Flag Logo
(Logo of Freedom Group of Money Funds)
AN INTERVIEW WITH YOUR PORTFOLIO MANAGER.
(Q.) HAS THERE BEEN MUCH OF A CHANGE IN YIELD LEVELS DURING THE LAST YEAR?
(A.) After rising dramatically during the last half
of 1994, municipal bond yields declined just as
dramatically over the first half of this year. The
Municipal Bond Buyer 20-Bond Index (the average
yield of twenty Aa rated municipal bonds with an
approximate twenty year maturity) dropped to a yield
of 5.97% on June 29, 1995 from a level of 6.62% on
December 29, 1994. Interest rates for the short term
sector (maturities of one year or less) acted in
almost the opposite manner. The 7-day yield average
of all California money funds rose from a low of
2.66% in January to 3.48% at the end of June.
(Q.) HOW HAS THE FREEDOM CALIFORNIA MONEY FUND REACTED TO THESE SHIFTS?
(A.) The Freedom California Tax Exempt Money Fund
performed quite well over the last 12 months.
Although participating in a market that has
withstood substantial interest rate increases
initiated by the Federal Reserve Board as well as
the unprecedented bankruptcy proceedings of one of
the nation's wealthiest counties, the Fund continues
to offer returns superior to the average of
California money funds. Fund assets have also
maintained a steady growth pattern increasing to
over $93 million at the end of June, up from $79.5
million one year ago.
(Halftone photograph of Paul Marandett, Portfolio Manager)
On June 29, 1995 the Fund's 7-day average yield
stood at 3.67%, a substantial increase from a year
ago when the average yield was 2.23%. For
shareholders in the 36% and 39.5% federal income tax
brackets and assuming an 11% California income tax,
the Fund's average yield now represents a taxable
yield of 6.37% and 6.83% respectively. Although
yields have and will continue to fluctuate, we
endeavor to provide competitive after tax returns to
our shareholders.
(Q.) WHAT EFFECT HAS THE ORANGE COUNTY BANKRUPTCY HAD ON THE FUND?
(A.) The Fund still has no direct exposure to any of
the municipalities involved in the Orange County
investment pool. We do have investments of issuers
located in Orange County, but all these securities
either carry credit enhancements or are of superior
credit quality in their own right. The Fund
continues to hold only top tier credit quality
securities.
The Orange County situation has caused us to be even
more diligent in our investment process. We try to
assess political risks as well as credit and market
risks before making any purchase for the Fund. Our
concern, therefore, continues to be for the
preservation and safety of principal as well as to
provide a competitive rate of return.
(Q.) CAN YOU COMMENT ON TAX REFORM AND YOUR OUTLOOK FOR THE FUTURE?
(A.) At the present time there are four proposals
for tax reform in Congress being aired in the media.
All are aimed at rather drastic changes to the
present tax structure and if enacted in their
present form could dramatically affect the municipal
market. The reaction in the market, therefore, has
been negative particularly on longer term
maturities. It is highly unlikely that any kind of
tax reform will be enacted before 1997 so there has
been very little reaction in the money market
sector.
Our outlook for the near term is for short term
interest rates to trend slowly downward, reflecting
slow economic growth along with low or moderate
inflation growth. We will continue with our
conservative investment approach to provide our
shareholders with very high quality investments.
Paul Marandett
Portfolio Manager
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
INVESTMENTS AS OF JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
<S> <C> <C>
SHORT TERM MUNICIPAL SECURITIES -- 99.7%
$1,290,000 Alameda County Mortgage VRD Notes (Quail
Run Apts.) (FNMA-Insured) 3.95% 7-05-95 $ 1,290,000
California Dept. of Water Resources (Ca-
nadian Imperial Bank of Commerce LOC)
2,000,000 3.75% 12-01-95 2,000,000
700,000 4.00% 12-01-95 700,000
2,000,000 California School Cash Reserve Program 95
Series A (MBIA Insured)
4.75% 7-03-96 2,019,160
2,000,000 California Statewide Communities Develop-
ment Authority (FNMA Insured) 4.05%
7-05-95 2,000,000
1,000,000 California HFA Revenue Bonds (Kaiser Per-
manente) 3.90% 7-05-95 1,000,000
500,000 California HFA Revenue Bonds (Pooled Loan
Program) Series 90A (Swiss Bank LOC)
4.10% 7-05-95 500,000
1,000,000 California PCFA Revenue Bonds (San Diego
Gas & Electric) 4.25% 9-01-95 1,000,000
1,600,000 California PCFA Revenue Bonds (Southern
California Edison Company) 4.00% 7-06-
95 1,600,000
1,500,000 Carlsbad (La Costa Apt. Project) (Bank of
America LOC) 4.20% 7-05-95 1,500,000
1,300,000 Chula Vista Housing Revenue (Terra Nova
Project) (Industrial Bank of Japan LOC)
4.05% 7-05-95 1,300,000
2,100,000 City of Redlands MFHA (Parkview Terrace
Project) (Bank of America LOC) Series
91A 3.95% 7-06-95 2,100,000
2,000,000 City of Santa Clara Electric Revenue (Na-
tional Westminster LOC) 4.05% 7-05-95 2,000,000
1,750,000 Contra Costa County TRANS 4.50% 7-03-96 1,764,263
4,900,000 Contra Costa Transportation Authority Se-
ries 93A (FGIC Insured) 3.90% 7-05-95 4,900,000
5,000,000 County of Los Angeles, VRD Notes Multi-
family Revenue Bonds (Valencia Village
Project) (Industrial Bank of Japan LOC)
4.05% 7-05-95 5,000,000
County of Sacramento MFHA Revenue Bonds
(Dai-Ichi Kangyo LOC)
1,300,000 1985A 4.10% 7-06-95 1,300,000
900,000 1985C 4.10% 7-06-95 900,000
1,400,000 County of Sacramento, VRD Notes Housing
Revenue (River Oaks Project) Series 85E
4.10% 7-06-95 1,400,000
1,000,000 East Bay Municipal Utility District (Na-
tional Westminster LOC) 3.90% 7-13-95 1,000,000
4,000,000 Foothill/Eastern Transportation Agency
Series 95B (Morgan Guaranty LOC) 3.90%
7-06-95 4,000,000
1,000,000 Fremont Public Finance Authority (Sumit-
omo LOC) 4.15% 7-06-95 1,000,000
2,450,000 Independent Cities VRD Notes (National
Westminster LOC) 4.05% 7-05-95 2,450,000
9,800,000 Irvine Ranch Water District Revenue Bonds
(Bank of America LOC) 4.35% 7-03-95 9,800,000
1,700,000 Kern County U.H.S.D. (Swiss Bank LOC)
3.85% 7-05-95 1,700,000
2,800,000 Los Angeles County IDA, VRD Revenue Bonds
(Hon Industries Project) (Morgan Guar-
anty LOC) 3.90% 7-05-95 2,800,000
1,000,000 Los Angeles County Metropolitan Property
C Sales Tax Revenue (MBIA Insured)
3.90% 7-06-95 1,000,000
4,000,000 Los Angeles County Metropolitan Transit
Authority (Swiss Bank LOC) 5.00% 4-25-
96 4,024,115
3,600,000 Los Angeles Regional Airport (Wachovia
LOC) 4.35% 7-03-95 3,600,000
2,500,000 Los Angeles USD TRANS Series 94-95 4.50%
7-10-95 2,500,535
3,300,000 Mountainview Housing Authority VRD Notes
(Villa Mariposa Project) (FGIC-SPI)
3.90% 7-06-95 3,300,000
1,000,000 M-S-R Public Power Agency 9.25% 7-01-95 1,020,000
500,000 Palm Springs Community Redevelopment
Agency (Citibank LOC) 4.55% 7-05-95 500,000
2,000,000 Riverside County TRANS 4.10% 7-17-95 2,000,000
Sacramento Municipal Utilities District
VRD Notes (Morgan Guaranty and Bank of
America LOC)
2,200,000 3.20% 7-11-95 2,200,000
900,000 3.55% 8-08-95 900,000
1,400,000 San Bernadino County MFHA (Castle Park
Apartment Project) 85A (Bank of Tokyo
LOC) 4.35% 7-05-95 1,400,000
600,000 San Diego Housing Authority VRD Notes
(Paseo Point Apts.) (Bank of Tokyo LOC)
Series 94A 4.30% 7-06-95 600,000
2,500,000 San Diego Housing Authority VRD Notes
(University Ctr. Apts.) (Bank of Amer-
ica LOC) 4.20% 7-06-95 2,500,000
500,000 San Diego IDR (San Diego Gas & Electric)
3.05% 9-01-95 500,000
4,000,000 Santa Clara County Housing Authority MFHA
(Foxchase Apts.) (FGIC-SPI Insured)
3.90% 7-06-95 4,000,000
1,000,000 San Francisco USD TRANS 4.75% 8-24-95 1,000,809
300,000 San Jose Housing Revenue (Foxchase Apts.)
(FGIC-SPI Insured) 3.90% 7-06-95 300,000
500,000 San Jose MFHA (Fairway Glen Apts.) Series
85A (FGIC-SPI Insured) 3.90% 7-06-95 500,000
1,000,000 San Mateo County Series 85B (Swiss Bank
LOC) 3.95% 7-05-95 1,000,000
1,000,000 Stockton Unified School District TANS
5.25% 12-08-95 1,002,350
850,000 Tuolunme Board of Education TRANS 4.50%
6-28-96 854,004
2,485,000 Vallejo County Housing Authority VRD
Notes (FNMA Insured) 3.95% 7-05-95 2,485,000
TOTAL INVESTMENTS -- 99.7% $94,210,236(a)
Other Assets & Liabilities, Net -- 0.3% 302,055
TOTAL NET ASSETS -- 100.0% $94,512,291
</TABLE>
Legend:
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDR -- Industrial Development Revenue
LOC -- Letter of Credit
MFHA -- Multifamily Housing Authority
PCFA -- Pollution Control Finance Authority
TANS -- Tax Anticipation Notes
TRANS -- Tax and Revenue Anticipation Notes
USD -- Unified School District
VRD -- Variable Rate Demand
Insurance Abbreviations:
FGIC -- Federal Guaranty Insurance Corporation
FGIC-SPI -- Federal Guaranty Insurance Corporation-
Securities Purchased Inc.
MBIA -- Municipal Bond Investors Assurance
Maturity dates for many bonds and notes represent the next scheduled date
at which the interest rate may be adjusted or a "demand" or "put" feature
may be exercised.
(a) Cost for tax purposes is the same.
See Notes to Financial Statements.
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at amortized cost $94,210,236
Cash 3,781,492
Receivable for Fund shares sold 749,323
Interest receivable 572,647
Prepaid expenses 3,091
Other assets 4,069
99,320,858
LIABILITIES
Payable for Investments purchased 4,637,426
Payable for Fund shares redeemed 8,375
Dividends payable 136,035
Accrued expenses:
Investment adviser's fee 21,618
Shareholder servicing fee 4,465
Trustees' fee 648
4,808,567
NET ASSETS $94,512,291
NET ASSETS CONSIST OF:
Capital paid in $94,510,083
Accumulated net realized gain 2,208
$94,512,291
SHARES ISSUED AND OUTSTANDING (UNLIMITED SHARES
AUTHORIZED) 94,510,083
NET ASSET VALUE PER SHARE $ 1.00
</TABLE>
See Notes to Financial Statements.
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<S> <C>
INTEREST INCOME $1,543,715
EXPENSES
Investment adviser's fee 202,564
Transfer agent and shareholder services 21,465
Custodian 1,155
Compensation of Trustees 5,320
Audit 5,430
Legal 5,685
Printing, postage and stationery 8,205
Membership dues 1,949
Registration expense 2,065
Amortization of organization expenses 4,387
Insurance expense 2,415
Other 906
Total expenses 261,546
Less: fees waived by adviser (81,026)
180,520
INVESTMENT INCOME -- NET 1,363,195
REALIZED LOSS ON INVESTMENTS -- NET --
NET INCREASE IN NET ASSETS RESULTING FROM OPER-
ATIONS $1,363,195
</TABLE>
See Notes to Financial Statements.
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995* DECEMBER 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 1,363,195 $ 1,868,045
Net realized gain/(loss) from secu-
rity transactions -- --
Net increase resulting from op-
erations 1,363,195 1,868,045
Dividends to shareholders (1,363,195) (1,868,045)
-- --
FROM CAPITAL TRANSACTIONS:
(At Net Asset Value of $1 per share)
Proceeds from sale of shares 149,777,325 237,239,534
Net asset value of shares issued to
shareholders in reinvestment of
dividends 1,222,719 1,822,138
Cost of shares redeemed (129,146,673) (256,881,636)
Increase/(decrease) in net as-
sets derived from capital
share transactions 21,853,371 (17,819,964)
Net increase/(decrease) in net as-
sets 21,853,371 (17,819,964)
NET ASSETS:
Beginning of period 72,658,920 90,478,884
End of period $ 94,512,291 $ 72,658,920
DIVIDENDS TO SHAREHOLDERS PER SHARE $ 0.0167 $ 0.0228
</TABLE>
* Unaudited
See Notes to Financial Statements.
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
(A SERIES OF FREEDOM GROUP OF TAX EXEMPT FUNDS)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ACCOUNTING POLICIES. The Freedom Group of Tax Exempt Funds (the
"Trust") is a Massachusetts business trust registered under the Investment
Company Act of 1940, as amended, as an open-end management company. The
Agreement and Declaration of Trust permits the issuance of an unlimited
number of shares of beneficial interest in separate series, with shares of
each series representing interests in a separate portfolio of assets and
operating as a separate distinct fund. The Trust consists of two series:
the Freedom California Tax Exempt Money Fund (the "Fund") and the Freedom
Tax Exempt Money Fund. The financial statements of the Freedom Tax Exempt
Money Fund are included in a separate semi-annual report for that Fund.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles.
Security Valuation and Transactions. The Fund values its portfolio secu-
rities utilizing the amortized cost valuation method. This method involves
valuing a portfolio security at its cost and thereafter assuming a con-
stant amortization to maturity of any discount or premium. Cost is deter-
mined and gains and losses are based upon the specific identification
method for both financial statement and federal income tax purposes. In-
vestment securities transactions are accounted for on the date the securi-
ties are purchased or sold.
The Fund may purchase or sell securities on a when-issued basis. Payment
and delivery may take place more than a week after the date of the trans-
action. The price that will be paid for the underlying securities is fixed
at the time the transaction is negotiated.
Expenses. The majority of the expenses of the Trust are directly identi-
fiable to an individual fund. Expenses which are not readily identifiable
as belonging to a specific fund are allocated in such manner as deemed eq-
uitable by the Trustees, taking into consideration, among other things,
the nature and type of expense and the relative size of the funds. Organi-
zation expenses have been capitalized by the Fund and amortized on a
straight-line basis over a 60 month period from the commencement of opera-
tions.
Trustees' fees of $6,000 per year, plus $250 per meeting of the Board of
Trustees and $350 per meeting of any committee thereof, are paid by the
Trust to each Trustee who is not an interested person of the Trust. No re-
muneration is paid by the Trust to any Trustee or officer of the Trust who
is affiliated with Freedom Capital Management Corporation, the Trust's ad-
viser.
The Trust has entered into an insurance agreement with ICI Mutual Insur-
ance Company, under which the Trust pays both an annual insurance premium
and a one-time reserve premium, and is committed to provide additional
funds of up to 300% of its initial annual premium if and when called upon.
Federal Income Tax. It is the Fund's policy to comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies
and to distribute all of its income to its shareholders. It is also the
intention of the Fund to make sufficient distributions to shareholders to
avoid imposition of excise tax on undistributed amounts under the Internal
Revenue Code. Therefore, no federal income or excise tax provision is re-
quired.
Interest Income and Dividends to Shareholders. Interest income is accrued
as earned. Dividends to shareholders are declared daily from net invest-
ment income, which consists of interest accrued or discount earned (in-
cluding original issue and market discount) less amortization of premium
and the estimated expenses of the Fund applicable to the dividend period.
Other. There are certain risks arising from geographic concentration in
any state. Certain revenue or tax related events in a state may impair the
ability of certain issuers of municipal securities to pay principal and
interest on their obligations. The Fund may focus its investments in cer-
tain industries. As a result, the Fund may be subject to a greater risk
than a fund that is more fully diversified in various industries.
NOTE 2. INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS.
Freedom Capital Management Corporation ("FCMC") is the investment advisor
of the Trust and also furnishes the Fund with administration and other
services and office facilities in Boston. For these services and facili-
ties, the Fund pays a monthly fee, based upon the average daily net asset
value of the Fund, at the annual rate of one half of one percent (.50%) on
the first $500 million of average daily net assets and forty-five hun-
dredths of one percent (.45%) for average daily net assets in excess of
that amount. The Fund itself pays no salaries or compensation to any of
its officers.
The Advisory Agreement provides that if, in any fiscal year, the total ex-
penses of the 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 registered to sell shares, the Adviser will
pay or reimburse the Fund for that excess up to the amount of its manage-
ment fee during that fiscal year. Although there is no certainty that
these limitations will be in effect in the future, the most restrictive
limitation on an annual basis currently applicable to the Fund is 2.5% of
the first $30 million of average daily net assets, 2.0% of the next $70
million and 1.5% of average daily net assets over $100 million. Addition-
ally, FCMC may voluntarily waive part or all of its management fee for a
period under the terms of the advisory agreement. Such waivers were pro-
vided to the Fund for the six months ended June 30, 1995 and may be dis-
continued at any time.
Sutro & Co. Inc. ("Sutro") and Freedom Distributors Corporation act as
distributors of the Fund's shares and receive no compensation for such
services. An affiliate of Sutro, John Hancock Clearing Corporation, re-
ceived reimbursements of $8,470 for maintaining and servicing certain
shareholder accounts for the six months ended June 30, 1995.
John Hancock Investor Services Corporation ("JHIS") (formerly John Hancock
Fund Services, Inc.), a wholly-owned subsidiary of the Berkeley Financial
Group, an affiliate of FCMC, is transfer agent for the Fund. JHIS received
$12,995 for the six months ended June 30, 1995.
NOTE 3. Purchases and sales (including maturities) of investments for the
six months ended June 30, 1995 were as follows:
<TABLE>
<S> <C>
Purchases of Investments $130,686,786
Sales of Investments $107,855,000
</TABLE>
OUR FINANCIAL HIGHLIGHTS
The table of FINANCIAL HIGHLIGHTS below represents a summary history of
our operations. The table expresses the information in terms of a single
share outstanding throughout each period:
<TABLE>
<CAPTION>
DIVIDENDS RATIO OF NET
NET ASSET FROM RATIO OF INVESTMENT
VALUE NET NET NET ASSET NET ASSETS EXPENSES INCOME
BEGINNING INVEST- INVEST- VALUE END TO AVERAGE TO AVERAGE
OF MENT MENT END OF TOTAL OF PERIOD DAILY DAILY
PERIOD ENDED PERIOD INCOME INCOME PERIOD RETURN** (THOUSANDS) NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1995++ $1.00 $0.0167 $(0.0167) $1.00 1.68% $94,512 0.45%(a)+ 3.36%(a)+
December 31, 1994 1.00 0.0228 (0.0228) 1.00 2.32% 72,659 0.46% 2.28%(a)
December 31, 1993 1.00 0.0195 (0.0195) 1.00 1.96% 90,479 0.33% 1.95%(a)
December 31, 1992 1.00 0.0241 (0.0241) 1.00 2.45% 67,929 0.29% 2.41%(a)
December 31, 1991 1.00 0.0388 (0.0388) 1.00 3.94% 50,005 0.27% 3.89%(a)
December 31, 1990* 1.00 0.0183 (0.0183) 1.00 1.84% 32,381 0.34% 5.28%(a)+
</TABLE>
+ Annualized.
++ Unaudited.
(a) Net of fees waived by the Adviser which amounted to $.0020, $.0020,
$.0028, $.0033, $.0042 and $.0017 per share, respectively.
* From commencement of operations, August 27, 1990.
** Total return would have been lower had the Advisor not waived fees.
Periods less than a year are not annualized.
NO SALES OR REDEMPTION CHARGES
DISTRIBUTORS
Sutro & Co. Incorporated
201 California Street
San Francisco, California 94111
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
(Logo of Freedom Group of Money Funds)
FREEDOM GROUP OF MONEY FUNDS
This report has been prepared for shareholders and
may be distributed to others only if preceded or
accompanied by a current prospectus for the Freedom
California Tax Exempt Money Fund.
FCTSA 0695
(Recycled Logo)
FREEDOM
CALIFORNIA
(Logo of Flag showing bear and California Republic above
flag logo of Freedom Group of Money Funds)
TAX EXEMPT
MONEY FUND
SEMI-ANNUAL REPORT
JUNE 30, 1995
August 28, 1995
