number of shares of
the Fund outstanding. To determine the value of the assets of any Fund for the
purpose of obtaining the net asset value, portfolio securities are valued at
amortized cost, as described below, and interest is accrued daily.
Amortized cost valuation involves valuing a security at its cost and adding
or subtracting, ratably to maturity, any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the security. Under
the amortized cost method of valuation, neither the amount of daily income nor
net asset value is affected by any unrealized appreciation or depreciation of
the portfolio. As a result, in periods of declining interest rates, the
indicated daily yield on a portfolio valued by amortized cost will be higher
than on a portfolio valued by market prices.
DIVIDENDS
Dividends from net investment income are declared daily and paid monthly on
or about the fifteenth day of the following month. Dividend payments include all
dividends declared during the prior month and not previously paid. You will
receive dividends automatically in additional shares at net asset value, or you
may elect to receive cash. Redemption payments for the entire account value will
include all unpaid dividends.
Purchase orders which are received together with Federal Funds prior to
12:00 noon New York time will receive the dividend declared that day, and
redemption orders effected prior to 12:00 noon New York time will not receive
that day's dividend.
CURRENT YIELD
From time to time, each Fund may quote its yield in advertisements or in
reports to shareholders. Performance information ratings as reported in national
financial publications such as Donoghue's Money Fund Report, a widely recognized
independent publication that monitors the performance of money market funds, may
also be used in comparing the performance of the Funds to other money market
funds with similar investment objectives. Each Fund calculates its annualized
simple and compound yields based on a seven-day period. Since net investment
income of the Funds changes in response to fluctuations in interest rates and
Fund expenses, any given yield quotation should not be considered representative
of a Fund's yield for any future period. CURRENT YIELD INFORMATION FOR THE FUNDS
MAY BE OBTAINED BY CALLING TOLL-FREE AT 1-800-453-8206.
TAXES
Cash Management Fund and Government Securities Fund. Each Fund will
distribute all of its net investment income and capital gains net of capital
losses to shareholders. Income dividends and distributions of realized net
short-term capital gains paid by each Fund are taxable to you as ordinary income
whether received in cash or reinvested in additional shares of the Fund.
Properly designated
12
<PAGE>
distributions of net capital gains (the excess of net long-term capital gain
over net short-term capital loss), if any, are taxable to you as long-term
capital gains, regardless of the length of time you have held shares of a Fund
and whether received in cash or additional shares of a Fund.
Government Securities Fund. For mutual funds organized as business trusts
(such as the Fund), most states' laws provide for a pass-through of the state
and local income tax exemption afforded to direct owners of U.S. Government
securities. Thus, for residents of most states, the portion of distributions
derived from the Fund's income from investment in U.S. Government securities
should be free from state and local income taxes. You may wish to consult your
own tax adviser regarding the tax laws in your state.
Tax Exempt Money Fund. The Fund intends to meet all the IRS requirements
necessary to ensure that it is qualified to pay "exempt-interest dividends"
which means that the Fund may pass on to you the federal tax exempt status of
this investment income. For federal income tax purposes, your proportionate
share of taxable distributions from the Fund's other net investment income and
net short-term capital gains, if any, will be taxable as ordinary income,
whether received in cash or invested in additional shares. Properly designated
distributions of net capital gains (the excess of net long-term capital gain
over net short-term capital loss), if any, are taxable to you as long-term
capital gains, regardless of the length of time you have held shares of the Fund
and whether received in cash or additional shares of the Fund.
The tax-exempt status of distributions for federal income tax purposes may
not result in similar treatment under the laws of a particular state or local
taxing authority. You should consult your tax adviser about the status of
distributions from the Fund in your state and locality.
The table below shows the approximate taxable securities yields which are
equivalent to yields of Municipal Securities from 2% to 5% under federal income
tax laws that apply to 1997.
<TABLE>
<CAPTION>
Single Return* Joint Return Income TAX EXEMPT YIELD
-------------- ------------ Tax ----------------
(Taxable Income)** Bracket 2% 3% 4% 5%
------------------ ------- -- -- -- --
EQUIVALENT YIELD TABLE
<C> <C> <C> <C> <C> <C> <C>
$0-24,000 $0-40,100 15% 2.35% 3.53% 4.71% 5.88%
$24,000-58,150 $40,100-96,900 28% 2.78% 4.17% 5.56% 6.94%
$58,150-121,300 $96,900-147,700 31%*** 2.90% 4.35% 5.80% 7.25%
$121,300-263,750 $147,700-263,750 36%*** 3.13% 4.69% 6.25% 7.81%
Over $263,750 Over $263,750 39.6%*** 3.31% 4.97% 6.62% 8.28%
</TABLE>
- --------------
* Other than surviving spouses and heads of households.
** Net amount subject to federal income tax after deductions and exemptions.
*** To implement the phase-out of personal exemption deductions for single
taxpayers having 1997 adjusted gross income of more than $114,700 and
married taxpayers (filing jointly) having 1997 adjusted gross income of more
than $172,050, the exemption deduction is reduced by two percent for each
$2,500 by which adjusted gross income exceeds the threshold amounts. For
taxpayers having 1997 adjusted gross income of more than $114,700 ($57,350
for married filing separately), certain allowable itemized deductions are
reduced. These adjustments may result in effective marginal tax rates
greater than those indicated above. Please consult your tax adviser
regarding your situation.
13
<PAGE>
General. Each Fund in which you own shares will inform you of the amount
and nature of its distributions annually. The Funds are required by federal law
to withhold 31% of reportable payments (which may include dividends, capital
gains distributions and redemptions) paid to certain accounts whose owners have
not complied with IRS regulations. In connection with this withholding
requirement, you will be asked to certify on your account application that the
social security or taxpayer identification number you provide is correct and
that you are not subject to 31% backup withholding for previous underreporting
to the IRS. Each of the Funds qualified as a regulated investment company under
Subchapter M of the Internal Revenue Code for its most recent fiscal year.
OUR ORGANIZATION AND SHARES
Freedom Mutual Fund and Freedom Group of Tax Exempt Funds (the "Trusts")
are open-end management investment companies organized as Massachusetts business
trusts. Freedom Mutual Fund was organized on December 22, 1980 and Freedom Group
of Tax Exempt Funds was organized on June 1, 1982. Freedom Mutual Fund currently
has two funds, Freedom Cash Management Fund and Freedom Government Securities
Fund. Freedom Group of Tax Exempt Funds currently has two funds, Freedom Tax
Exempt Money Fund and Freedom California Tax Exempt Money Fund (which is
described in a separate prospectus). The Boards of Trustees supervise our
activities and review our contractual arrangements with companies that provide
us with services. We reserve the right to create and issue a number of series of
shares, or funds, which are separately managed and have different investment
objectives. Each Fund has the right to invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and limitations as such
Fund, although the management of each Fund currently has no intention to do so.
Each share of each Fund has equal dividend, redemption and liquidation rights
and when issued is fully paid and nonassessable. On any matter submitted to the
shareholders, the holder of each Fund share is entitled to one vote per share
regardless of the net asset value thereof (with proportionate voting for
fractional shares). Shareholders of a Fund are not entitled to vote on any
matter which does not affect their Fund but which requires a separate vote of
another Fund.
Under each Trust's Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there will ordinarily be no shareholder meetings
unless required by the Investment Company Act of 1940. The shareholders of each
Trust elected a Board of Trustees at a meeting held on December 16, 1996.
Thereafter, the Trustees are a self-perpetuating body until fewer than 50% of
the Trustees serving as such are Trustees who were elected by shareholders. At
that time, another meeting of shareholders will be called to elect Trustees.
Under each Trust's Master Trust Agreement, any Trustee may be removed by vote of
two-thirds of the outstanding Trust shares and holders of ten percent or more of
the outstanding shares of each Trust can require Trustees to call a meeting of
shareholders for purposes of voting on the removal of one or more Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as "partners" for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself was
unable to meet its obligations, a possibility which the Adviser believes is
remote. Although each Trust is offering for sale only its own shares and is not
participating in the sale of shares of the other Trust, the Trusts have been
informed that it is the position of the staff of the Securities and Exchange
Commission that it is possible that a Trust is liable for any misstatements in
this Prospectus concerning the other Trust.
14
<PAGE>
OUR MANAGEMENT
The Boards of Trustees and officers provide broad supervision over the
affairs of the Funds.
ADVISER
The Funds' Adviser, Freedom Capital Management Corporation, One Beacon
Street, Boston, Massachusetts, provides each Fund with overall investment
advisory and administrative services, as well as general office facilities
pursuant to advisory agreements (the "Advisory Agreements"). As compensation for
its services, under the Advisory Agreements the Adviser receives from each Fund
a fee computed and paid monthly based upon the average daily net asset value of
the Fund, at the annual rate of one-half of one percent (0.50%) on the first
$500 million of average net assets and forty-five hundredths of one percent
(0.45%) on average daily net assets in excess of that amount.
Expenses not expressly assumed by the Adviser under the Advisory Agreements
are paid by each Fund. These include, but are not limited to, taxes, legal,
transfer agent, custodian and auditing fees and printing and other expenses
relating to each Fund's operations. Total expenses for each such Fund for the
year ended December 31, 1996, reflected as an annualized percentage of each
Fund's average net assets were as follows: ___% for the Cash Management Fund,
___% for the Government Securities Fund and ___% for the Tax Exempt Money Fund.
From time to time in the past, the Adviser has waived some or all of its
advisory fees due from the Tax Exempt Money Fund.
The Adviser is an indirect, wholly-owned subsidiary of JHFSC
Acquisition Corp., a newly formed Delaware Corporation. JHFSC Acquisition Corp.
is located at One Beacon Street, Boston, Massachusetts 02108. JHFSC Acquisition
Corp. is owned by the following persons: Thomas H. Lee Equity Fund III, L.P., a
post-venture stage strategic capital fund located at 75 State Street, Boston,
Massachusetts 02109; SCP Private Equity Partners, L.P., a post-venture stage
strategic capital fund located at 435 Devon Park Drive, Wayne, Pennsylvania
19087; and certain members of management and employees of Freedom Securities
Corporation, which is the direct parent of the Adviser. Freedom Distributors
Corporation, a registered broker-dealer which acts as a Distributor with respect
to the Funds' shares, is a wholly-owned subsidiary of the Adviser and an
indirect subsidiary of JHFSC Acquisition Corp. Tucker Anthony Incorporated, a
brokerage firm which is a member of the New York Stock Exchange, also acts as a
Distributor with respect to the Funds' shares and is an indirect subsidiary of
JHFSC Acquisition Corp. continuing an investment banking and brokerage business
established in 1892. Sutro, a dealer of the Funds' shares, is also an indirect,
wholly-owned subsidiary of JHFSC Acquisition Corp.
SHAREHOLDER SERVICES
ACCOUNT STATEMENTS
You will receive a statement of account each time shares are purchased or
redeemed and a report not less frequently than quarterly from JHIS or monthly
from Tucker Anthony or Sutro, showing the activity in your account.
Shares are maintained by each Fund on its register maintained by JHIS, and
the holders thereof will have the same rights and ownership with respect to such
shares as if certificates had been issued.
15
<PAGE>
EXCHANGE PRIVILEGE
Shares of each Fund may be exchanged for shares of the other Funds
described in this Prospectus. In addition, if you are a resident of the State of
California, shares of the Funds may be exchanged for shares of the Freedom
California Tax Exempt Money Fund, a no-load money market fund investing in high
quality short-term California municipal securities the income of which is exempt
from federal income tax and California personal income tax. You should carefully
review the prospectus describing the Freedom California Tax Exempt Money Fund
prior to making your exchange.
Exchanges are subject to a minimum investment requirement of $1,000, with
subsequent exchanges permitted in amounts of $100 or more. Any such exchange is
made on the basis of the net asset value per share of the Funds on the date the
exchange request is received.
IF YOU HAVE A BROKERAGE ACCOUNT WITH SUTRO OR TUCKER ANTHONY, YOU MUST
PLACE EXCHANGE ORDERS THROUGH YOUR ACCOUNT EXECUTIVE. IF YOU DO NOT HAVE AN
ACCOUNT WITH SUTRO OR TUCKER ANTHONY, YOU MAY MAKE AN EXCHANGE IN WRITING OR BY
TELEPHONE. Exchanges of shares can be made by writing John Hancock Investor
Services Corp., Attention: Freedom Group of Money Funds, Attention: Dealer
Services, P.O. Box 9102, Boston, Massachusetts 02205-9102. If you do not have a
brokerage account with Sutro or Tucker Anthony, you also have the automatic
privilege of exchanging your shares by telephone. To place a telephone exchange
request, call JHIS at (800) 257-3336. JHIS employs the following procedures to
confirm that instructions received by telephone are genuine. Your name, the
account number, taxpayer identification number applicable to the account and
other relevant information may be requested. Telephone instructions are
recorded. If reasonable procedures, such as those described above, are not
followed, the Funds may be liable for any loss due to unauthorized or fraudulent
instructions. In all other cases, neither the Funds nor JHIS will be liable for
any loss or expense for acting upon telephone instructions made in accordance
with the telephone transaction procedures described above. During times of
drastic economic or market conditions, the telephone exchange privilege may be
difficult to implement because of busy telephone lines. In such times, you may
prefer to submit your exchange requests by express mail c/o the Fund(s) to: John
Hancock Fund Services, Inc., 101 Huntington Avenue, Attention: Dealer Services,
Boston, MA 02205-9102, Attention: Freedom Group of Money Funds. Telephone and
written exchange requests must be received by 4:00 p.m. New York time on a Fund
business day to be effective that day. An exchange can be made only between
accounts that are registered in the same name. The Funds reserve the right to
reject any exchange request and to modify or terminate the exchange privilege at
any time upon sixty (60) days' notice to shareholders. You should carefully
review the part of this Prospectus describing the Fund into which your exchange
is being made prior to making your exchange.
BANK INVESTING PLAN AND SYSTEMATIC WITHDRAWAL PLAN
Please call (800) 257-3336 for more information concerning these plans.
RETIREMENT PLANS (Cash Management Fund and Government Securities Fund only)
Taxes on current income may be deferred if an investor qualifies for
certain types of retirement programs. For the convenience of the investor,
prototype plans are made available by your investment executive for eligible
persons to establish Keogh plans, IRA plans and Simplified Employee Pension
plans (SEP/IRA). Other investors interested in any of such plans may obtain
additional information from JHIS at (800) 257-3336.
16
<PAGE>
ADDITIONAL INFORMATION
QUESTIONS ABOUT THE FUNDS
For further information about the Funds, please contact your Tucker Anthony
or Sutro account executive or call JHIS toll free at (800) 257-3336.
TRANSFER AGENT, CUSTODIAN AND SHAREHOLDER SERVICES
John Hancock Investor Services Corp. ("JHIS") acts as transfer and
shareholder services agent for the Funds. JHIS is an indirect, wholly-owned
subsidiary of John Hancock Mutual Life Insurance Company. State Street Bank and
Trust Company holds all cash and securities of the Funds.
Freedom Services Corporation ("FSC"), under the terms of a Service
Agreement with the Funds, provides many of the shareholder services (such as
providing monthly account statements and processing purchase and sale orders)
for shareholders who hold shares of the Funds through their brokerage accounts.
FSC receives from each of the Funds a fee of $10.50 per account in payment for
the shareholder services it provides. Transfer agent charges from JHIS are
reduced for those shareholder accounts that are held through a brokerage account
with FSC.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110 acts
as the independent accountants for the Funds.
The financial statements of Freedom Cash Management Fund, Freedom
Government Securities Fund and Freedom Tax Exempt Money Fund for the year ended
December 31, 1996 appear on pages __ through __.*
----------------------
This Prospectus does not contain all the information included in the
Registration Statements filed with the Securities and Exchange Commission under
the Securities Act of 1933 with respect to the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The Registration
Statements including the exhibits filed therewith may be examined at the office
of the Securities and Exchange Commission in Washington, D.C.
Statements contained in this Prospectus as to the contents of any contract
or other document referred to are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statements of which this Prospectus forms a
part, each such statement being qualified in all respects by such reference.
17
* To be filed by amendment.
<PAGE>
NO SALES OR REDEMPTION CHARGES
DISTRIBUTORS
Freedom Distributors Corporation
One Beacon Street
Boston, Massachusetts 02108-3105
Telephone Toll Free
800-453-8206
INVESTMENT ADVISER
Freedom Capital Management Corporation
One Beacon Street
Boston, Massachusetts 02108-3105
TRANSFER AND SHAREHOLDER
SERVICES AGENT
John Hancock Investor
Services Corporation
P.O. Box 9102
Boston, Massachusetts 02205-9102
Telephone Toll Free
800-257-3336
[Flag Logo] FREEDOM
GROUP OF MONEY FUNDS
No person has been authorized to give any information
or to make any representations not contained in this
Prospectus in connection with the offering made by this
Prospectus and, if given or made, such information, or
representations must not be relied upon as having been
authorized by the Funds or their Distributors. This
Prospectus does not constitute an offering by the Funds
or by the Distributors in any jurisdiction in which such
offering may not lawfully be made.
F01ARR 0296
FREEDOM GROUP
OF MONEY FUNDS
[Flag Logo}
FREEDOM
CASH MANAGEMENT
FUND
o
FREEDOM
GOVERNMENT
SECURITIES FUND
o
FREEDOM
TAX EXEMPT
MONEY FUND
PROSPECTUS AND ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FREEDOM MUTUAL FUND
Freedom Cash Management Fund
Freedom Government Securities Fund
FREEDOM GROUP OF TAX EXEMPT FUNDS
Freedom Tax Exempt Money Fund
(The "Funds")
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Funds' Prospectus dated February 28, 1996, which
may be obtained at no charge from Freedom Distributors Corporation, One Beacon
Street, Boston, Massachusetts 02108. Unless otherwise defined herein,
capitalized terms have the meanings given to them in the Prospectus.
The date of this Statement of Additional Information is February 28,
1996.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
GENERAL INFORMATION...............................................................................................1
INVESTORS FOR WHOM THE TRUSTS ARE DESIGNED........................................................................2
INVESTMENT OBJECTIVES AND POLICIES................................................................................2
Additional Information on Investments - Mutual Fund Only.....................................................2
Additional Information on Investments - Tax Exempt Money Fund Only...........................................4
Special Types of Municipal Securities - Tax Exempt Money Fund Only...........................................6
Temporary Taxable Investments - Tax Exempt Money Fund Only...................................................7
Risk Considerations - Tax Exempt Money Fund Only.............................................................8
INVESTMENT RESTRICTIONS...........................................................................................8
Cash Management Fund and Government Securities Fund..........................................................8
Tax Exempt Money Fund.......................................................................................10
PORTFOLIO TRANSACTIONS...........................................................................................12
CURRENT YIELD....................................................................................................12
Yield Information...........................................................................................13
ADDITIONAL INFORMATION ON REDEMPTION.............................................................................13
NET ASSET VALUE..................................................................................................13
ADDITIONAL INFORMATION ON TAXES..................................................................................15
Cash Management Fund and Government Securities Fund.........................................................15
Tax Exempt Money Fund.......................................................................................16
MANAGEMENT OF THE TRUSTS.........................................................................................17
THE INVESTMENT ADVISER...........................................................................................19
DISTRIBUTION OF SHARES OF THE TRUSTS.............................................................................20
CUSTODIAN........................................................................................................20
FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANTS.................................................................21
INFORMATION ABOUT SECURITIES RATINGS OF NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS ("NRSROs").....................................................22
</TABLE>
<PAGE>
GENERAL INFORMATION
Freedom Mutual Fund and Freedom Group of Tax Exempt Funds are open-end
management investment companies organized as Massachusetts business trusts on
December 22, 1980 and June 1, 1982, respectively. Freedom Mutual Fund (the
"Mutual Fund") has two series, Freedom Cash Management Fund (the "Cash
Management Fund") and Freedom Government Securities Fund (the "Government
Securities Fund"). Freedom Group of Tax Exempt Funds (individually the "Tax
Exempt Trust" and collectively with the Mutual Fund the "Trusts") currently has
two series, Freedom Tax Exempt Money Fund (the "Tax Exempt Money Fund") and
Freedom California Tax Exempt Money Fund, which is described in a separate
prospectus and statement of additional information. Each of the Cash Management
Fund and the Government Securities Fund seeks to obtain as high a rate of
current income from investments in specified short-term money market instruments
as is consistent with maintaining liquidity and preservation of capital. The Tax
Exempt Money Fund seeks to obtain as high a rate of current income exempt from
federal income taxes as is consistent with the maintenance of liquidity and
preservation of capital by investing primarily in specified tax exempt,
short-term money market instruments.
The assets received by the Trusts from the issue and sale of shares of
each Fund, and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are especially allocated to that Fund and constitute
the underlying assets of such Fund. The underlying assets of each Fund are
required to be segregated on the books of account and are to be charged with the
expenses in respect to that Fund and with a share of the general expenses of the
Trust. Any general expenses of the Trust not readily identifiable as belonging
to a particular Fund shall be allocated by or under the direction of the
Trustees in such manner as the Trustees determine to be fair and equitable,
taking into consideration, among other things, the nature and type of expense
and the relative sizes of the Funds.
Each share of a Fund has equal dividend, redemption and liquidation
rights with other shares of that Fund and when issued is fully paid and
nonassessable. Under the Trusts' Master Trust Agreements, no annual or regular
meeting of shareholders is required. Thus, there will ordinarily be no annual
shareholder meetings, unless otherwise required by the Investment Company Act of
1940 (the "1940 Act"). The Trusts called a meeting of shareholders on December
16, 1996 at which time shareholders elected the Board of Trustees. Thereafter,
the Trustees are a self-perpetuating body until fewer than 50% of the Trustees
serving as such are Trustees who were elected by shareholders. At that time
another meeting of shareholders will be called to elect Trustees. On any matter
submitted to the shareholders for a vote, the holder of each share of a Fund is
entitled to one vote per share (with proportionate voting for fractional shares)
regardless of the relative net asset value thereof. Shareholders of a Fund are
not entitled to vote on any matter which does not affect that Fund but which
requires a separate vote of another Fund. Under the Master Trust Agreements, any
Trustee may be removed by vote of two-thirds of the outstanding Trust shares,
and holders of ten percent or more of the outstanding shares of a Trust can
require Trustees to call a meeting of shareholders for purposes of voting on the
removal of one or more Trustees. The Master Trust Agreements also provide that
if ten or more shareholders who have been such for at least six months and who
hold in the aggregate shares with a net asset value of at least $25,000 inform
the Trustees that they wish to communicate with other shareholders, the Trustees
will either give such shareholders access to the shareholder lists or inform
them of the cost involved if the Trusts forward materials to the shareholders on
their behalf. If the Trustees object to mailing such materials, they must inform
the Securities and Exchange Commission and thereafter comply with the
requirements of the 1940 Act.
Shares do not have cumulative voting rights, which means that in
situations in which shareholders elect Trustees, holders of more than 50% of the
shares voting for the election of Trustees can elect 100% of the Trust's
Trustees, and the holders of less than 50% of the shares voting for the election
of Trustees will not be able to elect any person as a Trustee.
Shares have no preemptive or subscription rights and are fully
transferable. There are no conversion rights.
<PAGE>
INVESTORS FOR WHOM THE TRUSTS ARE DESIGNED
The following information supplements the discussion of the Funds'
investment objectives and policies in the Prospectus of the Funds.
The Trusts offer the economic advantages of block purchases of
securities and diversification. Securities and instruments of the types in which
the Funds invest are not generally available in denominations of less than
$100,000, and in many cases the minimum denominations are substantially higher.
Typically, higher yields are not available unless money market instruments are
bought directly from issuers in amounts of $1,000,000 or more. The Trusts also
offer investors the opportunity to participate in a more diversified selection
of short-term securities than the size of each investor's own portfolio might
otherwise permit.
Investment in the Trusts may also relieve the investor of several
administrative burdens usually associated with the direct purchase of money
market instruments, such as coordinating maturities and reinvestments,
safekeeping of securities, surveying the market for the best price at which to
buy and/or sell and maintaining separate principal and income records.
Furthermore, purchasers electing and complying with the procedures for expedited
redemption have the convenience, if a redemption order is received before 12:00
noon, New York time, on a business day on which the New York Stock Exchange is
open, of having the proceeds from the redemption of their shares remitted to
their bank account at a member bank of the Federal Reserve System by Federal
Funds wire for use on the same business day, provided that the federal wire
system is open. In addition, shareholders availing themselves of the Trust's
check redemption program have the convenience of making redemptions merely by
writing a check. See "How to Redeem Shares" in the Prospectus. All such
advantages, however, will be reduced to the extent of the expenses and losses of
the Fund in which you invest (including losses from portfolio transactions or
from defaults, if any, in payments of interest or principal by issuers).
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Funds'
investment objectives and policies discussed in the Prospectus.
Additional Information on Investments - Mutual Fund Only
The Cash Management Fund may invest in all categories of investments
described below, whereas the Government Securities Fund may invest only in U.S.
Treasury securities, U.S. Government agency securities and repurchase agreements
with respect to which the underlying securities are in those two categories.
U.S. Treasury Securities: Either Fund may invest in the various types
of marketable securities issued by the U.S. Treasury, which consist of bills,
notes and bonds. Such securities are direct obligations of the United States
Government and differ mainly in the length of their maturity. Treasury bills,
the most frequently issued marketable government security, have a maturity of up
to one year and are issued on a discount basis.
U.S. Government Agency Securities: Either Fund may invest in U.S.
Government agency securities, which are obligations guaranteed as to principal
and interest by an agency or instrumentality of the U.S. Government. Some U.S.
Government agency securities, such as Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
United States Treasury; others, such as securities of Federal Home Loan Banks,
by the right of the issuer to borrow from the Treasury; still others, such as
bonds issued by Federal National Mortgage Association, a private corporation,
are supported only by the credit of the instrumentality. The Government
Securities Fund will not invest in the securities issued by the Federal National
Mortgage Association or any other
2
<PAGE>
instrumentality where the bonds are supported only by the credit of that
instrumentality. Subject to the foregoing, the Funds may invest in all types of
U.S. Government agency securities currently outstanding or issued in the future.
Domestic and Foreign Issuers. The Cash Management Fund may invest in
U.S. dollar-denominated time deposits, certificates of deposit, bankers'
acceptances of U.S. banks and their branches located outside of the U.S., U.S.
branches and agencies of foreign banks, and foreign branches of foreign banks.
The Cash Management Fund may also invest in U.S. dollar-denominated securities
issued or guaranteed by other U.S. or foreign issuers, including U.S. and
foreign corporations or other business organizations, foreign governments,
foreign government agencies or instrumentalities, and U.S. and foreign financial
institutions, including savings and loan institutions, insurance companies,
mortgage bankers, and real estate investment trusts, as well as banks. These
short-term instruments may include obligations bearing fixed, floating or
variable interest rates.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by the Cash Management Fund will not benefit from
insurance from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation. Bankers' acceptances
are credit instruments evidencing the obligation of a bank to pay a draft drawn
on it by a customer. These instruments reflect the obligation both of the bank
and of the drawer to pay the face amount of the instrument upon maturity.
Certificates of deposit are interest-bearing negotiable certificates issued by
banks or financial institutions against funds deposited in the issuing
institution.
The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by governmental regulation.
Payment of interest and principal on these obligations may also be affected by
governmental action in the country of domicile of the branch (generally referred
to as sovereign risk). In addition, evidences of ownership of portfolio
securities may be held outside of the U.S. and the Cash Management Fund may be
subject to the risks associated with the holding of such property overseas.
Various provisions of federal law governing the establishment and operation of
U.S. branches do not apply to foreign branches of U.S. banks.
Obligations of U.S. branches and agencies of foreign banks may be
general obligations of the parent bank in addition to the issuing branch, or may
be limited by the terms of a specific obligation and by federal and state
regulation as well as by governmental action in the country in which the foreign
bank has its head office.
Obligations of foreign issuers involve certain additional risks. These
risks may include future unfavorable political and economic developments,
withholding taxes, seizures of foreign deposits, currency controls, interest
limitations, or other governmental restrictions that might affect payment of
principal or interest. Additionally, there may be less public information
available about foreign banks and their branches. Foreign issuers may be subject
to less governmental regulation and supervision than U.S. issuers. Foreign
issuers also generally are not bound by uniform accounting, auditing and
financial reporting requirements comparable to those applicable to U.S. issuers.
Variable and Floating Rate Instruments. The Cash Management Fund may
invest in variable or floating rate instruments that ultimately mature in more
than 397 days, if the Fund acquires a right to sell the securities that meets
certain requirements set forth in Rule 2a-7 of the Investment Company Act of
1940. Variable rate instruments (including instruments subject to a demand
feature) that mature in 397 days or less may be deemed to have maturities equal
to the period remaining until the next adjustment of the interest rate. Other
variable rate instruments with demand features may be deemed to have a maturity
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand. A floating rate instrument subject to a demand feature
may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
3
<PAGE>
Repurchase Agreements. Both Funds may invest in securities subject to
repurchase agreements with any member bank of the Federal Reserve System or
primary dealer in U.S. Government securities. A repurchase agreement is
characterized as an instrument under which the purchaser (i.e., the Fund)
acquires ownership of the obligation (debt security) and the seller agrees, at
the time of the sale, to repurchase the obligation at a mutually agreed upon
time and price, thereby determining the yield during the purchaser's holding
period. This results in a fixed rate of return insulated from market
fluctuations during such period. The underlying securities will only consist of
U.S. Treasury or Government agency securities in the case of the Government
Securities Fund, and those securities plus certificates of deposit, commercial
paper or bankers' acceptances in the case of the Cash Management Fund.
Repurchase agreements will be entered into with primary dealers for periods not
to exceed seven days. Each repurchase agreement will be fully collateralized
with respect to both principal and interest for the entire term of the
agreement. Upon payment, possession of all of the underlying collateral will be
transferred to an agent of a Fund for the term of the agreement. If a particular
bank or securities dealer defaults on its obligation to repurchase the
underlying security as required by the terms of a repurchase agreement, a Fund
will incur a loss to the extent that the proceeds it receives in the sale of
collateral are less than the repurchase price of the security. In addition,
should the defaulting securities dealer or bank file for bankruptcy, a Fund
could incur certain costs in establishing that it is entitled to dispose of the
collateral and its realization on the collateral may be delayed or limited.
Additional Information on Investments - Tax Exempt Money Fund Only
Following purchase by the Tax Exempt Money Fund, a Municipal Security
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Tax Exempt Money Fund. Neither event requires a sale of such
security by the Fund, although Freedom Capital Management Corporation (the
"Adviser") will consider such event to be relevant in determining whether the
Fund should continue to hold such security in its portfolio. If the rating
accorded by a Nationally Recognized Statistical Rating Organization ("NRSRO")
for Municipal Securities changes due to changes in the rating systems, the Fund
will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained herein.
The two principal classifications of Municipal Securities are
"municipal notes" and "municipal bonds."
Municipal Notes. Municipal notes generally are used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include:
1. Tax Anticipation Notes. Tax anticipation notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenues, such as income, sales, use and
business taxes, and are payable from these specific future taxes.
2. Revenue Anticipation Notes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue, such as revenues available
under federal revenue sharing programs.
3. Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. In most
cases, the long-term bonds then provide the money for the repayment of the
notes.
4. Construction Loan Notes. Construction loan notes are sold to provide
construction financing. After successful completion and acceptance, many
projects receive permanent financing through the Federal Housing Administration
under "Fannie Mae" (the Federal National Mortgage Association) or "Ginnie Mae"
(the Government National Mortgage Association).
4
<PAGE>
5. Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a
short-term obligation with a stated maturity of 365 days or less. It is issued
by agencies of state and local governments to finance seasonal working capital
needs or as short-term financing in anticipation of longer term financing.
Municipal Bonds. Municipal bonds, which meet longer term capital needs
and generally have maturities of more than one year when issued, have two
principal classifications: general obligation bonds and revenue bonds.
1. General Obligation Bonds. Issuers of general obligation bonds
include states, counties, cities, towns and regional districts. The proceeds of
these obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and waste and sewer
systems. The basic security behind a general obligation bond is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.
2. Revenue Bonds. Revenue bonds fund two sorts of projects,
publicly-operated facilities ("revenue bonds") and privately-operated facilities
("industrial development bonds").
(a) Revenue Bonds. The principal security for a revenue bond
is generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects including: electric, gas, waste and sewer systems; highways,
bridges and tunnels; port and airport facilities; colleges and universities; and
hospitals. Although the principal security behind these bonds may vary, many
provide additional security in the form of a debt service reserve fund whose
money may be used to make principal and interest payments on the issuer's
obligations. Housing finance authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
(b) Industrial Development Bonds. Industrial development
bonds, which are considered municipal bonds if the interest paid thereon is
exempt from federal income tax, are issued by or on behalf of public authorities
to raise money to finance various privately-operated facilities for business and
manufacturing, housing, sports, and pollution control. These bonds are also used
to finance privately-operated public facilities such as airports, mass transit
systems, ports, and parking. The payment of the principal and interest on such
bonds is dependent solely on the ability of the facility's user to meet its
financial obligations and the pledge, if any, of real and personal property so
financed as security for such payment.
There are also other types of Municipal Securities that are, or may
become, available which are similar to the foregoing municipal notes and
municipal bonds. Municipal Securities are sometimes supported by an irrevocable,
unconditional external agreement (normally a bank letter of credit) from a bank
whose own securities are of high quality in order to improve the credit rating
of the Municipal Security. Such external agreement may be issued by a foreign
bank.
For the purpose of the Tax Exempt Money Fund's investment restrictions
set forth beginning on page 10, the identification of the "issuer" of Municipal
Securities which are not general obligation bonds is made by the Adviser on the
basis of the characteristics of the obligation as described above, the most
significant of which is the source of funds for the payment of principal and
interest on such securities. In the case of industrial development bonds, the
"issuer" is the user of the facility, which is usually a non-governmental
entity.
Obligations of issuers of Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code. In addition, the
5
<PAGE>
obligations of such issuers may become subject to laws enacted in the future by
Congress, state legislatures, or referenda extending the time for payment of
principal and/or interest, or imposing other constraints upon enforcement of
such obligations or upon municipalities to levy taxes. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of any issuer to pay, when due, the principal of and interest on its
Municipal Securities may be materially affected. The Tax Exempt Money Fund may
invest more than 25% of its total assets in Municipal Securities the interest
upon which is paid from revenues of similar types of projects. There could be
economic, business or political developments which might affect all Municipal
Securities of a similar type. However, the Tax Exempt Money Fund believes that
the most important consideration affecting credit risk is the quality of
particular issues of Municipal Securities, rather than factors affecting all, or
broad classes of, Municipal Securities.
On December 6, 1994, Orange County (California) became the largest
municipality in the United States to file for protection under the Federal
bankruptcy laws. The filing stemmed from approximately $1.7 billion in losses
suffered by the County's investment pool due to investments in high risk
"derivative" securities. In September 1995 the state legislature approved
legislation permitting Orange County to use for bankruptcy recovery $820 million
over 20 years in sales taxes previously earmarked for highways, transit and
development. Such legislation also permits the Governor to appoint a trustee to
take over Orange County's financial affairs if the county does not have a full
recovery plan filed with the Bankruptcy Court by May 1996.
Special Types of Municipal Securities - Tax Exempt Money Fund Only
In addition to the general types of Municipal Securities discussed
above, the Tax Exempt Money Fund may invest in the following Municipal
Securities.
When-Issued Securities. Municipal Securities are frequently offered on
a "when-issued" basis. When so offered, the price, which is generally expressed
in yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued securities take place at a later date.
Normally, the settlement date occurs within one month of the purchase of
municipal notes; during the period between purchase and settlement, no payment
is made by the Tax Exempt Money Fund to the issuer and no interest accrues to
the Fund. To the extent that assets of the Fund are not invested prior to the
settlement of a purchase of securities, the Fund will earn no income. It is the
Fund's intention, however, to be fully invested to the extent practicable,
subject to the policies stated above. While when-issued securities may be sold
prior to the settlement date, the Fund intends to purchase such securities with
the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase a
Municipal Security on a when-issued basis, it will record the transaction and
reflect the value of the security in determining its net asset value.
In accordance with Securities and Exchange Commission policy, whenever
the Tax Exempt Money Fund agrees to purchase securities on a when-issued basis,
its custodian will set aside cash or portfolio securities equal to the amount of
the commitment in a separate account. If necessary, additional assets will be
placed in the account daily so that the value of the account will equal the
amount of the Fund's purchase commitment. When the time comes to pay for
when-issued securities, the Fund will meet its obligations from the then-
available cash flow, sale of securities held in the separate account, cash held
in the separate account or otherwise, sale of other securities or, although it
would not normally expect to do so, from the sale of the when- issued securities
themselves (which may have a value greater or less than the Fund's payment
obligations). To the extent that the Fund sets aside portfolio securities to
satisfy its purchase commitment for when-issued securities, there will be a
greater possibility of fluctuation in market value of the Fund's shares (see
"Pricing of Our Shares" in the Prospectus) than if the Fund were to set aside
cash. The Fund does not intend to purchase when-issued securities for
speculative purposes, but only in furtherance of its investment objectives.
Variable Rate and Floating Rate Instruments. The Tax Exempt Money Fund
may invest in variable or floating rate instruments that ultimately mature in
more than 397 days, if the Fund acquires a right to sell the securities that
6
<PAGE>
meets certain requirements set forth in Rule 2a-7 of the Investment Company Act
of 1940. Variable rate instruments (including instruments subject to a demand
feature) that mature in 397 days or less may be deemed to have maturities equal
to the period remaining until the next adjustment of the interest rate. Other
variable rate instruments with demand features may be deemed to have a maturity
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand. A floating rate instrument subject to a demand feature
may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
Temporary Taxable Investments - Tax Exempt Money Fund Only
Although the Tax Exempt Money Fund will be invested primarily in
Municipal Securities, the Fund is authorized to place up to 20% of its net
assets in taxable investments or in cash reserves during normal market
conditions for liquidity reasons. During periods of uncertain market conditions,
the Fund may place more than 20% of its total assets for temporary defensive
purposes in taxable investments or cash reserves. The taxable investments in
which the Fund may invest are:
(a) obligations of the U.S. Government and its agencies and
instrumentalities (not all of such obligations are backed by the full
faith and credit of the United States; for example, bonds issued by
Federal National Mortgage Association, a private corporation, are
backed only by the credit of the issuing instrumentality);
(b) certificates of deposit, bankers' acceptances and
short-term obligations of domestic branches of U.S. banks with total
assets of $1 billion or more;
(c) commercial paper rated A-1 by Standard & Poor's, Prime-1
by Moody's (or equivalently rated by another NRSRO), or, if not rated,
of equivalent investment quality as determined by the Adviser;
(d) short-term debt securities of issuers having, at the time
of purchase, a quality rating within the two highest grades by Moody's
(Aaa or Aa), Standard & Poor's (AAA or AA) or Fitch (AAA or AA) (or
equivalently rated by another NRSRO); and
(e) repurchase agreements with respect to an underlying
security which would otherwise qualify for investment by the Fund.
Temporary taxable investments of up to 20% of total assets may also be
made in anticipation of redemptions, pending investment of proceeds from
subscription for Fund shares or from the sale of portfolio securities, or
because of market conditions or the scarcity of suitable tax exempt securities.
Interest income from such investments will be taxable to shareholders as
ordinary income under federal tax laws. Consequently, the Fund intends to invest
its assets in Municipal Securities to the maximum extent possible and prudent.
Repurchase Agreements. Repurchase agreements maturing in more than
seven days, together with any other illiquid instruments held by the Tax Exempt
Money Fund (excluding restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933, which the Board of Trustees or the
Adviser has determined under Board-approved guidelines are liquid), will not, at
the time entered into, exceed 10% of the net assets of such Fund. Because of
their short maturity, repurchase agreements provide liquidity to the Fund while
allowing the Fund to remain fully or substantially invested. The Fund will only
enter into repurchase agreements of one business day's maturity and only with
broker/dealers with substantial capital or major U.S. banks. Each repurchase
agreement will be fully collateralized with respect to both principal and
interest by U.S. Treasury instruments for the entire term of the agreement. Upon
payment, possession of all underlying collateral will be transferred to an agent
of the Fund for the term of the agreement. If a particular securities dealer or
bank defaults on its obligation to repurchase the underlying
7
<PAGE>
security as required by the terms of a repurchase agreement, the Fund will incur
a loss to the extent that the proceeds it realizes on the sale of the collateral
are less than the repurchase price of the security. In addition, should the
defaulting securities dealer or bank file for bankruptcy, the Fund could incur
certain costs in establishing that it is entitled to dispose of the collateral
and its realization on the collateral may be delayed or limited.
Risk Considerations - Tax Exempt Money Fund Only
There can be no assurance that the Tax Exempt Money Fund will achieve
its investment objectives or be able to maintain its net asset value per share
at $1.00. The price stability and liquidity of the Fund may not be equal to that
of a money market fund which exclusively invests in short-term taxable money
market securities. The taxable money market is a broader and more liquid market
with a greater number of investors, issuers and market makers than the
short-term Municipal Securities market.
Yields on Municipal Securities are dependent on a variety of factors,
including the general conditions of the money market and of the municipal bond
and municipal note market, the size of a particular offering, the maturity of
the obligations and the rating of the issue.
The policies described above in this section are not fundamental and
may be changed upon notice to shareholders.
Tax exempt securities purchased on a when-issued basis are subject to
changes in value as a result of changes in interest rates in the same way that
securities held in the Fund's portfolio are. Purchasing tax exempt securities on
a when-issued basis can thus involve a risk that yields available in the market
when delivery takes place may actually be higher than those obtained in the
when-issued transaction.
INVESTMENT RESTRICTIONS
Cash Management Fund and Government Securities Fund
The following investment restrictions apply to both the Cash Management
Fund and Government Securities Fund. They may not be changed without a
shareholder vote, shareholders of each Fund voting separately to change
restrictions applying to their Fund. A change requires the affirmative vote of a
majority of a Fund's outstanding shares, which as used in this Statement means
the lesser of (1) 67% of that Fund's outstanding shares present at a meeting at
which the holders of more than 50% of the outstanding shares are present in
person or by proxy, or (2) more than 50% of that Fund's outstanding shares.
With respect to investment restrictions Number 1 through 10 below,
neither Fund may:
1. Purchase securities on margin; sell short; purchase warrants; or
write, purchase, or sell puts, calls, straddles, spreads or combinations
thereof.
2. Borrow money, except from banks for temporary purposes (not for
leveraging or investment) and then in an aggregate amount not in excess of 10%
of the value of that Fund's assets at the time of such borrowing, provided, that
so long as such borrowings exceed 5% of the value of the net assets, that Fund
will not make any investments; or mortgage, pledge or hypothecate any assets
except in connection with any such borrowing and in an aggregate amount not in
excess of the dollar amount borrowed.
3. Act as an underwriter of securities of other issuers.
8
<PAGE>
4. Purchase securities (other than under repurchase agreements of not
more than one week's duration, considering only the remaining days to maturity
of each existing repurchase agreement) for which there exists no readily
available market, or for which there are legal or contractual restrictions on
resale (excluding restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933, and, with regard to the Cash Management
Fund, commercial paper exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, which the Board of Trustees or the Adviser has
determined under Board-approved guidelines are liquid), if as a result of any
such purchase, more than 10% of that Fund's net assets would be invested in such
securities.
5. Purchase any securities if, immediately after such purchase, more
than 25% of the value of that Fund's total assets would be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that there is no limitation with respect to
investments in U.S. Treasury securities, Government agency securities and bank
obligations. Neither all finance companies as a group nor all utility companies
as a group are considered a single industry for purposes of this restriction.
6. Purchase securities of any one issuer, other than U.S. Treasury
securities or Government agency securities, if immediately after such purchase,
more than 5% of the value of that Fund's total assets would be invested in such
issuer.
7. Acquire more than 10% of any class of securities of an issuer. For
this purpose, all outstanding bonds and other evidences of indebtedness shall be
deemed within a single class regardless of maturities, priorities, coupon rates,
series, designations, conversion rights, security or other differences.
8. Purchase or sell real estate.
9. Purchase or sell commodities or commodity futures contracts, or oil,
gas or mineral exploration or development programs.
10. Make loans, except that a Fund may purchase or hold debt
instruments and may enter into repurchase agreements in accordance with its
investment objective and policies.
11. Each Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies and limitations as that Fund.
The following investment restrictions may be changed by the Board of
Trustees without the approval of shareholders. Appropriate notice will be given
of any changes in these restrictions made by the Board of Trustees. With respect
to investment restrictions Number 12 through 15 below, the Funds may not:
12. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, and
except for purchases of the securities of money market mutual funds.
13. Purchase securities of any issuer for the purpose of exercising
control or management, except in connection with a merger, consolidation,
acquisition or reorganization.
14. Invest more than 5% of either Fund's total assets in securities of
any issuer which, together with its predecessors, has been in continuous
operation less than three years.
15. Purchase or retain the securities of an issuer if those officers or
trustees of the Trust or officers or directors of the Adviser who are also
officers or directors of the issuer and who each own beneficially more than 1/2
of 1% of the securities of that issuer together own more than 5% of the
securities of such issuer.
9
<PAGE>
16. Neither Fund currently intends to invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and limitations as that
Fund.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of net assets will not be considered a violation
of any of the foregoing restrictions.
Tax Exempt Money Fund
The following investment restrictions apply to the Tax Exempt Money
Fund. They may not be changed without a shareholder vote. A change requires the
affirmative vote of a majority of the Fund's outstanding shares, which as used
in this Statement means the lesser of (1) 67% of the Fund's outstanding shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. With respect to investment restrictions Number 1 through 12
below, the Fund may not:
1. Purchase securities on margin; sell short; purchase warrants; or
write, purchase, or sell straddles, spreads, or combinations thereof.
2. Borrow money, except from banks for temporary purposes (not for
leveraging or investment) and then in an aggregate amount not in excess of 10%
of the value of the Fund's assets at the time of such borrowing, provided, that
so long as such borrowings exceed 5% of the value of the net assets, the Fund
will not make any investments; or mortgage, pledge or hypothecate any assets
except in connection with any such borrowing and in an aggregate amount not in
excess of the dollar amount borrowed.
3. Act as an underwriter of securities of other issuers, except to the
extent that the purchase of Municipal Securities in accordance with the Fund's
investment objective, policies and limitations may be deemed to be an
underwriting.
4. Purchase securities (other than under repurchase agreements of not
more than one week's duration, considering only the remaining days to maturity
of each existing repurchase agreement) for which there exists no readily
available market, or for which there are legal or contractual restrictions on
resale (excluding restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933, which the Board of Trustees or the
Adviser has determined under Board-approved guidelines are liquid), if as a
result of any such purchase, more than 10% of the Fund's net assets would be
invested in such securities.
5. Purchase any securities if, immediately after such purchase, more
than 25% of the value of the Fund's total assets would be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that there is no limitation with respect to
investments in general municipal obligations and obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
6. Purchase securities of any one issuer, other than the U.S.
Government, its agencies and instrumentalities, if immediately after such
purchase more than 5% of the value of the Fund's total assets would be invested
in such issuer.
7. Acquire more than 10% of any class of securities of an issuer,
except securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, or securities which are backed by the full faith
and credit of the United States.
10
<PAGE>
8. Purchase or sell real estate, except this shall not prevent the Fund
from investing in Municipal Securities secured by real estate or interests
therein.
9. Purchase or sell commodities or commodity futures contracts, or oil,
gas or mineral exploration or development programs.
10. Make loans, except that the Fund may hold debt instruments and
enter into repurchase agreements in accordance with its investment objectives
and policies.
11. Issue any class of securities senior to any other class of
securities, except that the Fund may purchase when-issued securities as
described under "Investment Objectives and Policies."
12. Invest more than 25% of its total assets within a single state of
the United States or the District of Columbia.
13. The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies and limitations as the Fund.
The following investment restrictions may be changed by the Board of
Trustees without the approval of shareholders. Appropriate notice will be given
of any changes in these restrictions made by the Board of Trustees. With respect
to investment restrictions Number 14 through 17 below, the Fund may not:
14. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, and
except for purchases of the securities of money market mutual funds.
15. Purchase securities of any issuer for the purpose of exercising
control or management, except in connection with a merger, consolidation,
acquisition or reorganization.
16. Invest more than 5% of the Fund's total assets in securities of any
issuer which, together with its predecessors, has been in continuous operation
less than three years, except obligations issued or guaranteed by the U.S.
Government or its agencies, or Municipal Securities (other than industrial
development bonds) (for this purpose the period of operation of the issuer shall
include the period of operation of any predecessor or unconditional guarantor of
such issuer).
17. Purchase or retain the securities of an issuer if those officers or
trustees of the Trust or officers or directors of the Adviser who are also
officers or directors of the issuer and who each own beneficially more than 1/2
of 1% of the securities of that issuer together own more than 5% of the
securities of such issuer.
18. The Fund does not currently intend to invest all of its assets in
the securities of a single open- end management investment company with
substantially the same fundamental investment objectives, policies and
limitations as the Fund.
For the purposes of the limitations set forth in paragraphs 5, 6, 7, 16
and 17, the Fund will regard the entity which has the ultimate responsibility
for the payment of principal and interest as the issuer.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of net assets will not be considered a violation
of any of the foregoing restrictions.
11
<PAGE>
PORTFOLIO TRANSACTIONS
The Advisory Agreements authorize the Adviser (subject to the control
of the Boards of Trustees) to select brokers and dealers to execute purchases
and sales of portfolio securities. They direct the Adviser to use its best
efforts to obtain the best overall terms for the Trusts, taking into account
such factors as price (including dealer spread), the size, type and difficulty
of the transaction involved, and the financial condition and execution
capability of the broker or dealer.
With respect to the Cash Management Fund and the Government Securities
Fund, the Adviser generally will purchase portfolio securities for both Funds
either directly from the issuer or from dealers who specialize in "money market"
instruments. During the last three fiscal years ended December 31, 1994, 1995,
and 1996 the Cash Management Fund and the Government Securities Fund paid no
brokerage commissions.
With respect to the Tax Exempt Money Fund, purchases and sales of the
Fund's portfolio securities are generally placed by the Adviser with the issuer,
the issuer's underwriter or with a primary market maker. Usually no brokerage
commission is paid, although the price usually includes an undisclosed
compensation. (Transactions with primary market makers reflect the spread
between bid and asked prices; purchases of underwritten issues include an
underwriting fee paid by the issuer to the underwriter.) During the last three
fiscal years ended December 31, 1994, 1995 and 1996, the Tax Exempt Money Fund
paid no brokerage commissions.
With respect to all of the Funds, to the extent that the execution and
price offered by more than one dealer are comparable, the Adviser may, in its
discretion, effect transactions in portfolio securities with dealers who provide
the Trusts with research services such as credit analysis. Any such research
services would be available for use on all investment advisory accounts of the
Adviser.
Other investment advisory clients advised by the Adviser may also
invest in the same securities as the Trusts. When these clients buy or sell the
same securities at substantially the same time, the Adviser may average the
transactions as to price and allocate the amount of available investments in a
manner which the Adviser believes to be equitable to each client, including any
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by any Fund or the size of the position obtainable for
it. On the other hand, to the extent permitted by law, the Adviser may aggregate
the securities to be sold or purchased for any Fund with those to be sold or
purchased for other clients managed by it in order to obtain best execution.
In no instance will portfolio securities be purchased from or sold to
Tucker Anthony Incorporated ("Tucker Anthony"), Sutro & Co. Incorporated
("Sutro") or any affiliated person (as defined in the 1940 Act) thereof.
The Board of Trustees of the Mutual Fund has determined that any
portfolio transaction for the Mutual Fund may be executed through Tucker Anthony
or Sutro, if, in the Adviser's judgment, the use of Tucker Anthony or Sutro is
likely to result in price and execution at least as favorable as those of other
qualified brokers, and if, in the transaction, Tucker Anthony or Sutro charges
the Mutual Fund a commission rate consistent with those charged by Tucker
Anthony or Sutro to comparable unaffiliated customers in similar transactions.
Neither Tucker Anthony nor Sutro will participate in commissions in brokerage
given by the Mutual Fund to other brokers or dealers and will not receive any
reciprocal brokerage business resulting therefrom.
CURRENT YIELD
The Securities and Exchange Commission requires by rule that a yield
quotation set forth in an advertisement or prospectus for a "money market" fund
be computed by a standardized method based on a historical seven calendar
12
<PAGE>
day period referred to as the "base period." The yield quoted may be a simple
annualized yield or a compounded effective yield which gives effect to the
reinvestment of the proceeds of the investment portfolio. If the compounded
effective yield is used in an advertisement, the simple annualized yield must
also be included. Both yields are computed on the basis of the base period
return on a hypothetical pre-existing account in each Fund having a balance of
one share at the beginning of the seven-day base period. The base period return
equals the net change in value of the account over the seven-day period,
including dividends declared both on the original share and on any additional
shares purchased with previous dividends (such dividends are declared daily and
paid from the net investment income of the Fund) and minus all fees, other than
nonrecurring account or sales charges charged to all shareholder accounts, in
proportion to the length of the base period and the Fund's average account size.
The fees deducted will take into account the expense limitation agreement as
described in "Our Management" in the Prospectus. The net change in value does
not include realized gains and losses from the sale of securities or unrealized
appreciation or depreciation of the securities. The base period return is then
multiplied by 365/7 to arrive at the annualized simple yield. The compounded
effective yield is calculated by dividing the base period return (calculated as
above) by 7, adding 1, raising that sum to the 365th power and subtracting 1
from the result. Both calculations of yields are then expressed to at least two
decimal points.
Yield Information
Cash Management Fund. For the seven day period ended December 31, 1996,
the simple annualized yield of the Cash Management Fund was ____, the compound
effective yield was _____, and the Fund had an average weighted maturity of
investments of __ days.
Government Securities Fund. For the seven day period ended December 31,
1996, the simple annualized yield of the Government Securities Fund was _____,
the compound effective yield was _____, and the Fund had an average weighted
maturity of investments of __ days.
Tax Exempt Money Fund. For the seven day period ended December 31,
1996, the simple annualized yield of the Tax Exempt Money Fund was _____, the
compound effective yield was _____, and the Fund had an average weighted
maturity of investments of __ days.
ADDITIONAL INFORMATION ON REDEMPTION
The Trusts may suspend redemption privileges or postpone the date of
payment on shares of any Fund for more than seven days during any period (1)
when the New York Stock Exchange is closed (other than for week-ends or
holidays) or trading on the Exchange is restricted as determined by the
Securities and Exchange Commission ("SEC"), (2) when an emergency exists, as
defined by the SEC, which makes it not reasonably practicable for either Trust
to dispose of securities owned by it or fairly to determine the value of its
assets, or (3) as the SEC may otherwise permit.
It is possible that under unusual circumstances the redemption price
may be more or less than the shareholder's cost, depending on the market value
of a Fund's portfolio at the time.
NET ASSET VALUE
As disclosed in the Prospectus, the net asset value per share of each
Fund is determined at 12:00 noon New York time Monday through Friday, as
described below. The Funds will be closed on the following national business
13
<PAGE>
holidays: New Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of the Funds is determined daily under
the general supervision of the Trusts' Board of Trustees by the Trusts'
custodian at 12:00 noon New York time on each day on which the New York Stock
Exchange is open or on which there is a sufficient degree of trading in the
Trusts' portfolio securities that the current net asset value of the Trusts'
redeemable securities might be materially affected by changes in the value of
the portfolio securities. Purchase or redemption orders accepted by John Hancock
Investor Services Corp. ("JHIS") prior to 12:00 noon New York time will be
priced at 12:00 noon New York time that day. Purchase or redemption orders
accepted by JHIS subsequent to 12:00 noon New York time will be priced at 12:00
noon New York time the next day that net asset value is computed. Net asset
value per share is computed by taking the value of all assets of any Fund, less
liabilities, and dividing by the number of shares of the Fund outstanding. To
determine the value of the assets of any Fund for the purpose of obtaining the
net asset value, portfolio securities are valued at amortized cost, as described
below, and interest is accrued daily.
Since the Trusts have adopted a policy of normally holding portfolio
securities to maturity, all portfolio securities of the Funds will normally be
valued at amortized cost. Thus, it is not expected that realized or unrealized
gains or losses on portfolio securities will be a substantial factor in the
computation of the net asset value or gross income of any Fund. If in some
extraordinary circumstance any Fund experiences gains or losses (realized or
unrealized), whether recognized or unrecognized, this could result in a change
in net asset value, a change in dividends, or both.
The Trusts comply with the provisions of Rule 2a-7 under the 1940 Act
which permits each Fund to compute the net asset value using the amortized cost
method of valuing portfolio securities. To comply with that rule, the Board of
Trustees of each Trust has agreed to establish procedures to stabilize the net
asset value for each Fund at $1.00 per share. These procedures include a review
by the Board of Trustees of the extent of any deviation of net asset value per
share, based on available market quotations or estimates of market value
determined by the Boards of Trustees in good faith, from the Fund's $1.00
amortized cost value per share. If that deviation exceeds 1/2 of 1%, the
Trustees will consider any action that should be initiated to reasonably
eliminate or reduce material dilution or other unfair results to shareholders.
Such action may include selling portfolio securities prior to maturity,
withholding dividends, or utilizing a net asset value per share as determined by
using available market quotations. In addition, the Trusts must (a) maintain a
dollar weighted average portfolio maturity of 90 days or less for each Fund, (b)
not purchase any instrument with a remaining maturity greater than 397 days, (c)
limit portfolio investments, including repurchase agreements, to securities
that, at the time of acquisition, (i) are rated in the two highest categories by
at least two nationally recognized statistical rating organizations (or by one
organization if only one organization has rated the security), (ii) if not
rated, are obligations of an issuer whose other outstanding short-term debt
obligations are so rated, or (iii) if not rated, are of comparable quality as
determined by the Boards of Trustees in accordance with procedures established
by the Boards of Trustees, and (d) comply with certain reporting and
recordkeeping procedures. The Trusts' officers will periodically review the
method of valuation and recommend changes to the Boards of Trustees which may be
necessary to assure that the portfolio securities of the Funds are valued at
their fair value as determined by the Trustees in good faith. The Funds will
limit their investments to securities that present minimal credit risks, as
determined by the Boards of Trustees in accordance with the procedures
established by the Boards of Trustees.
Amortized cost valuation involves valuing a security at its cost and
adding or subtracting, ratably to maturity, any discount or premium, regardless
of the impact of fluctuating interest rates on the market value of the security.
Under the amortized cost method of valuation, neither the amount of daily income
nor net asset value is affected by any unrealized appreciation or depreciation
of the portfolio. As a result, in periods of declining interest rates, the
indicated daily yield on a portfolio valued by amortized cost will be higher
than on a portfolio valued by market prices.
14
<PAGE>
Since there is no sales load involved in an investment in either Trust,
100% of the shareholder's purchase price is invested in shares of the Fund
purchased.
ADDITIONAL INFORMATION ON TAXES
Each Fund intends to qualify and elect to be treated as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If so qualified, a Fund will not be liable for federal
income taxes on its taxable net investment income and capital gain net income
that is distributed to shareholders, provided that the Fund distributes at least
90% of its net investment income (other than capital gains) and its net
short-term capital gain for the year. To qualify for tax treatment as a
"regulated investment company" under the Code, a Fund must, among other things,
(i) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies and (ii) derive in each taxable year less than 30% of its gross
income from the sale or other disposition of stock, securities or certain other
financial instruments held for less than three months.
If for any taxable year any Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at
corporate rates and, in such event, dividend distributions to its shareholders
would be eligible for the corporate dividends received deduction.
The Code imposes a nondeductible 4% excise tax on a regulated
investment company that fails to distribute during each calendar year an amount
at least equal to the sum of (1) 98% of its taxable ordinary income for the
calendar year, and (2) 98% of its capital gain net income for the twelve month
period ending on October 31 of the calendar year, and (3) certain undistributed
amounts from the preceding calendar year. The Funds intend to make sufficient
distributions to avoid this 4% excise tax.
Taxable distributions generally are included in a shareholder's gross
income for the taxable year in which they are received. However, dividends
declared in October, November and December and made payable to shareholders of
record in such a month are taxable as of December 31, provided that a Fund pays
the dividend during the following January. It is expected that none of the
Funds' distributions will qualify for the 70% corporate dividends-received
deduction.
Cash Management Fund and Government Securities Fund
Since none of the net investment income of the Cash Management Fund or
the Government Securities Fund will arise from dividends on common or preferred
stock, it is expected that none of the Trust's distributions to shareholders
will be eligible for the corporate dividends received deduction.
Since all net investment income will be distributed as dividends, it
will be taxable to shareholders as ordinary income, except for (a) such portion
as may exceed a shareholder's ratable share of a Fund's earnings and profits as
determined for tax purposes and available therefor, which excess will be applied
against and reduce the shareholder's adjusted tax basis for his shares, and (b)
amounts representing distributions of realized net capital gain (i.e., the
excess of net long-term capital gain over net short-term capital loss) and
properly designated as such. If the excess described in (a) above were to exceed
the shareholder's tax basis for his shares, the amount thereof would be treated
as gain from the sale or exchange of such shares. The amount of any net capital
gain realized by a Fund is, to the extent designated by that Fund, taxable to
shareholders as long-term capital gain, regardless of the length of time a
particular shareholder may have held his shares in the Fund. Not later than
sixty days after the end of each taxable year, each Fund will send to its
shareholders a written notice designating the amount of any distributions made
during such year which is a
15
<PAGE>
distribution of long-term capital gain or represents a return of capital. In
view of their policy of investing only in instruments maturing within one year,
it is unlikely that either Fund will realize any long-term capital gains.
Tax Exempt Money Fund
Net investment income received by the Fund from investments in debt
securities other than tax exempt securities, and any excess of net short-term
capital gain over net long-term capital loss recognized by the Fund, will be
taxable to shareholders upon distribution as ordinary income, regardless of
whether the distribution is paid in cash or in additional shares. The excess of
net long-term capital gain over net short-term capital loss ("net capital
gain"), to the extent properly designated by the Fund, will be taxable to
shareholders upon distribution as long-term capital gain, regardless of the
length of time the shares have been held or whether the distribution is paid in
cash or in additional shares. Such distributions of net capital gain will not be
eligible for the dividends received deduction for corporations. However, it is
expected that any such amounts will be insubstantial in relation to the tax
exempt interest generated by the Fund.
Interest on certain private activity bonds issued after August 7, 1986
not otherwise subject to federal income tax may be subject to the federal
alternative minimum tax ("AMT") although the interest continues to be excludable
from gross income for other purposes. The AMT is a supplemental tax designed to
ensure that taxpayers pay at least a minimum amount of tax on their income, even
if they make substantial use of certain tax deductions and exclusions (including
the "items of tax preference"). Interest from certain private activity bonds is
one of the items of tax preference that is added into income from other sources
for the purposes of determining whether a taxpayer is subject to the AMT and the
amount of any tax to be paid. Under regulations to be prescribed,
exempt-interest dividends paid by the Fund will be treated as interest on such
private activity bonds to the extent of the proportionate share of the interest
on such bonds received by the Fund. In addition, corporate investors should note
that exempt-interest dividends will be a component of the "current earnings"
adjustment for the corporate AMT. Prospective investors should consult their own
tax advisors with respect to the possible application of the AMT to their tax
situation.
To the extent that the net asset value at the time of purchase of
shares in the Fund reflects capital gains, a subsequent distribution to the
shareholder of such amounts, although constituting a return of his investment,
would be taxable as described above. Any loss on the sale or exchange of shares
of the Fund held for six months or less will be disallowed to the extent that
tax-exempt interest dividends were paid on such shares.
Information concerning the tax status of dividends and distributions is
mailed to shareholders annually. The Fund anticipates that substantially all of
the dividends to be paid by the Fund will be exempt from federal income taxes.
If any portion of the Fund's dividends is not exempt from federal income taxes,
the Fund will advise shareholders in the annual tax information notice of the
percentage of both tax exempt and taxable income. The Fund will also advise
shareholders in the annual tax information notice of the proportion of dividends
and distributions derived from Municipal Securities of each state. In accordance
with the Code, expenses of the Fund will be allocated pro rata between taxable
and nontaxable income.
Shareholders who are recipients of Social Security benefits should be
aware that tax-exempt interest dividends received from the Fund are taken into
account for purposes of determining whether their incomes are large enough to
result in taxation of up to 85% of the amount of such Social Security benefits.
From time to time, proposals have been introduced before Congress for
the purpose of restricting, limiting, or eliminating the federal income tax
exemptions for interest on Municipal Securities. It can be expected that similar
proposals may be introduced in the future. If any such proposal were enacted,
the availability of Municipal Securities for investment by the Fund and the
value of the Fund's portfolio would be affected. In such an event, the Fund
would reevaluate its investment objective and policies.
16
<PAGE>
MANAGEMENT OF THE TRUSTS
The Trustees and executive officers of the Trusts and their principal
occupations during the past five years are set forth below. Unless otherwise
indicated, the business address of each is One Beacon Street, Boston,
Massachusetts 02108.
*Dexter A. Dodge-Trustee, Chairman of the Board and Chief Executive
Officer, President and Managing Director of the Adviser since July 1992. He is
62. Vice President of Freedom Distributors Corporation since 1989 and Director
since 1994.
Richard A. Farrell-Trustee-160 Federal Street, Boston, Massachusetts
02110. He is 63. President since 1980 of Farrell, Healer & Co., a venture
capital management firm that manages The Venture Capital Fund of New England.
Ernest T. Kendall-Trustee-230 Beacon Street, Boston, Massachusetts
02116. He is 64. President, Commonwealth Research Group, Inc., Boston, MA, a
consulting firm specializing in microeconomics, regulatory economics and labor
economics, since 1978.
Richard B. Osterberg-Trustee-84 State Street, Boston, MA 02109. He is
52. Member of the law firm of Weston, Patrick, Willard & Redding, Boston, MA
since 1978.
*Lawrence G. Kirshbaum-Trustee and Chief Financial Officer-1 World
Financial Center, New York, New York 10281. He is 54. Chief Financial Officer
and Executive Vice President of John Hancock Freedom Securities Corporation
since 1992. Director of Tucker Anthony Incorporated, Sutro & Co. Incorporated,
John Hancock Clearing Corporation and the Adviser since 1992. Chairman of
Prescott, Ball & Turben, Inc., Cleveland, Ohio, from 1987-1990. Chief Financial
Officer of Prescott, Ball & Turben, Inc. from 1982-1987.
William H. Darling -Trustee - 294 Washington Street, Suite 310, Boston,
Massachusetts 02108. He is 47. President, W.H. Darling & Co., Inc., managing
corporate general partner to a coal land lessor, since 1994. Partner of Sagamore
Partners, which provides trustee services to family and related trusts, since
1993. Certified Public Accountant, William A. Darling, CPA since 1982.
John R. Haack - Trustee - 311 Commonwealth Avenue #81, Boston,
Massachusetts 02115. He is 54. Vice President of Operations, Reliable
Transaction Processing, 1995 to present. Major General, Assistant to the
Commander in Chief, U.S. Space Command, 1993 to 1995. General Manager, Unilect
Industries, which is an electrical component manufacturer, 1993 to 1994.
Brigadier General, Commander of 102nd Fighter Interceptor Wing, U.S. Air Force
and Air National Guard, 1986 to 1993.
Laurence R. Veator, Jr. - Trustee - 8 Cove Way, Rust Island,
Gloucester, Massachusetts 01930. Currently retired. Formerly, President,
Pacific/Interamerican Divisions of Grace Specialty Chemicals Co. from 1975 to
1987.
John J. Danello-President and Secretary-Chief Operating Officer of the
Adviser since February 1994 and Managing Director, Clerk and General Counsel
since November 1986. He is 41. President and Director since February 1989 and
Clerk since February 1987 of Freedom Distributors Corporation. Prior to November
1986, Mr. Danello was associated with the law firm of Goodwin, Procter & Hoar.
Darlene F. Rego-Treasurer-Vice President of the Adviser since February
1995 and Assistant Vice President since December 1992. She is 33. Assistant
Treasurer of the Trusts from July 1987 until December 1992.
Mary Jeanne Currie-Vice President-Vice President of the Adviser since
February 1983. She is 48.
- --------
* Trustee may be deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
Michael M. Spencer-Vice President-Senior Vice President and Director of
Fixed-Income Investments of the Adviser since August 1995. He is 46. From 1985
to 1995, Mr. Spencer was a Portfolio Manager at Shawmut Investment Advisers.
17
<PAGE>
Paul F. Marandett-Vice President-Vice President of the Adviser since
1990. He is 54. From 1980 to 1990, Mr. Marandett was vice president with the
Bank of Boston.
Sarah H. Scranton-Vice President-Vice President and Portfolio Manager
of the Adviser since September 1994 and Vice President and Portfolio Manager of
the Freedom Group of Money Funds since April 1994 . She is 32. From March 1990
to September 1994, Ms. Scranton was an Assistant Vice President and Assistant
Portfolio Manager of the Adviser.
Maureen M. Renzi-Assistant Secretary-Assistant Vice President of the
Adviser since February 1995 and Assistant Clerk and Compliance Officer since
July 1992. She is 32. Vice President of Freedom Distributors Corporation since
February 1995. Paralegal of New England Securities from March 1989 to July 1992.
Messrs. Dodge, Danello, Kirshbaum, Marandett, McCarthy and Spencer and
Mesdames Currie, Rego, Renzi and Scranton are all officers of the Adviser as
well as of the Trusts.
- --------
* Trustee may be deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
During the last fiscal year of the Trust, the Trustees were compensated
as follows:
<TABLE>
<CAPTION>
Name of Aggregate Aggregate Aggregate Total
Trustee Compensation Compensation Compensation Compensation
from the Tax Exempt from the Government from the Cash from Fund Complex
Money Fund Securities Fund Management Fund Paid to Trustees (a)
<S> <C> <C> <C> <C>
Dexter A. Dodge $0 $0 $0 $0
Richard A. Farrell 3,901 4,018 10,124 20,800
Ernest T. Kendall 2,901 3,018 9,124 16,800
Richard B. Osterberg 2,901 3,018 9,124 16,800
Lawrence G. Kirshblaum 0 0 0 0
William H. Darling 0 0 0 0
John R. Haack 0 0 0 0
Laurence R. Veator, Jr. 0 0 0 0
</TABLE>
(a) Includes compensation from the Tax Exempt Money Fund, Government
Securities Fund, Cash Management Fund and Freedom California Tax Exempt
Money Fund. The Trust does not provide any pension or retirement
benefits for the Trustees.
As of January 31, 1997, the Estate of Jane S. Miller, 520 SW Yamhill RG
#8, Portland, Oregon 97204- 1335 was the beneficial owner of approximately _% of
the shares of the Tax Exempt Money Fund. To the knowledge of the Mutual Fund and
the Tax Exempt Trust, no other person benficially owns 5% or more of the shares
of any of the Funds. As of January 31, 1997, the officers and Trustees of the
Mutual Fund as a group owned less than 1% of each of the Cash Management Fund
and the Government Securities Fund, and the officers and Trustees of the Tax
Exempt Trust as a group owned less than 1% of the Tax Exempt Money Fund.
18
<PAGE>
THE INVESTMENT ADVISER
The investment adviser for each of the Funds is Freedom Capital
Management Corporation (formerly Tucker Anthony Management Corporation), a
Massachusetts corporation (the "Adviser"), with offices at One Beacon Street,
Boston, Massachusetts. The Adviser is a registered investment advisory firm
which maintains a large securities research department, the efforts of which
will be made available to the Funds.
The Adviser is an indirect, wholly-owned subsidiary of JHFSC
Acquisition Corp., a newly - formed Delaware Corporation. JHFSC Acquisition
Corp. is located at One Beacon Street, Boston, Massachusetts 02108. The Adviser
was formerly an indirect subsidiary of John Hancock Subsidiaries, Inc. ("Hancock
Subsidiaries") which transferred approximately 95 % of its interest in John
Hancock Freedom Securities Corporation ("Freedom Securities"), the parent
company of the Adviser to JHFSC Acquisition Corp. JHFSC Acquisition Corp. is
owned by an investor group which includes certain members of management and
employees of Freedom Securities and its subsidiaries, including the Adviser (the
"Employee Shareholders"). To accomplish the sale, Hancock Subsidiaries, JHFSC
Acquisition Corp., Thomas H. Lee Equity Fund III, L.P. ("Lee") and SCP Private
Equity Partners, L.P. ("SCP"), entered into a Contribution Agreement on October
4, 1996, pursuant to which Hancock Subsidiaries contributed 100% of the issued
and outstanding shares of capital stock of Freedom Securities to JHFSC
Acquisition Corp., in exchange for (i) 4.9% of the issued and outstanding
capital stock of JHFSC Acquisition Corp. and (ii) aggregate consideration of
$180,000,000 (subject to reduction to the extent of certain distributions made
prior to closing).
Upon consummation on November 29, 1996 of the transactions contemplated
by the Contribution Agreement, Freedom Securities became a wholly-owned
subsidiary of JHFSC Acquisition Corp., and the Adviser remained a wholly-owned
subsidiary of Freedom Securities. The outstanding capital stock of JHFSC
Acquisition Corp. after the consummation of the Transaction is approximately as
follows:
Investor Percentage Ownership
-------- --------------------
Thomas H. Lee Equity Fund III., L.P. 49.9%
SCP Private Equity Partners, L.P. 13.0%
John Hancock Subsidiaries, Inc. 4.9%
Employee Shareholders 32.2%
Thomas H. Lee Equity Fund III, L.P. is a Massachusetts limited
partnership. The general partner of Thomas H. Lee Equity Fund III, L.P. is THL
Equity Advisors III Limited Partnership, a Massachusetts limited partnership.
The general partner of THL Equity Advisors III Limited Partnership is THL Equity
Trust III, a Massachusetts business trust. The sole beneficial owner of THL
Equity Trust III is Thomas H. Lee. The address of Thomas H. Lee Equity Fund III,
L.P., THL Equity Advisors III Limited Partnership and THL Equity Trust III is 75
State Street, Boston, Massachusetts 02109.
SCP Private Equity Partners, L.P. is a Delaware limited partnership.
The general partner of SCP Private Equity Partners, L.P. is SCP Private Equity
Management, L.P., a Delaware limited partnership. The interests of SCP Private
Equity Management, L.P. are divided equally among its three general partners:
Safeguard Capital Management, Inc. (which is a wholly owned subsidiary of
Safeguard Scientifics, Inc., a publicly held company), Winston J. Churchill and
Samuel A. Plum. The address of SCP Private Equity Partners, L.P., SCP Private
Equity Management, L.P., Safeguard Capital Management, Inc., Winston J.
Churchill and Samuel A. Plum is 435 Devon Park Drive, Wayne, Pennsylvania 19087.
The consummation of the Transaction resulted in a change of control of
the Adviser, causing the Advisory Agreement between the Adviser and the Trust,
on behalf of each of the Funds, to be "assigned," as such term is defined under
the Investment Company Act of 1940 (the "1940 Act"). This assignment
necessitated approval of a new Advisory Agreement by the shareholders of the
Funds. The shareholders of the Funds approved the new Advisory Agreements at
meetings held on December 16, 1996.
Freedom Distributors Corporation ("Freedom") and Tucker Anthony
Incorporated ("Tucker Anthony" and together with Freedom, the "Distributors"),
affiliates of the Adviser, serve as distributors and principal underwriters for
the Funds pursuant to a distribution agreement with each Trust. Freedom,
established in 1987, is an indirect subsidiary of JHFSC Acquisition Corp. Tucker
Anthony (formerly Tucker, Anthony & R.L. Day, Inc.), a brokerage firm which is a
member of the New York Stock Exchange, is also an indirect subsidiary of JHFSC
Acquisition Corp. and continues an investment banking and brokerage business
established in 1892.
Pursuant to investment advisory agreements dated as of November 29,
1996 (the "Advisory Agreements") between the respective Trusts and the Adviser,
the Adviser agreed to act as investment adviser and manager to the Funds. As
manager and investment adviser, the Adviser will: (a) furnish continuously an
investment program for the Funds and determine, subject to the overall
supervision and review of the Boards of Trustees, which investments should be
purchased, held, sold or exchanged, (b) provide supervision over all aspects of
the Funds' operations except those which are delegated to a custodian, transfer
agent or other agent, and (c) provide the Trusts with such executive,
administrative and clerical personnel, officers and equipment as are deemed
necessary for the conduct of the business of the Trusts.
Each Trust bears all costs of its organization and operation, including
expenses of preparing, printing and mailing all shareholders' reports, notices,
prospectuses (except that the expense of printing and mailing prospectuses used
for promotional purposes will not be borne by the Trusts), proxy statements and
reports to regulatory agencies; expenses relating to the issuance, registration
and qualification of shares of the Trust; government fees; interest charges;
expenses of furnishing to shareholders their account statements; taxes; expenses
of redeeming shares; brokerage and other expenses connected with the execution
of portfolio securities transactions; fees and expenses of the Trust's
custodian, including those for keeping books and accounts and calculating the
net asset value of shares of each Fund; fees and expenses of its independent
accountants, legal counsel, transfer agent and dividend disbursing agent; the
compensation and expenses of its Trustees who are not otherwise affiliated with
the Trust, the Adviser or any of their affiliates; expenses of trustees' and
shareholders' meetings; trade association memberships; insurance premiums; and
any extraordinary expenses.
The State of California imposes limitations on the expenses of the
Funds. The Advisory Agreements provide that if, in any fiscal year, the total
expenses of any Fund (excluding taxes, interest, brokerage commissions and
extraordinary items, but including the management fee) exceed the expense
limitations applicable to the Fund imposed by the securities regulations of any
state in which it is then registered to sell shares, the Adviser will pay or
reimburse the Fund for that excess up to the amount of its management fee during
that fiscal year. Although there is no certainty that these limitations will be
in effect in the future, the most restrictive of these limitations on an annual
basis currently is 2.5% of the first $30 million of net assets; 2% of the next
$70 million; and 1.5% of the average daily net assets over $100 million. For the
purpose of determining whether a Fund is entitled to reimbursement, the expenses
of the Fund are calculated on a monthly basis. If the Fund is entitled to
reimbursement, that month's advisory fee will be reduced or postponed, with any
adjustment made after the end of the year.
19
<PAGE>
The Advisory Agreement for the Mutual Fund was approved on October 3,
1996 by all of the Trustees, including all of the Trustees who are not parties
to that Advisory Agreement or "interested persons" (as defined in the Investment
Company Act of 1940) of any such party and was approved at a meeting held on
December 16, 1996 by the outstanding shareholders of each of the Cash Management
Fund and the Government Securities Fund. The continuation of the Advisory
Agreement for the Tax Exempt Trust was approved on October 3, 1996 by all of the
Trustees, including all of the Trustees who are not parties to the Advisory
Agreement or "interested persons" of any such party and was approved at a
meeting held on December 16, 1996 by the outstanding shareholders of the Tax
Exempt Money Fund. The Advisory Agreements will continue in effect with respect
to the Mutual Fund and Tax Exempt Trust from year to year, provided that its
continuance is approved annually both (i) by the holders of a majority of the
outstanding voting securities of each Fund or by the Board of Trustees, and (ii)
by a majority of the Trustees who are not parties to the Advisory Agreements or
"interested persons" of any such party. The Advisory Agreements may be
terminated on 60 days written notice by either party and will terminate
automatically if they are assigned.
Mr. Osterberg, a Trustee of the Trusts, is a member of the law firm of
Weston, Patrick, Willard & Redding, which has retained the Adviser from time to
time to provide investment advisory consulting services for clients of such
firm.
For the fiscal year ended December 31, 1994, the Cash Management Fund,
the Government Securities Fund and the Tax Exempt Money Fund paid the Adviser an
investment advisory fee of $5,260,049, $1,393,542 and $1,399,383, respectively.
For the fiscal year ended December 31, 1995, the Cash Management Fund,
the Government Securities Fund and the Tax Exempt Money Fund paid the Adviser an
investment advisory fee of $5,802,037, $1,391,071, and $1,365,700 respectively.
For the fiscal year ended December 31, 1996, the Cash Management Fund,
Government Securities Fund and the Tax Exempt Money Fund paid the Adviser an
investment advisory fee of $__________, $ __________ and $ ___________
respectively.
DISTRIBUTION OF SHARES OF THE TRUSTS
The Trusts have each entered into a Distribution Agreement with the
Distributors whereby the Distributors act as exclusive selling agent of the
Funds selling shares of each Fund on a "best efforts" basis. Although the
Distributors distribute shares of each Fund on a continuous basis, shares may
also be purchased directly from the Funds. No underwriting commissions or
discounts are paid to the Distributors in connection with their distribution of
shares of the Funds.
CUSTODIAN
All cash and securities of the Trusts are held by State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02106, as custodian.
20
<PAGE>
FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110
serves as the Trusts' independent accountants, providing audit services,
including review and consultation, in connection with various filings by the
Trusts with the Securities and Exchange Commission and tax authorities.
The financial statements and the report of the independent accountants
with respect to the Cash Management Fund, the Government Securities Fund and the
Tax Exempt Money Fund for the fiscal year ended December 31, 1995 are included
in the Trusts' Prospectus.
21
<PAGE>
INFORMATION ABOUT SECURITIES RATINGS OF NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS ("NRSROs")
Debt Security Ratings, Including Municipal Bonds
MOODY'S INVESTORS SERVICE, INC. Aaa--the "best quality." Aa--"high
quality by all standards", but margins of protection or other elements make
long-term risks appear somewhat larger than Aaa rated municipal bonds.
STANDARD & POOR'S CORPORATION. AAA--"obligations of the highest
quality." AA--issues with investment characteristics "only slightly less marked
than those of the prime quality issues."
Ratings of Municipal Notes
MOODY'S INVESTORS SERVICE, INC. MIG 1: the best quality. MIG 2: high
quality, with margins of protection ample although not so large as in the
preceding group.
Ratings of Commercial Paper
MOODY'S INVESTORS SERVICE, INC. The rating Prime-1 is the highest
commercial paper rating assigned by Moody's. Among the factors considered by
Moody's in assigning ratings are the following: valuation of the management of
the issuer; economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas;
evaluation of the issuer's products in relation to competition and customer
acceptance; liquidity; amount and quality of long-term debt; trend of earnings
over a period of 10 years; financial strength of the parent company and the
relationships which exist with the issuer; and recognition by the management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. These factors are all
considered in determining whether the commercial paper is rated P1, P2 or P3.
STANDARD & POOR'S CORPORATION. Commercial paper rated A (highest
quality) by S&P has the following characteristics: liquidity ratios are adequate
to meet cash requirements; and long-term senior debt is rated "A" or better,
although in some cases "BBB" credits may be allowed. The issuer has access to at
least two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
The relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A1, A2, or A3.
IBCA LIMITED/IBCA INC. Short-term obligations, including commercial
paper, rated A-1+ by IBCA Limited or its affiliate IBCA Inc. are obligations
supported by the highest capacity for timely repayment. Obligations rated A-1
have a very strong capacity for timely repayment. Obligations rated A-2 have a
strong capacity for timely repayment, although such capacity may be susceptible
to adverse changes in business, economic or financial conditions.
FITCH INVESTORS SERVICES, INC. Fitch Investors Services, Inc. employs
the rating F-1+ to indicate issues regarded as having the strongest degree of
assurance for timely payment. The rating F-1 reflects an assurance of timely
payment only slightly less in degree than issues rated F-1+, while the rating
F-2 indicates a satisfactory degree of assurance for timely payment, although
the margin of safety is not as great as indicated by the F-1+ and F-1
categories.
DUFF & PHELPS INC. Duff & Phelps Inc. employs the designation of Duff 1
with respect to top grade commercial paper and bank money instruments. Duff 1+
indicates the highest certainty of timely payment: Short-term
22
<PAGE>
liquidity is clearly outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations. Duff 1- indicates high certainty of time
payment. Duff 2 indicates good certainty of timely payment: liquidity factors
and company fundamentals are sound.
THOMSON BANKWATCH, INC. ("BANKWATCH"). BankWatch will assign both
short-term debt ratings and issuer ratings to the issuers it rates. BankWatch
will assign a short-term rating ("TBW-1," "TBW- 2," "TBW-3," or "TBW-4") to each
class of debt (e.g., commercial paper or non-convertible debt), having a
maturity of one-year or less, issued by a holding company structure or an entity
within the holding company structure that is rated by BankWatch. Additionally,
BankWatch will assign an issuer rating ("A," A/B," "B," "B/C, "C," "C/D," "D,"
"D/E," and "E") to each issuer that it rates.
Certain NRSROs utilize rankings within rating categories indicated by a
+ or -. The Funds, in accordance with industry practice, recognize such rankings
with categories as graduations, viewing for example S&P's rating of A-1+ and A-1
as being in S&P's highest rating category.
Ratings of Short-Term Corporate Debt Securities
MOODY'S INVESTORS SERVICE, INC. Aaa--Best quality. These securities
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Aa--High quality by all
standards. They are rated lower than the best bond because margins of protection
may not be as large as in Aaa securities, fluctuation of protective elements may
be of greater amplitude, or there may be other elements present which made the
long-term risks appear somewhat greater.
STANDARD & POOR'S CORPORATION. AAA--Highest grade. They possess the
ultimate degree of protection as to principal and interest. Marketwise, they
move with interest rates, and hence provide the maximum safety on all counts.
AA--High grade. Generally, these bonds differ from AAA issues only in a small
degree. Here, too, prices move with the long-term money market.
FITCH INVESTORS SERVICE, INC. AAA-High grade, broadly marketable,
suitable for investment by trustees and fiduciary institutions, and liable to
but slight market fluctuation other than through changes in the money rate. The
prime feature of an "AAA" bond is the showing of earnings several times or many
times interest requirements for such stability of applicable interest that
safety is beyond reasonable question whenever changes occur in conditions. Other
features may be considered, such as a wide margin of protection through
collateral, security or direct lien on specific property. Sinking funds or
voluntary reduction of debt by call or purchase are often factors, while
guarantee or assumption by parties other than the original debtor may influence
their rating. AA--Of safety virtually beyond question and readily salable. Their
merits are not greatly unlike those of "AAA" class but a bond so rated may be
junior though it has a strong lien, or the margin of safety may be less
strikingly broad. The issue may be the obligation of a small company, strongly
secured, but influenced as to rating by the lesser financial power of the
enterprise and more local type of market.
23
<PAGE>
PART C
To the Registration Statement of Freedom Mutual
Fund including Freedom Cash Management Fund
(the "Cash Management Fund") and Freedom
Government Securities Fund (the "Government
Securities Fund")
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
(1) Financial Statements included in PART A
(Prospectuses) of this
Registration Statement:
Financial Highlights for the Cash Management
Fund and the Government Securities Fund for
the fiscal periods ended 1987 through 1996.*
Financial Statements for the Cash Management
Fund and the Government Securities Fund for
year ended December 31, 1996.*
Report of Independent Accountants*
Investments*
Statement of Assets and Liabilities*
Statement of Operations*
Statement of Changes in Net Assets*
(2) Financial Statements included in PART B of
this Registration Statement:
None
(b) Exhibits:
Exhibit No. Description
1 Agreement and Declaration of Trust dated
December 22, 1980 incorporated by reference
to Registration Statement No. 2-70863.
Amendment Nos. 1, 2, 3, and 4 to Agreement
and Declaration of Trust included in
Post-Effective Amendment No. 17. Amendment
No. 5 to Agreement and Declaration of Trust
incorporated by reference to Post-Effective
Amendment No. 17.
C-1
* To be filed by Amendment
<PAGE>
Exhibit No. Description
2 By-Laws incorporated by reference to
Registration Statement No. 2-70863. By-Laws
as amended and restated incorporated by
reference to Post-Effective Amendment No.
21.
3 Not Applicable.
4 Specimen share certificates for the Cash
Management Fund and Government Securities
Fund incorporated by reference to Post-
Effective Amendment No. 17.
5 Investment Advisory Contract dated November
29, 1996 between Registrant and Freedom
Capital Management Corporation.
6 Distribution Agreement dated November 29,
1996 between the Registrant and Tucker
Anthony Incorporated.*
7 None.
8 Custody Agreement dated March 19, 1981
between Registrant and State Street Bank and
Trust Company incorporated by reference to
Pre-Effective Amendments Nos. 1 and 2.
9 Transfer Agency and Service Agreement dated
January 9, 1989 between Registrant and State
Street Bank and Trust Company incorporated
by reference to Post-Effective Amendment No.
14. Transfer Agency and Service Agreement
between Freedom Mutual Fund and John Hancock
Fund Services, Inc., dated as of June 19,
1993, incorporated by reference to
Post-Effective Amendment No. 21. Transfer
Agency and Service Agreement dated as of May
8, 1995 among Freedom Mutual Fund with
respect to the Cash Management Fund,
FundManager Trust and Investors Bank & Trust
Company included herein.
10 Legal opinion and consent of Goodwin,
Procter & Hoar with respect to the Cash
Management Fund incorporated by reference to
Pre-Effective Amendment No. 1. Legal opinion
and consent of
C-2
<PAGE>
Exhibit No. Description
Goodwin, Procter & Hoar with respect to the
Government Securities Fund incorporated by
reference to Post-Effective Amendment No. 2.
11 Consent of Price Waterhouse LLP included
herein.
12 None.
13 Investment letters incorporated by reference
to Registration Statement, Pre-Effective
Amendment No. 1 and Post-Effective Amendment
No. 2 thereto.
14 Prototype IRA (including SEP IRA) and Keogh
Plan offered by Tucker, Anthony & R.L. Day,
Inc. incorporated by reference to
Post-Effective Amendment No. 2.
15 None.
16 Not applicable.
17 Financial Data Schedules for the Cash
Management Fund and the Government
Securities Fund.*
18 None.
19 Powers of Attorney dated February 1, 1995
and February 6, 1995, filed as Exhibit 17 to
Post-Effective Amendment No. 23 and
incorporated by reference to such post-
effective amendment.
- ----------
* To be filed by Amendment
Item 25. Persons Controlled by or Under Common Control with Registrant.
Registrant is not directly or indirectly controlled by or under common
control with any person other than the Trustees. Registrant does not have any
subsidiaries.
Item 26. Number of Holders of Securities.
As of January 31, 1997, the record holders of each class of
Registrant's securities were as follows:
C-3
<PAGE>
Title of Class Number of Record Holders
Freedom Cash _______
Management Fund
Freedom Government _______
Securities Fund
Item 27. Indemnification.
Under Article VII of the Registrant's Agreement and Declaration of
Trust, any present or former Trustee, Officer, agent or employee or person
serving in such capacity with another entity at the request of the Registrant
("Covered Person") shall be indemnified against all liabilities, including, but
not limited to, amounts paid in satisfaction of judgments, in compromises or as
fines or penalties, and expenses, including reasonable legal and accounting
fees, in connection with the defense or disposition of any proceeding by or in
the name of the Registrant or any shareholder in his capacity as such if: (i) a
favorable final decision on the merits is made by a court or administrative
body; or (ii) a reasonable determination is made by a vote of the majority of a
quorum of disinterested Trustees or by independent legal counsel that the
Covered Person was not liable by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in his office
("Disabling Conduct"); or (iii) a determination is made to indemnify the Covered
Person under procedures approved by the Board of Trustees which in the opinion
of independent legal counsel are not inconsistent with the Investment Company
Act of 1940. Said Article VII further provides that the Registrant shall
indemnify any Covered Person against any such liabilities and expenses incurred
in connection with the defense or disposition of any other type of proceeding
except with respect to any matter as to which the Covered Person shall have
engaged in Disabling Conduct or shall have been finally adjudicated not to have
acted in good faith and in the reasonable belief that such Covered Person's
action was in or not opposed to the best interests of the Registrant.
Item 28. Business and Other Connections of Investment Adviser.
Freedom Capital Management Corporation (the "Adviser") is a registered
investment adviser. The Adviser's offices are located at One Beacon Street,
Boston, Massachusetts. The Adviser is a wholly-owned subsidiary of John Hancock
Freedom Securities, Inc. Freedom Distributors Corporation, a registered
broker-dealer, is a wholly- owned subsidiary of the Adviser and acts as a
distributor of shares of the Registrant. The principal office of Freedom
Distributors Corporation is at One Beacon Street, Boston, Massachusetts 02108.
The principal office of John Hancock Freedom Securities, Inc. is at John Hancock
Place, Boston, Massachusetts. The Adviser offers a wide range of investment
advisory services to both individuals and institutions.
C-4
<PAGE>
On June 25, 1982, the Adviser and Tucker Anthony Incorporated, a
brokerage firm which is a member of the New York Stock Exchange and continues an
investment banking and brokerage business established in 1892 were acquired by
John Hancock Mutual Life Insurance Company ("John Hancock") as indirect
subsidiaries.
On November 29, 1996, John Hancock, through its subsidiary, John
Hancock Subsidiaries Inc., transferred 95.1% of the capital stock of John
Hancock Freedom Securities Corporation to JHFSC Acquisition Corp. JHFSC
Acquisition Corp. is a newly formed Delaware corporation owned by certain
employees and members of management of John Hancock Freedom Securities, Thomas
H. Lee Equity Fund III, L.P. and SCP Private Equity Partners, L.P.
The Adviser also acts as investment adviser for one other registered
investment company, Freedom Group of Tax Exempt Funds.
The following information is provided with respect to each director and
executive officer of the Adviser:
<TABLE>
<CAPTION>
Business and Other
Position Positions Within
Name With Adviser Last Two Years
<S> <C> <C>
Dexter A. Dodge Chairman, Managing Director
Managing of the Adviser.
Director Director of Freedom
Distributors Corporation.
John J. Danello President, President and Director
Managing Director, of Freedom Distributors
Clerk and Corporation.
General Counsel
Richard V. Howe Managing Managing Director of
Director the Adviser.
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Business and Other
Position Positions Within
Name With Adviser Last Two Years
<S> <C> <C>
Michael M. Spencer Senior Vice Portfolio Manager at
President and Shawmut Investment
Director of Fixed- Advisers.
Income Investments
Arthur E. McCarthy Managing Managing Director of
Director Tucker Anthony
Incorporated.
Lawrence G. Kirshbaum Managing Chief Financial Officer of John
Director Hancock Freedom Securities, Inc.
Director of Tucker Anthony Holding
Corp., John Hancock Clearing
Corporation and Sutro Group.
Registered Principal of Tucker
Anthony Incorporated. Former Chief
Executive Officer of Kirshbaum &
Co. and of Prescott, Ball & Turben.
John H. Goldsmith Managing President and Chief
Director Executive Officer of
John Hancock Freedom Securities,
Inc. Chairman and Chief Executive
Officer of Tucker Anthony
Incorporated.
</TABLE>
Item 29. Principal Underwriters.
(a) Freedom Distributors Corporation ("Freedom") and Tucker Anthony
Incorporated ("Tucker Anthony") act as co-distributors for the Cash Management
Fund and the Government Securities Fund series of the Trust. Freedom also acts
as co-distributor with Tucker Anthony for Freedom Group of Tax Exempt Funds, a
registered investment company. Freedom acts as a distributor for three other
registered investment companies: Freedom Investment Trust, Freedom Investment
Trust II and Freedom Investment Trust III.
(b)(1) The name of each director and officer of Freedom, together with
the offices held by such person with Freedom and the Registrant, are set forth
below. The principal business address of each person named below is One Beacon
Street, Boston, MA 02108.
C-6
<PAGE>
<TABLE>
<CAPTION>
Name Offices With Freedom and the Registrant
<S> <C>
John J. Danello............................................. President and Director of Freedom and
Secretary of the Registrant
Michael G. Ferry............................................ Treasurer of Freedom
Dexter A. Dodge............................................. Director of Freedom and Chief Executive
Officer of the Registrant.
Maureen M. Renzi............................................ Vice President and Clerk of Freedom
and Assistant Secretary of the Registrant.
</TABLE>
(b)(2) The persons whose names and addresses are set forth below hold
the offices with Tucker Anthony indicated below. None of these persons holds any
position or office with Freedom.
<TABLE>
<CAPTION>
Name and Principal
Business Address Offices With Tucker Anthony
<S> <C>
John H. Goldsmith (1)................................................ Chairman, Chief Executive Officer
and Director
Robert H. Yevich (2)................................................. President and Director
Thomas A. Pasquale (2)............................................... Executive Vice President
and Director
Marc Menchel (2)..................................................... Executive Vice President,
Secretary and Clerk
Thomas E. Gilligan (2)............................................... Treasurer and Chief
Financial Officer
</TABLE>
- --------
(1) Business address is One Beacon Street, Boston, Massachusetts 02108.
(2) Business address is One World Financial Center, 200 Liberty Street, New
York, New York 10281.
(c) Not applicable.
C-7
<PAGE>
Item 30. Location of Accounts and Records.
The accounts and records of the Registrant are maintained at the
offices of Registrant at One Beacon Street, Boston, Massachusetts and at the
offices of the Custodian, State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02106 and 1776 Heritage Drive, North Quincy,
Massachusetts 01171.
Item 31. Management Services.
There are no management-related service contracts other than the
Advisory Agreement relating to management services described in Parts A and B.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each person, upon request
and without charge, to whom a Prospectus with respect to a series of the
Registrant is delivered with a copy of the latest annual report to shareholders
with respect to that series.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant hereby certifies that it meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(a) under the Securities Act of 1933 and has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in this City of Boston and Commonwealth
of Massachusetts on the 30th day of December, 1996.
FREEDOM MUTUAL FUND
By: /s/ Dexter A. Dodge
Dexter A. Dodge, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Principal Executive Officer
/s/ Dexter A. Dodge Chairman and Trustee December 30, 1996
- ---------------------------
Dexter A. Dodge
Principal Financial and
Accounting Officer
/s/ Lawrence G. Kirshbaum Trustee December 30, 1996
- ------------------------------
Lawrence G. Kirshbaum
* Trustee December 30, 1996
- --------------------------
Richard A. Farrell
* Trustee December 30, 1996
- ---------------------------
Ernest T. Kendall
* Trustee December 30, 1996
- ------------------------------
Richard B. Osterberg
*By:/s/ Lawrence G. Kirshbaum
--------------------------
Lawrence G. Kirshbaum,
Attorney-in-Fact under
Powers of Attorney
dated February 1, 1995 and
February 6, 1995, and
included as Exhibit 17 to
Post-Effective Amendment No. 23
and incorporated by reference to
such post-effective amendment.
</TABLE>
<PAGE>
ADVISORY AGREEMENT
AGREEMENT made as of the 29th day of November, 1996 between FREEDOM
CAPITAL MANAGEMENT CORPORATION, a corporation organized under the laws of the
Commonwealth of Massachusetts and having its principal place of business in
Boston, Massachusetts (the "Manager"), and FREEDOM MUTUAL FUND, a Massachusetts
business trust having its principal place of business in Boston, Massachusetts
(the "Trust").
WHEREAS, the Trust engages in business as an open-end management
investment company and is so registered under the Investment Company Act of 1940
(the "1940 Act"); and
WHEREAS, the Manager is engaged principally in the business of
rendering investment management services and is so registered under the
Investment Advisers Act of 1940; and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
in separate series, with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust presently offers shares in two series, the Freedom
Cash Management Fund and the Freedom Government Securities Fund (such series
(the "Initial Funds"), together with all other series subsequently established
by the Trust with respect to which the Trust desires to retain the Manager to
render investment advisory services hereunder and the manager is willing so to
do, being herein collectively referred to as the "Funds");
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the
parties hereto as follows:
1. APPOINTMENT OF MANAGER.
(a) Initial Funds. The Trust hereby appoints the Manager to act as
manager and investment adviser to the Initial Funds for the period and on the
terms herein set forth. The Manager accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
(b) Additional Funds. In the event that the Trust establishes one or
more series of shares other than the Initial Funds with respect to which it
desires to retain the Manger to render management and investment advisory
services hereunder, it shall so notify the Manager in writing. If the Manager is
willing to render such services on the terms provided for herein, it shall
notify the Trust in writing, whereupon such series of shares shall become a Fund
hereunder.
2. DUTIES OF MANAGER.
The Manager, at its own expense, shall furnish the following services
and facilities to the Trust:
<PAGE>
(a) Investment Program. The Manager will (i) furnish continuously an
investment program for each Fund, (ii) determine (subject to the overall
supervision and review of the Board of Trustees of the Trust) what investments
shall be purchased, held, sold or exchanged by each Fund and what portion, if
any, of the assets of each Fund shall be held uninvested, and (iii) make changes
on behalf of the Trust in the investments of each Fund. The Manager will also
manage, supervise and conduct the other affairs and business of the Trust and
each Fund thereof and all matters incidental thereto, subject always to the
control of the Board of Trustees of the Trust and to the provisions of the
Trust's Agreement and Declaration of Trust and By-laws and the 1940 Act.
(b) Regulatory Reports. The Manager shall furnish to the Trust
necessary assistance in (i) the preparation of all reports now or hereafter
required by Federal or other laws, and (ii) the preparation of prospectuses,
registration statements, and amendments thereto that may be required by Federal
or other laws or by the rules or regulations of any duly authorized commission
or administrative body.
(c) Office Space and Facilities. The Manager shall furnish to the
Trust office space in the offices of the Manager or in such other place or
places as may be agreed upon from time to time, and all necessary office
facilities, simple business equipment, supplies, utilities, and telephone
service.
(d) Services of Personnel. The Manager shall furnish to the Trust all
necessary executive and administrative personnel for managing the affairs and
investments of the Trust, including personnel to perform clerical, bookkeeping,
accounting and other office functions. These services are exclusive of the
necessary records or services of any dividend disbursing agent, transfer agent,
registrar or custodian. The Manager shall compensate all personnel, officers,
and directors of the Trust if such persons are also employees of the Manager or
its affiliates.
(e) Fidelity Bond. The Manager shall arrange for providing and
maintaining a bond issued by a reputable insurance company authorized to do
business in the place where the bond is issued, against larceny and embezzlement
covering each officer and employee of the Trust who may singly or jointly with
others have access to funds or securities of the Trust, with direct or indirect
authority to draw upon such funds or to direct generally the disposition of such
funds. The bond shall be in such reasonable amount as a majority of the Trustees
who are not "interested persons" of the Trust as defined in the 1940 Act, shall
determine, with due consideration to the aggregate assets of the Trust to which
any such officer or employee may have access. The premium for the bond shall be
payable by the Trust in accordance with paragraph 3(17).
3. ALLOCATION OF EXPENSES.
Except for the services and facilities to be provided by the Manager
set forth in Paragraph 2 above, the Trust assumes and shall pay all expenses for
all other Trust operations and activities and shall reimburse the Manager for
any such expenses incurred by the Manager. The expenses to be borne by the Trust
shall include, without limitation:
2
<PAGE>
(1) all expenses of organizing the Trust or a Fund thereof;
(2) all expenses (including information, materials and services other
than services of the Manager) of preparing, printing and mailing all annual,
semiannual and periodic reports, proxy materials and other communications
(including registration statements, prospectuses and amendments and revisions
thereto) furnished to existing shareholders of the Trust and/or regulatory
authorities;
(3) fees involved in registering and maintaining registration of the
Trust and its shares with the Securities and Exchange Commission and state
regulatory authorities;
(4) any other registration, filing or other fees in connection with
requirements of regulatory authorities;
(5) expenses, including printing of certificates, relating to issuance
of shares of the Trust;
(6)
the expenses of maintaining a shareholder account and furnishing,
or causing to be furnished, to each shareholder a statement of his account
(which in the case of a shareholder whose statement of account is included on a
brokerage account statement of an affiliated distributor, may be a reasonable
portion of such expense), including the expense of mailing;
(7) taxes and fees payable by the Trust to Federal, state or other
governmental agencies;
(8) expenses related to the redemption of its shares, including
expenses attributable to any program of periodic redemption;
(9) all issue and transfer taxes, brokers' commissions and other costs
chargeable to the Trust in connection with securities transactions to which the
Trust is a party, including any portion of such commissions attributable to
research and brokerage services as defined by Section 28(e) of the Securities
Exchange Act of 1934, as amended form time to time;
(10) the charges and expenses of the custodian appointed by the Trust,
or any depository utilized by such custodian, for the safekeeping of its
property;
(11) charges and expenses of any shareholder servicing agents, transfer
agents and registrars appointed by he Trust, including costs of serving
shareholder investment accounts;
(12) charges and expenses of independent accounts retained by the
Trust;
3
<PAGE>
(13) legal fees and expenses in connection with the affairs of the
Trust, including legal fees and expenses in connection with registering and
qualifying its shares with Federal and state regulatory authorities;
(14) compensation and expenses of Trustees of the Trust who are not
"interested persons" of the Trust (as defined in the 1940 Act);
(15) expenses of shareholders' and Trustees' meetings;
(16) membership dues in the Investment Company Institute or similar
organizations;
(17) insurance premiums on fidelity, errors and omissions and other
coverages; and
(18) such other non-recurring expenses of the Trust as may arise,
including expenses of actions, suits, or proceedings to which the Trust is a
party and the legal obligation which the Trust may have to indemnify its
Trustees with respect thereto.
4. ADVISORY FEE.
For the services and facilities to be provided by the Manager as
provided in Paragraph 2 hereof, the Trust shall pay to the Manager a monthly fee
with respect to each Fund as soon as practical after the last day of each
calendar month, which fee shall be paid at a rate equal to (i) one-half of one
percent (.50%) on an annual basis of the Monthly Average Net Assets of each such
Fund for such calendar month up to $500 million, and (ii) forty-five hundredths
of one percent (.45%) on an annual basis of the Monthly Average Net Assets of
each Fund for such calendar month in excess of $500 million.
The "Monthly Average Net Assets" of any Fund of the Trust for any
calendar month shall be equal to the quotient produced by dividing (i) the sum
of the net assets of such Fund, determining in accordance with procedures
established from time to time by or under the direction of the Board of Trustees
of the Trust in accordance with the Agreement and Declaration of Trust of the
Trust, as of the time of day on which net asset value per share is determined on
each day during such month on which such net asset value is determined, by (ii)
the number of such days.
In the case of termination of this Agreement with respect to any Fund
during any calendar month, the fee with respect to such Fund for that month
shall be reduced proportionately based upon the number of calendar days during
which it is in effect and the fee shall be computed upon the average net assets
of such Fund for the days during which it is so in effect.
4
<PAGE>
5. EXPENSE LIMITATION.
The Manager agrees that if the total expenses of any Fund (exclusive of
interest, taxes, brokerage expenses and extraordinary items) for any fiscal year
of the Trust exceed the lowest expense limitation imposed in any jurisdiction in
which that Fund is making sales of its shares or has qualified its shares for
sale, the Manager will pay or reimburse such Fund for that excess up to the
amount of its advisory fee payable with respect to that Fund during that fiscal
year. The amount of the monthly advisory fee payable under Paragraph 4 hereof
shall be reduced to the extent that the annualized expenses of any Fund for that
month exceed the foregoing limitation. At the end of each fiscal year of the
Trust, if the aggregate annual expenses chargeable to any Fund for that year
exceed the foregoing limitation based upon the average of the Monthly Average
Net Assets of that Fund for the year, the Manager will promptly reimburse that
Fund for the amount of such excess, but if such expenses are within the
foregoing limitation, any excess amount previously withheld from the advisory
fee during that fiscal year will be promptly paid over to the Manager.
In the event that this Agreement is terminated with respect to any one
or more Funds as of a date other than the last day of the fiscal year of the
Trust, the Manager shall pay to, or receive from, the Trust a pro rata portion
of the amount that the Manager would have been required to pay or would have
received, if any, had this Agreement remained in effect for the full fiscal
year.
6. TRUST PORTFOLIO.
(a) In connection with the management of the investment and
reinvestment of the assets of the Trust, the Manager acting by its own officers,
directors, or employees or by a duly authorized subcontractor is authorized to
select the brokers or dealers that will execute purchase and sale transactions
for the Trust. In executing portfolio transactions and selecting brokers of
dealers, if any, the manager will use its best efforts to seek on behalf of a
Fund the best overall terms available. In assessing the best overall terms
available for any transaction, the Manager shall consider all factors it deems
relevant, including the breadth of the market in and the price of the security,
the financial condition and execution capability of the broker or dealer, and
the reasonableness of the commission, if any (for the specific transaction and
on a continuing basis). In evaluating the best overall terms available, and in
selecting the broker or dealer, if any, to execute a particular transaction, the
Manager may also consider the brokerage and research services (as those terms
are defined in Section 28(e) of the Securities Exchange Act of 1934) provided to
the Fund and/or other accounts over which the Manager or an affiliate of the
Manager exercises investment discretion. With the prior approval of the
Trustees, the Manager may pay to a broker or dealer who provides such brokerage
and research services a commission for executing a Fund portfolio transaction
which is in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if, but only if, the Manger
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided.
5
<PAGE>
(b) The Manager agrees that neither it nor any of its officers or
directors will take any long or short term position in the shares of the Trust;
provided, however, that such prohibitions: (i) shall not prevent any affiliate
of the Manager which acts as a distributor of Trust shares pursuant to a written
contract from purchasing shares of the Trust in such capacity; and (ii) shall
not prevent the purchase of shares of the Trust by any of the persons above
described for their own account and for investment at the price at which such
shares are available to the public at the time of purchase or as part of the
initial capitalization of the Trust.
7. RELATIONS WITH TRUST.
Subject to and in accordance with the Agreement and Declaration of
Trust and By-laws of the Trust and the Articles of Incorporation and By-laws of
the Manager, it is understood that trustees, officers, agents and shareholders
of the Trust are or may be interested in the Manager (or any successor thereof)
as directors, officers, or otherwise, that directors, officers, agents and
shareholders of the Manager are or may be interested in the Trust as trustees,
officers, shareholders or otherwise, that the Manager (or any such successor) is
or maybe interested in the Trust as a shareholder or otherwise and that the
effect of any such adverse interests shall be governed by said Agreement and
Declaration of Trust, Articles of Incorporation and By-laws.
8. LIABILITY OF MANAGER.
The Manager shall not be liable to the Trust for any error of judgment
or mistake of law or for any loss suffered by the Trust in connection with the
matters to which this Advisory Agreement relates; provided that no provision of
this Agreement shall be deemed to protect the Manager against any liability to
the Trust or its shareholders to which it might otherwise be subject by reason
of any willful misfeasance, bad faith or gross negligence in the performance of
its duties or the reckless disregard of its obligations and duties under this
Agreement. Nor shall any provision hereof be deemed to protect any Trustee or
Officer of the Trust against any such liability to which he might otherwise be
subject by reason of any willful misfeasance, bad faith or gross negligence in
the performance of his duties or the reckless disregard of his obligations and
duties. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
9. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective with respect to
the Initial Funds on the date hereof and, with respect to any additional Fund,
on the date of receipt by the Trust of notice from the Manager in accordance
with Paragraph 1(b) hereof that the Manager is willing to serve as Manager with
respect to such Fund. Unless terminated as herein provided, this Agreement shall
remain in full force and effect (a) with respect to the Initial Funds, until the
second anniversary of its effectiveness, and (b) with respect to each Additional
Fund, until the December 31 following the date on which such Fund becomes a Fund
hereunder. Unless terminated as herein provided, this Agreement shall continue
in full force and effect for periods of one year thereafter with respect to each
Fund so long as such continuance with respect to any
6
<PAGE>
such Fund is approved at least annually (a) by either the Trustees of the Trust
or by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of such Fund, and (b) in either event by the vote of a majority of the
Trustees of the Trust who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such approval; provided, however,
that the continuance of this Agreement with respect to any Additional Fund is
subject to the approval of this Agreement by a majority of the outstanding
voting securities of that Fund at the first annual or special meeting of
shareholders after this Agreement becomes effective with respect to that Fund.
(b) Amendment. Any amendment to this Agreement shall become
effective with respect to any Fund upon approval of a majority of the
outstanding voting securities (as defined in the 1940 Act) of that Fund.
(c) Termination. This Agreement may be terminated with respect to
any Fund at any time, without payment of any penalty, by vote of the Trustees or
by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of that Fund, or by the Manager, on sixty (60) days' written notice to
the other party.
(d) Automatic Termination. This Agreement shall automatically and
immediately terminate in the event of its assignment.
(e) Approval, Amendment or Termination by Individual Fund. Any
approval, amendment or termination of this Agreement by the holders of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
any Fund shall be effective to continue, amend or terminate this Agreement with
respect to any such Fund notwithstanding (A) that such action has not been
approved by the holders of a majority of the outstanding voting securities of
any other Fund affected thereby, and (B) that such action has not been approved
by the vote of a majority of the outstanding voting securities of the Trust,
unless such action shall be required by any applicable law or otherwise.
10. NAME OF TRUST.
It is understood that the name "Freedom", and any logo associated with
that name, is the valuable property of Freedom Capital Management Corporation,
and that the Trust has the right to include "Freedom" as a part of its name only
so long as an affiliate of Freedom Capital Management Corporation or its
successor or assign is the investment adviser to the Trust. Upon termination of
this Agreement, the Trust shall forthwith cease to use the Freedom name and
logos.
11. SERVICES NOT EXCLUSIVE.
The services of the Manager to the Trust hereunder are not to be deemed
exclusive, and the Manager shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.
7
<PAGE>
12. LIMITATION OF LIABILITY.
The term "Freedom Mutual Fund" means and refers to the Trustees from
time to time serving under the Agreement and Declaration of Trust of the Fund
dated December 22, 1980 as the same may subsequently thereto have been, or
subsequently hereto be, amended. It is expressly agreed that the obligations of
the Trust hereunder shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents or employees of the Trust personally, but shall bind
only the trust property of the Trust, as provided in the Agreement and
Declaration of Trust of the Trust. The execution and delivery of this Agreement
have been authorized by the Trustees and the initial shareholder of the Trust
and signed by the President of the Trust, acting as such, and neither such
authorization by such Trustees and shareholder nor such execution and delivery
by such officer shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in its Agreement and Declaration of Trust.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
FREEDOM MUTUAL FUND FREEDOM CAPITAL MANAGEMENT
CORPORATION
By: /s/ John Danello By: /s/ John Danello
----------------- -----------------
President President
ATTEST: ATTEST:
/s/ Maureen M. Renzi /s/ Maureen M. Renzi
--------------------- ---------------------
Assistant Secretary Assistant Clerk
9
