As Filed with the Securities and Exchange
Commission on February 28, 1997
1933 Act File No. 2-78609
1940 Act File No. 811-3519
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
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Pre-Effective Amendment No. / /
Post-Effective Amendment No. 21 / X /
-- ----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
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Amendment No. 23 / X /
-- ----
(Check appropriate box or boxes.)
FREEDOM GROUP OF TAX EXEMPT FUNDS
(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)
/ X / On February 28, 1997, pursuant to paragraph (b)
/ / 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 Tax Exempt Money Fund series and the Freedom California Tax Exempt
Money Fund series. A Rule 24f-2 Notice for the Registrant's most recent fiscal
year with respect to the Freedom Tax Exempt Money Fund series and Freedom
California Tax Exempt Money 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
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<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 Objectives;
Registrant Our Organization and Shares; 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 Reports 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, 1997, 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 -- February 28, 1997
ANNUAL REPORT -- December 31, 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 .24% .15% .13%
Total Fund Operating Expenses .71% .65% .63%
</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 $40 $88
Government Securities Fund $7 $21 $36 $81
Tax Exempt Money Fund $6 $20 $35 $79
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 $1.00 $0.0476 $(0.0476) $1.00 4.86% $1,637,286 0.71% 4.76%
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
GOVERNMENT SECURITIES FUND
December 31, 1996 $1.00 $0.0460 $(0.0460) $1.00 4.69% $309,938 0.65% 4.60%
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
TAX EXEMPT MONEY FUND
December 31, 1996 $1.00 $0.0283 $(0.0283) $1.00 2.86% $263,089 0.63% 2.82%
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)
</TABLE>
- ------------
(a) Net of fees waived by the Adviser which amounted to $0.0008 and $0.0016 per
share in the years 1988 and 1987, respectively.
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) or for which there are legal or
contractual restrictions on resale. However, if the Trustees or the Advisers
determine, based upon a review of Board approved guidelines, that restricted
securities eligible for resale to "qualified institutional buyers" pursuant to
Rule 144A under the Securities Act of 1933 are liquid or, with respect to the
Cash Management Fund only, that commercial paper issued as part of a non-public
offering pursuant to section 4(2) of the Securities Act of 1933 is liquid then
they may be purchased 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) commercial 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 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"), Sutro & Co., Incorporated ("Sutro"), and Freedom Distributors
Corporation ("Freedom", and together with Tucker Anthony and Sutro, the
"Distributors"). State Street Bank and Trust Company ("State Street") acts as
the Funds' custodian. John Hancock Signature Services, Incorporated ("JHSS")
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 JHSS. Orders to purchase shares do not become effective
until receipt of "Federal Funds" (monies credited to JHSS's account with its
registered Federal Reserve Bank) by JHSS.
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 before 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 same business day. However, 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 Signature Services, Incorporated
[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 JHSS 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
JHSS by means of a wire order. Please call JHSS toll free at (800) 257-3336 for
instructions. You should then give
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<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 JHSS 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 JHSS 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 JHSS. 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 JHSS 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
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<PAGE>
the net asset value next determined. If you send your redemption order to JHSS
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 JHSS toll free
at (800) 257-3336. All redemption requests by mail should be mailed to:
John Hancock Signature Services, Incorporated
[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 JHSS 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 JHSS without a
signature guarantee and have the proceeds sent by wire to a bank or trust
company account previously designated in writing. Please call JHSS toll free at
(800) 257-3336 for instructions. If the expedited redemption order is received
by JHSS'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 JHSS if
you do not have a brokerage account. If you have elected the checkwriting
service on the Purchase Application on file with JHSS, 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,
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<PAGE>
trust, etc.) in any amount. When your check is presented for payment, JHSS 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 JHSS 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.
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<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 JHSS 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 JHSS 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
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<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>
$0-24,650 $0-41,200 15% 2.35% 3.53% 4.71% 5.88%
$24,650-59,750 $41,200-99,600 28% 2.78% 4.17% 5.56% 6.94%
$59,750-124,650 $99,600-151,750 31%*** 2.90% 4.35% 5.80% 7.25%
$124,650-271,050 $151,750-271,050 36%*** 3.13% 4.69% 6.25% 7.81%
Over $271,050 Over $271,050 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 $121,200 and
married taxpayers (filing jointly) having 1997 adjusted gross income of more
than $181,800, 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 $121,200 ($60,600
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.
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<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.
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<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: 0.71% for the Cash Management Fund,
0.65% for the Government Securities Fund and 0.63% 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. and continues 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 JHSS or monthly
from Tucker Anthony or Sutro, showing the activity in your account.
Shares are maintained by each Fund on its register maintained by JHSS, and
the holders thereof will have the same rights and ownership with respect to such
shares as if certificates had been issued.
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<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 Signature
Services, Incorporated, 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 JHSS at (800) 257-3336. JHSS 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 JHSS 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 Signature Services, Incorporated, 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 JHSS 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 JHSS toll free at (800) 257-3336.
TRANSFER AGENT, CUSTODIAN AND SHAREHOLDER SERVICES
John Hancock Signature Services, Incorporated ("JHSS") acts as transfer and
shareholder services agent for the Funds. JHSS 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.
17
<PAGE>
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 JHSS 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 19 through 34.
----------------------
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.
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
FREEDOM CASH MANAGEMENT FUND
FREEDOM GOVERNMENT SECURITIES FUND
FREEDOM TAX EXEMPT MONEY FUND
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of operations
and of changes in net assets and the financial highlights appearing on page 3 of
the Prospectus present fairly, in all material respects, the financial position
of Freedom Cash Management Fund and Freedom Government Securities Fund, (each a
series of Freedom Mutual Fund) and Freedom Tax Exempt Money Fund (a series of
Freedom Group of Tax Exempt Funds) (the "Funds") at December 31, 1996, the
results of each of their operations, the changes in their net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
January 31, 1997
19
<PAGE>
FREEDOM CASH MANAGEMENT FUND
INVESTMENTS AS OF DECEMBER 31, 1996 -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MATURITY
AMOUNT RATE DATE VALUE
------ ---- ---- -----
COMMERCIAL PAPER -- 91.7%
ABBEY NATIONAL BANK
<S> <C> <C> <C>
$15,000,000 5.30% 03/03/97 $14,865,292
10,000,000 5.31% 03/03/97 9,910,025
10,000,000 5.33% 03/11/97 9,897,842
15,000,000 5.35% 03/11/97 14,846,762
3,350,000 5.39% 03/11/97 3,315,392
AMERICAN EXPRESS CREDIT CORP.
15,000,000 5.32% 01/03/97 14,995,567
10,000,000 5.32% 01/08/97 9,989,656
10,000,000 5.30% 01/27/97 9,961,722
15,000,000 5.32% 01/28/97 14,940,150
10,000,000 5.30% 02/05/97 9,948,472
9,000,000 5.27% 06/11/97 8,787,882
13,000,000 5.28% 07/01/97 12,654,893
AMERICAN GENERAL FINANCE CORP.
10,000,000 5.40% 01/14/97 9,980,500
10,000,000 5.50% 01/16/97 9,977,083
20,000,000 5.31% 01/23/97 19,935,100
10,000,000 5.30% 01/27/97 9,961,722
10,000,000 5.31% 01/29/97 9,958,700
ASSET SECURITIZATION COOPERATIVE CORP.
10,000,000 5.32% 01/09/97 9,988,178
10,000,000 5.33% 01/09/97 9,988,156
15,000,000 5.32% 01/23/97 14,951,233
10,000,000 5.31% 01/27/97 9,961,650
6,000,000 5.31% 01/29/97 5,975,220
15,000,000 5.31% 02/14/97 14,902,650
3,000,000 5.31% 02/27/97 2,974,778
10,000,000 5.37% 03/27/97 9,873,208
ASSOCIATES CORPORATION OF NORTH AMERICA
15,000,000 5.32% 01/15/97 14,968,967
10,000,000 5.31% 01/27/97 9,961,650
20,000,000 5.31% 01/31/97 19,911,500
7,000,000 5.35% 02/06/97 6,962,550
15,000,000 5.29% 02/14/97 14,903,017
15,000,000 5.32% 02/21/97 14,886,950
BANK OF NOVA SCOTIA
12,000,000 5.42% 01/03/97 11,996,387
10,000,000 5.53% 01/21/97 9,969,278
15,000,000 5.33% 03/10/97 14,848,983
BEAR STEARNS COMPANIES, INC.
15,000,000 5.34% 01/08/97 14,984,425
15,000,000 5.43% 01/14/97 14,970,588
15,000,000 5.40% 01/24/97 14,948,250
CAISSE D'AMORTISSEMENT DE LA DETTE SOCIALE
10,000,000 5.30% 01/09/97 9,988,222
10,000,000 5.32% 01/09/97 9,988,178
10,000,000 5.31% 01/22/97 9,969,025
10,000,000 5.36% 01/27/97 9,961,289
4,000,000 5.30% 03/10/97 3,959,956
15,000,000 5.28% 06/10/97 14,648,000
20,100,000 5.30% 06/10/97 19,626,533
CANADIAN IMPERIAL HOLDINGS, INC.
15,000,000 5.305% 01/10/97 14,980,106
CARCO AUTO LOAN MASTER TRUST
50,000,000 5.695% 01/15/97 50,000,000
CHEVRON TRANSPORTATION CORP.
10,000,000 5.30% 07/3/97 9,730,583
CHEVRON UK INVESTMENT PLC
5,000,000 5.41% 01/09/97 4,993,989
15,000,000 5.43% 01/15/97 14,968,325
5,000,000 5.31% 01/23/97 4,983,775
12,000,000 5.32% 01/29/97 11,950,347
15,000,000 5.31% 01/30/97 14,933,625
10,000,000 5.43% 02/06/97 9,945,700
COMMONWEALTH BANK OF AUSTRALIA
15,000,000 5.31% 01/24/97 14,949,112
COOPERATIVE ASSOCIATION OF TRACTOR DEALERS, INC.
1,500,000 5.52% 01/06/97 1,498,850
5,500,000 5.52% 01/10/97 5,492,410
25,300,000 5.32% 01/13/97 25,255,135
2,860,000 5.35% 01/13/97 2,854,900
1,100,000 5.37% 01/13/97 1,098,031
2,000,000 5.38% 01/16/97 1,995,517
3,160,000 5.35% 01/17/97 3,152,486
1,100,000 5.35% 01/21/97 1,096,731
8,600,000 5.33% 01/24/97 8,570,715
6,100,000 5.33% 01/27/97 6,076,518
7,100,000 5.32% 02/04/97 7,064,326
5,000,000 5.33% 02/04/97 4,974,831
10,000,000 5.37% 02/04/97 9,949,283
DRESDNER US FINANCE, INC.
20,000,000 5.32% 01/06/97 19,985,222
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
FREEDOM CASH MANAGEMENT FUND
INVESTMENTS AS OF DECEMBER 31, 1996 -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MATURITY
AMOUNT RATE DATE VALUE
------ ---- ---- -----
COMMERCIAL PAPER -- (CONTINUED)
FORD CREDIT EUROPE PLC
<S> <C> <C> <C>
10,000,000 5.32% 01/07/97 9,991,133
15,000,000 5.32% 01/17/97 14,964,533
15,000,000 5.32% 01/22/97 14,953,450
15,000,000 5.31% 01/23/97 14,951,325
FORD MOTOR CREDIT CORP.
15,000,000 5.55% 01/10/97 14,979,187
7,000,000 5.33% 01/14/97 6,986,527
GENERAL ELECTRIC CAPITAL CORP.
4,000,000 5.40% 01/23/97 3,986,800
10,000,000 5.30% 01/27/97 9,961,722
10,000,000 5.39% 01/27/97 9,961,072
8,000,000 5.32% 01/30/97 7,965,716
10,000,000 5.41% 01/30/97 9,956,419
10,000,000 5.31% 02/03/97 9,951,325
10,000,000 5.31% 02/06/97 9,946,900
GLAXO WELLCOME PLC
4,000,000 5.33% 01/02/97 3,999,408
4,500,000 5.35% 01/02/97 4,499,331
15,000,000 5.30% 01/06/97 14,988,958
8,000,000 5.33% 01/13/97 7,985,787
6,500,000 5.31% 01/17/97 6,484,660
10,000,000 5.30% 01/21/97 9,970,556
6,000,000 5.29% 02/11/97 5,963,852
1,975,000 5.32% 02/24/97 1,959,239
GOLDEN PEANUT CO.
4,000,000 5.31% 01/14/97 3,992,330
6,000,000 5.32% 01/22/97 5,981,380
7,000,000 5.30% 01/23/97 6,977,328
8,000,000 5.31% 01/27/97 7,969,320
6,000,000 5.40% 01/28/97 5,975,700
2,000,000 5.31% 02/04/97 1,989,970
3,000,000 5.28% 03/24/97 2,963,920
8,000,000 5.30% 04/03/97 7,891,644
GOLDMAN SACHS & CO.
15,000,000 5.37% 01/16/97 14,966,437
15,000,000 5.42% 02/04/97 14,923,217
20,000,000 5.28% 02/05/97 19,897,333
15,000,000 5.30% 03/11/97 14,847,625
13,000,000 5.28% 05/30/97 12,715,907
J.P. MORGAN & CO., INC.
$10,000,000 5.35% 01/02/97 $ 9,998,514
10,000,000 5.29% 01/08/97 9,989,714
15,000,000 5.29% 01/13/97 14,973,550
10,000,000 5.39% 01/13/97 9,982,033
5,000,000 5.36% 01/17/97 4,988,089
20,000,000 5.35% 03/17/97 19,777,083
12,000,000 5.35% 04/18/97 11,809,183
MERRILL LYNCH & CO.
15,000,000 5.50% 01/06/97 14,988,542
10,000,000 5.33% 01/14/97 9,980,753
10,000,000 5.33% 01/16/97 9,977,792
17,000,000 5.33% 01/21/97 16,949,661
10,000,000 5.34% 01/21/97 9,970,333
2,000,000 5.35% 01/30/97 1,991,381
15,000,000 5.35% 01/31/97 14,933,125
METLIFE FUNDING, INC.
3,287,000 5.32% 01/27/97 3,274,371
MINNESOTA MINING & MANUFACTURING, INC.
11,980,000 5.27% 02/26/97 11,881,791
NEW CENTER ASSET TRUST
15,000,000 5.34% 01/10/97 14,979,975
10,000,000 5.54% 01/22/97 9,967,683
10,000,000 5.45% 01/23/97 9,966,694
10,000,000 5.43% 01/24/97 9,965,308
10,000,000 5.34% 02/25/97 9,918,417
PRUDENTIAL FUNDING CORP.
10,000,000 5.31% 01/15/97 9,979,350
10,000,000 5.31% 01/17/97 9,976,400
5,000,000 5.39% 01/17/97 4,988,022
10,000,000 5.45% 01/17/97 9,975,778
15,000,000 5.42% 02/03/97 14,925,475
15,000,000 5.42% 02/05/97 14,920,958
17,000,000 5.25% 05/29/97 16,633,083
SHEFFIELD RECEIVABLES CORP.
10,600,000 5.68% 01/17/97 10,573,241
10,000,000 5.68% 01/21/97 9,968,444
10,000,000 5.68% 01/22/97 9,966,867
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
FREEDOM CASH MANAGEMENT FUND
INVESTMENTS AS OF DECEMBER 31, 1996 -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MATURITY
AMOUNT RATE DATE VALUE
------ ---- ---- -----
COMMERCIAL PAPER -- (CONTINUED)
USAA CAPITAL CORP.
<S> <C> <C> <C>
$15,000,000 5.41% 01/07/97 $ 14,986,475
1,983,000 5.31% 01/09/97 1,980,660
7,000,000 6.00% 01/09/97 6,990,667
5,000,000 5.38% 01/10/97 4,993,275
25,000,000 5.29% 01/22/97 24,922,854
25,000,000 5.27% 04/08/97 24,645,007
--------------
TOTAL COMMERCIAL PAPER ........... 1,500,686,657
--------------
MUNICIPAL SECURITIES -- 3.0%
MISSISSIPPI BUSINESS FINANCE CORP. TAXABLE
INDUSTRIAL DEVELOPMENT REVENUE BONDS
10,000,000 5.70% 01/07/97 10,000,000
NEW YORK (CITY OF) GENERAL OBLIGATION BONDS
18,000,000 5.50% 02/03/97 18,000,000
21,700,000 5.57% 02/10/97 21,700,000
--------------
TOTAL MUNICIPAL SECURITIES ....... 49,700,000
--------------
CERTIFICATES OF DEPOSIT -- 0.9%
SOCIETE GENERALE
15,000,000 5.43% 4/21/97 15,001,319
--------------
ASSET-BACKED NOTES -- 0.6%
NATIONSBANK AUTO OWNER TRUST
10,084,095 5.78% 8/15/97 10,084,095
--------------
BANK NOTES -- 0.6%
MORGAN GUARANTY TRUST CO.
10,000,000 5.50% 1/8/97 $ 10,000,000
--------------
DESCRIPTION
-----------
REPURCHASE AGREEMENT -- 1.6%
26,651,000 Bankers Trust Co. 6.00%
dated 12/31/96 due 1/2/97
with a maturity value
of $26,660,000 (Collateralized
by a U.S. Treasury Note
valued at $26,997,000) 26,651,000
--------------
Total Investments -- 98.4%...... 1,612,123,071(a)
Other Assets & Liabilities, Net --
1.6%............................ 25,162,598
--------------
Total Net Assets -- 100.0%...... $1,637,285,669
==============
</TABLE>
- -------------
(a) Cost for tax purposes is the same.
See Notes to Financial Statements.
22
<PAGE>
FREEDOM GOVERNMENT SECURITIES FUND
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MATURITY
AMOUNT RATE DATE VALUE
------ ---- ---- -----
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY
ISSUES -- 96.7%
FEDERAL FARM CREDIT BANK DISCOUNT
NOTES -- 28.2%
$ 4,500,000 5.21% 01/03/97 $ 4,498,697
9,750,000 5.22% 01/03/97 9,747,172
950,000 5.22% 01/06/97 949,311
2,500,000 5.22% 01/13/97 2,495,650
9,800,000 5.20% 01/14/97 9,781,598
6,790,000 5.37% 01/14/97 6,776,833
6,000,000 5.20% 01/15/97 5,987,867
1,800,000 5.37% 01/23/97 1,794,093
2,000,000 5.20% 01/24/97 1,993,356
1,300,000 5.17% 02/03/97 1,293,839
5,000,000 5.17% 02/05/97 4,974,868
1,700,000 5.20% 02/06/97 1,691,160
250,000 5.21% 02/06/97 248,698
3,000,000 5.31% 02/07/97 2,983,627
7,500,000 5.28% 02/10/97 7,456,000
6,700,000 5.21% 02/11/97 6,660,245
15,000,000 5.20% 03/10/97 14,852,667
3,150,000 5.22% 03/24/97 3,112,547
-----------
TOTAL FEDERAL FARM CREDIT BANK DISCOUNT
NOTES ............................ 87,298,228
-----------
FEDERAL HOME LOAN BANK DISCOUNT
NOTES -- 68.5%
5,000,000 5.21% 01/02/97 4,999,276
9,700,000 5.26% 01/02/97 9,698,582
11,800,000 5.20% 01/08/97 11,788,069
14,550,000 5.22% 01/09/97 14,533,122
1,150,000 5.23% 01/09/97 1,148,663
9,200,000 5.31% 01/16/97 9,179,645
6,250,000 5.23% 01/21/97 6,231,840
3,000,000 5.42% 01/23/97 2,990,063
FEDERAL HOME LOAN BANK DISCOUNT
NOTES -- (CONTINUED)
20,000,000 5.50% 01/26/97 19,989,839
4,200,000 5.20% 01/27/97 4,184,227
7,400,000 5.45% 01/27/97 7,370,872
2,900,000 5.46% 01/27/97 2,888,564
200,000 5.42% 01/27/97 199,217
2,100,000 5.22% 01/28/97 2,091,779
600,000 5.26% 01/28/97 597,633
4,970,000 5.43% 01/28/97 4,949,760
3,500,000 5.46% 01/28/97 3,485,668
4,500,000 5.21% 01/30/97 4,481,114
4,100,000 5.22% 01/30/97 4,082,760
865,000 5.24% 01/30/97 861,349
13,300,000 5.55% 01/30/97 13,240,538
10,000,000 5.30% 01/31/97 9,955,833
4,690,000 5.45% 02/06/97 4,664,440
10,000,000 5.20% 02/14/97 9,936,444
1,000,000 5.31% 02/14/97 993,510
7,500,000 5.21% 02/24/97 7,441,388
2,000,000 5.17% 03/31/97 1,974,437
21,000,000 5.14% 04/15/97 20,688,173
15,000,000 5.16% 05/15/97 14,711,900
13,320,000 5.19% 06/11/97 13,010,832
-----------
TOTAL FEDERAL HOME LOAN BANK DISCOUNT
NOTES .......................... 212,369,537
-----------
TOTAL U.S. GOVERNMENT AGENCY
ISSUES -- 96.7% 299,667,765(a)
OTHER ASSETS & LIABILITIES, NET --
3.3% ........................... 10,270,357
-----------
TOTAL NET ASSETS -- 100.0% ....... $309,938,122
============
</TABLE>
- --------------
(a) Cost for tax purposes is the same.
See Notes to Financial Statements.
23
<PAGE>
FREEDOM TAX EXEMPT MONEY FUND
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
------ ----------- -----
<S> <C> <C>
MUNICIPAL SECURITIES -- 96.6%
ALABAMA -- 3.1%
$ 3,900,000 Alabama HFA Series
92A (AmSouth LOC)
4.15% 1/2/97 ...... $ 3,900,000
4,200,000 Huntsville HCA Series
4B (MBIA/AmSouth
LOC) 4.00% 1/2/97 . 4,200,000
-----------
8,100,000
-----------
ARIZONA -- 12.6%
13,000,000 Apache County IDA
(Tucson Electric &
Gas) (Barclays Bank
LOC) 4.20% 1/2/97 . 13,000,000
2,100,000 Apache County IDA
(Tucson Electric &
Gas) (Chemical Bank
LOC) 4.20% 1/2/97 . 2,100,000
1,600,000 Chandler IDA
(Citibank LOC)
4.25% 1/2/97 ...... 1,600,000
4,500,000 Maricopa County IDA
(Grand Canyon
University) (Bank
One LOC) 4.20%
1/2/97 ............ 4,500,000
2,000,000 Maricopa County PCR
(Public Service of
New Mexico
(Canadian Imperial
Bank of Commerce
LOC) 4.15% 1/2/97 . 2,000,000
1,500,000 Mesa Municipal
Development Corp.
(West Deutshe
Landesbank LOC)
3.50% 1/13/97 ..... 1,500,000
5,600,000 Pima County IDA
(Tucson Electric
Power Co.) (Societe
Generale LOC) 4.15%
1/2/97 ............ 5,600,000
3,000,000 Pima County IDA
(Tucson Electric
Power Co.)
(Barclays Bank LOC)
4.20% 1/2/97 ...... 3,000,000
-----------
33,300,000
-----------
ARKANSAS -- 2.9%
7,700,000 Arkansas Development
Finance Authority
(Citibank LOC)
4.15% 1/2/97 ...... 7,700,000
-----------
CALIFORNIA -- 3.0%
3,000,000 California RANS 4.50%
6/30/97 ........... 3,007,540
1,000,000 California School
Cash
Reserve Program
4.75% 7/2/97 ...... 1,004,320
1,000,000 Riverside County
TRANS 4.50% 6/30/97 1,002,843
3,000,000 San Bernardino County
TRANS 4.50% 6/30/97 3,008,901
-----------
8,023,604
-----------
CONNECTICUT -- 0.8%
2,000,000 Connecticut
Development
Authority PCR
(Connecticut Power
& Light) (Deutsche
Bank LOC) 4.15%
1/2/97 ............ 2,000,000
-----------
FLORIDA -- 3.3%
2,600,000 Florida HFA (Multi-
Family -- Oak Hill)
(Chemical Bank LOC)
4.15% 1/2/97 ...... 2,600,000
1,000,000 Florida HFA (Multi-
Family -- So.
Pointe) Series 85
(Chemical Bank LOC)
4.15% 1/2/97 ...... 1,000,000
2,000,000 Putnam County PCR
(Seminole Electric)
(NRUCFC) 3.80%
3/15/97 ........... 2,000,000
1,000,000 Putnam County PCR
(Seminole Electric)
(NRUCFC) 3.45%
6/15/97 ........... 1,000,000
2,000,000 West Orange Memorial
Hospital Tax
District (Rabobank
LOC) 3.55% 1/9/97 . 2,000,000
-----------
8,600,000
-----------
GEORGIA -- 5.4%
3,000,000 Burke County
Development
Authority PCR
(Oglethorpe Power
Corp.) (Credit
Suisse LOC) 3.60%
1/14/97 ........... 3,000,000
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
FREEDOM TAX EXEMPT MONEY FUND
INVESTMENTS AS OF DECEMBER 31, 1996 -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
------ ----------- -----
<S> <C> <C>
MUNICIPAL SECURITIES -- (CONTINUED)
GEORGIA -- (CONTINUED)
$4,090,000 Fulton County
Development
Authority (YMCA
Project) (Wachovia
LOC) 4.05% 1/2/97 . $ 4,090,000
3,000,000 Georgia Municipal Gas
Authority Series B
(ABN Amro/Credit
Suisse/Bayerische
Landesbank/ Morgan
Guarantee/Wachovia
Bank LOC) 4.00%
1/2/97 ............ 3,000,000
4,100,000 Savannah Port
Authority IDA (Pier
One Imports)
(National
Westminster LOC)
4.15% 1/2/97 ...... 4,100,000
-----------
14,190,000
-----------
IDAHO -- 1.1%
3,000,000 Idaho TANS Series 96
4.50% 6/30/97 ..... 3,008,539
-----------
ILLINOIS -- 12.6%
6,400,000 Chicago O'Hare
International
Airport (Societe
Generale LOC) 4.15%
1/2/97 ............ 6,400,000
3,600,000 Chicago O'Hare
International
Airport Series 84B
(Societe Generale
LOC) 4.15% 1/2/97 . 3,600,000
4,300,000 Illinois Development
Finance Authority
(Aurora Central
Catholic High
School) (Northern
Trust LOC) 4.20%
1/2/97 ............ 4,300,000
1,000,000 Illinois Development
Finance Authority
(Lake Forest
Academy) (Northern
Trust LOC) 4.20%
1/2/97 ............ 1,000,000
3,000,000 Illinois Development
Finance Authority
(Presbyterian
Homes) (LaSalle
National Bank LOC)
4.20% 1/2/97 ...... 3,000,000
1,000,000 Illinois Development
Finance Authority
(A.E. Staley Co.)
(Union Bank of
Switzerland LOC)
4.00% 1/2/97 ...... 1,000,000
6,060,000 Illinois Health
Facility Authority
(Evangelical
Hospital Corp.)
(FNB Chicago LOC)
4.10% 1/2/97 ...... 6,060,000
2,000,000 Illinois Health
Facility Authority
(University of
Chicago Hospital)
(Escrowed in U.S.
Government
Securities) 8.10%
8/1/97 ............ 2,087,735
1,680,000 Illinois State Sales
Tax Revenue Notes
(Escrowed in U.S.
Government
Securities) 6.88%
6/15/97 ........... 1,738,676
2,800,000 Jackson & Union
Counties Port
District (Wachovia
LOC) 4.15% 1/2/97 . 2,800,000
295,000 Joliet Regional Port
District (Dow
Chemical) 5.10%
1/2/97 ............ 295,000
1,000,000 Lisle HFA (Ashley of
Lisle Project)
(Credit Suisse LOC)
4.00% 1/2/97 ...... 1,000,000
-----------
33,281,411
-----------
INDIANA -- 1.3%
1,000,000 Indiana Bond Bank
Series 96A-2 4.25%
1/9/97 ............ 1,000,159
1,500,000 Indianapolis MFHA
(Canal Square)
(Societe Generale
LOC) 4.15% 1/2/97 . 1,500,000
1,000,000 Whiting Economic
Development Revenue
(Amoco) 3.80%
2/15/97 ........... 1,000,000
-----------
3,500,159
-----------
IOWA -- 0.8%
1,000,000 Iowa School
Corporation (FSA
Insured) Series A
4.75% 6/27/97 ..... 1,005,571
1,100,000 Iowa School
Corporation (FSA
Insured) Series B
4.50% 1/30/97 ..... 1,100,718
-----------
2,106,289
-----------
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
FREEDOM TAX EXEMPT MONEY FUND
INVESTMENTS AS OF DECEMBER 31, 1996 -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
------ ----------- -----
<S> <C> <C>
MUNICIPAL SECURITIES -- (CONTINUED)
LOUISIANA -- 4.3%
$3,500,000 Ascension Parish IDA
(Borden Project)
(Credit Suisse LOC)
4.15% 1/2/97 ...... $ 3,500,000
400,000 East Baton Rouge IDA
(Georgia Pacific)
(Toronto Dominion
Bank LOC) 4.15%
1/2/97 ............ 400,000
1,600,000 Louisiana Public
Facility Authority
(Societe Generale
LOC) 4.30% 1/2/97 . 1,600,000
2,000,000 Plaquemines Port
Harbor & Terminal
District (Morgan
Guarantee LOC)
3.25% 3/17/97 ..... 2,000,000
1,950,000 Plaquemines Port
Harbor & Terminal
PCR (Tampa Electric
Co. Finance Corp.)
3.65% 1/8/97 ...... 1,950,000
1,900,000 St. Charles Parish
PCR (Shell Oil)
4.05% 1/2/97 ...... 1,900,000
-----------
11,350,000
-----------
MAINE -- 2.3%
4,035,000 Maine HEFA (State
Street Bank LOC)
4.15% 1/2/97 ...... 4,035,000
2,000,000 Maine TANS 4.50%
6/27/97 ........... 2,005,831
-----------
6,040,831
-----------
MARYLAND -- 0.4%
1,100,000 Maryland State Health
& Higher Education
Facilities
Authority (FNB
Chicago LOC) 4.20%
1/7/97 ............ 1,100,000
-----------
MASSACHUSETTS -- 0.9%
2,300,000 Massachusetts Bay
Transportation
Authority (State
Street Bank LOC)
3.63% 3/1/97 ...... 2,300,000
-----------
MICHIGAN -- 1.2%
1,000,000 Cornell Township
Economic
Development Corp.
(Credit Suisse LOC)
3.50% 1/22/97 ..... 1,000,000
1,000,000 Ingham Economic
Development Corp.
(National Australia
Bank LOC) 4.20%
1/2/97 ............ 1,000,000
1,000,000 Michigan Municipal
Bond Authority
(Escrowed in U.S.
Government
Securities) 7.75%
5/1/97 ............ 1,033,849
-----------
3,033,849
-----------
MINNESOTA -- 1.2%
1,100,000 Duluth Tax Increment
Revenue (Lake
Superior Paper
Industries)
(Wachovia LOC)
4.15% 1/2/97 ...... 1,100,000
2,150,000 University of
Minnesota 3.75%
2/1/97 ............ 2,150,000
-----------
3,250,000
-----------
MISSOURI -- 2.4%
3,800,000 Columbia Insurance
Reserve Bonds
(Toronto Dominion
Bank LOC) 4.10%
1/2/97 ............ 3,800,000
2,500,000 Missouri Health &
Higher Education
Facilities
Authority (MBIA
Insured/Credit
Suisse LOC) 4.15%
1/2/97 ............ 2,500,000
-----------
6,300,000
-----------
MONTANA -- 0.6%
1,500,000 Forsyth PCR (Portland
Gas & Electric)
(Union Bank of
Switzerland LOC)
4.05% 1/2/97 ...... 1,500,000
-----------
NEBRASKA -- 0.8%
2,000,000 Heartland Consumer
Power District
(Escrowed in U.S.
Government
Securities) 7.63%
1/2/97 ............ 2,040,000
-----------
NEVADA -- 0.6%
1,600,000 Nevada Department of
Commerce IDR (FMC
Corp.) (Barclays
Bank LOC) 4.00%
9/15/97 ........... 1,600,000
-----------
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
FREEDOM TAX EXEMPT MONEY FUND
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
------ ----------- -----
<S> <C> <C>
MUNICIPAL SECURITIES -- (CONTINUED)
NEW HAMPSHIRE -- 0.8%
$2,100,000 New Hampshire
Business Finance
Authority
(Connecticut Light
& Power) (Canadian
Imperial Bank of
Commerce LOC) 4.15%
1/2/97 ............ $ 2,100,000
-----------
NEW MEXICO -- 0.9%
2,400,000 Albuquerque GO
(Canadian Imperial
Bank of Commerce
LOC) 4.10% 1/2/97 . 2,400,000
-----------
NEW YORK -- 0.8%
2,000,000 New York Energy
Research &
Development
Authority (J.P.
Morgan LOC) 3.30%
3/15/97 ........... 2,000,000
-----------
NORTH CAROLINA -- 4.2%
2,000,000 North Carolina
Eastern Municipal
Power (Canadian
Imperial Bank of
Commerce LOC) 3.50%
1/13/97 ........... 2,000,000
4,200,000 North Carolina
Educational
Facilities
Authority (Bowman
Gray Medical
School) (Wachovia
Bank LOC) 4.15%
1/2/97 ............ 4,200,000
4,900,000 North Carolina
Educational
Facilities
Authority (Moses
Cone Hospital)
(Wachovia Bank LOC)
4.15% 1/2/97 ...... 4,900,000
-----------
11,100,000
-----------
OHIO -- 1.1%
3,000,000 Dublin City School
District 4.00%
6/10/97 ........... 3,006,462
-----------
OKLAHOMA -- 1.0%
2,500,000 Oklahoma City
Industrial
Facilities
Authority (Credit
Suisse LOC) 3.00%
1/7/97 ............ 2,500,000
-----------
PENNSYLVANIA -- 1.0%
2,500,000 Delaware County PCR
(Philadelphia Gas &
Electric Co.)
(FGIC/FGIC SPI
Insured) 3.40%
1/28/97 ........... 2,500,000
-----------
RHODE ISLAND -- 0.4%
1,000,000 Rhode Island Port
Authority (Newport
Electric Co.)
(Canadian Imperial
Bank of Commerce
LOC) 4.15% 1/2/97 . 1,000,000
-----------
SOUTH CAROLINA -- 4.5%
4,000,000 Piedmont Municipal
Power Agency
(MBIA/Morgan
Guarantee LOC)
4.20% 1/2/97 ...... 4,000,000
2,960,000 York County (North
Carolina Electric)
(NRUCFC) 3.80%
3/15/97 ........... 2,960,000
4,775,000 York County (Saluda
River Project)
(NRUCFC) 3.65%
2/15/97 ........... 4,775,000
-----------
11,735,000
-----------
TENNESSEE -- 1.6%
1,400,000 Knox County IDA
(Credit Suisse LOC)
3.50% 1/15/97 ..... 1,400,000
1,000,000 Metropolitan
Government of
Nashville &
Davidson County
(Vanderbilt
University) 3.50%
1/15/97 ........... 1,000,000
1,800,000 Metropolitan
Nashville- Davidson
County IDA (Credit
Suisse LOC) (FGIC
Insured) 3.70%
1/15/97 ........... 1,800,000
-----------
4,200,000
-----------
TEXAS -- 8.5%
2,650,000 Austin County IDA
(Justin Industries
Inc.) (Citibank
LOC) 4.10% 1/2/97 . 2,650,000
5,430,000 Brazos River
Authority IDA
(Monsanto Co.
Project) 4.15%
1/2/97 ............ 5,430,000
2,000,000 Harris County Health
System Authority
(Sisters of
Charity) (Credit
Suisse LOC) 3.45%
1/28/97 ........... 2,000,000
1,330,000 Hunt County IDA
(Trico Industries)
(ABN Amro LOC)
3.00% 1/7/97 ...... 1,330,000
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
FREEDOM TAX EXEMPT MONEY FUND
INVESTMENTS AS OF DECEMBER 31, 1996 -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
------ ----------- -----
<S> <C> <C>
MUNICIPAL SECURITIES -- (CONTINUED)
TEXAS -- (CONTINUED)
$ 3,000,000 Mansfield IDA (Pier
One Imports) (National
Westminster LOC)
4.15% 1/2/97 ...... $ 3,000,000
8,000,000 Texas TRANS 4.75%
8/29/97. 8,040,457
-----------
22,450,457
-----------
UTAH -- 4.4%
1,000,000 Intermountain Power
Agency (Morgan
Guaranty LOC) 3.93%
6/16/97 ........... 1,000,000
3,000,000 Intermountain Power
Agency (Swiss Bank
LOC) 3.75% 3/17/97 3,000,000
7,700,000 Utah State Board of
Regents (AMBAC
Insured/ Swiss Bank
LOC) 4.15% 1/2/97 . 7,700,000
-----------
11,700,000
-----------
VIRGINIA -- 1.9%
2,900,000 Hampton Roads RJA
(Wachovia Bank LOC)
4.15% 1/2/97 ...... 2,900,000
2,000,000 Harrisonburg
Redevelopment and
Housing Revenue
Bonds (Bank One
LOC) 4.15% 1/2/97 . 2,000,000
-----------
4,900,000
-----------
WASHINGTON -- 1.6%
1,000,000 Seattle Municipal
Light & Power
(Morgan Guaranty
LOC) 3.63% 1/10/97 1,000,000
3,100,000 Seattle Water System
(Bayerische
Landesbank LOC)
4.15% 1/2/97 ...... 3,100,000
-----------
4,100,000
-----------
WISCONSIN -- 2.3%
4,000,000 Alma PCR (Dairyland
Power Cooperative)
(Rabobank LOC)
4.00% 1/2/97 ...... 4,000,000
2,000,000 Milwaukee RANS 3.50%
2/27/97 ........... 2,000,835
-----------
6,000,835
-----------
TOTAL INVESTMENTS -- 96.6% ....... 254,017,436(a)
Other Assets & Liabilities,
Net -- 3.4% ...................... 9,071,663
-----------
TOTAL NET ASSETS -- 100.0 % ....... $263,089,099
============
</TABLE>
Legend:
GO -- General Obligation Bonds
HCA -- Health Care Authority
HEFA -- Health Education Finance Authority
HFA -- Housing Finance Authority
IDA-- Industrial Development Authority
IDR -- Industrial Development Revenue
LOC -- Letter of Credit
MFHA -- Multi-Family Housing Authority
NRUCFC -- National Rural Utilities Cooperative Finance Corporation
PCR -- Pollution Control Revenue
RANS -- Revenue Anticipation Notes
TANS -- Tax Anticipation Notes
TRANS -- Tax & Revenue Anticipation Notes
Insurance Abbreviations:
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Federal Guaranty Insurance Corporation
FGIC-SPI -- Federal Guaranty Insurance Corporation- Securities Purchase Inc.
FSA -- Financial Security Assurance
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
28
<PAGE>
FREEDOM GROUP OF MONEY FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
FREEDOM FREEDOM FREEDOM
CASH GOVERNMENT TAX EXEMPT
MANAGEMENT SECURITIES MONEY
FUND FUND FUND
---- ---- ----
<S> <C> <C> <C>
ASSETS
Investments, at amortized cost ................. $1,612,123,071 $299,667,765 $254,017,436
Cash ........................................... 105,882 4,155,039 3,966,775
Receivable for Fund shares sold ................ 27,493,864 6,484,434 3,948,876
Interest receivable ............................ 1,315,500 15,286 1,651,478
Prepaid expenses ............................... 81,738 17,403 16,008
Other assets ................................... 65,871 18,473 21,495
------------- ----------- -----------
TOTAL ASSETS .................................. 1,641,185,926 310,358,400 263,622,068
------------- ----------- -----------
LIABILITIES
Payable for Fund shares redeemed ............... 2,119,040 130,153 288,635
Dividends payable .............................. 222,460 39,959 23,618
Accrued expenses:
Investment adviser's fee .................... 646,186 135,695 117,067
Transfer agent & shareholder servicing fee .. 720,804 63,900 55,073
Accrued custodian fees ...................... 83,921 18,947 2,022
Trustees' fee ............................... 14,943 5,378 5,196
Other ....................................... 92,903 26,246 41,358
------------- ----------- -----------
TOTAL LIABILITIES ............................. 3,900,257 420,278 532,969
------------- ----------- -----------
NET ASSETS ........................................ $1,637,285,669 $309,938,122 $263,089,099
============== ============ ============
NET ASSETS CONSIST OF:
Capital paid in ................................ $1,637,436,719 $309,931,785 $263,081,339
Accumulated net realized gain (loss) ........... (151,050) 6,337 7,760
------------- ----------- -----------
$1,637,285,669 $309,938,122 $263,089,099
============== ============ ============
SHARES ISSUED AND OUTSTANDING (UNLIMITED SHARES
AUTHORIZED) ...................................... 1,637,436,719 309,931,785 263,081,339
------------- ----------- -----------
NET ASSET VALUE PER SHARE ......................... $ 1.00 $ 1.00 $ 1.00
============== ============ ============
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
FREEDOM GROUP OF MONEY FUNDS
STATEMENTS OF OPERATIONS
Year Ended December 31, 1996
<TABLE>
<CAPTION>
FREEDOM FREEDOM FREEDOM
CASH GOVERNMENT TAX EXEMPT
MANAGEMENT SECURITIES MONEY
FUND FUND FUND
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME ................................... $81,958,389 $16,498,218 $ 9,912,850
------------- ----------- -----------
EXPENSES
Investment adviser's fee ....................... 6,993,034 1,573,331 1,434,813
Transfer agent & shareholder services .......... 2,795,745 244,045 204,165
Custodian ...................................... 292,286 65,095 1,830
Printing, postage and stationery ............... 143,240 32,870 33,840
Registration expense ........................... 142,295 64,610 48,555
Insurance expense .............................. 48,816 10,743 9,778
Legal .......................................... 42,330 4,505 24,880
Audit .......................................... 39,830 10,970 36,110
Compensation of Trustees ....................... 36,760 14,660 13,145
Other .......................................... 60,632 14,089 11,838
------------- ----------- -----------
TOTAL EXPENSES ................................. 10,594,968 2,034,918 1,818,954
------------- ----------- -----------
NET INVESTMENT INCOME ............................. 71,363,421 14,463,300 8,093,896
------------- ----------- -----------
NET REALIZED GAIN (LOSS) ON INVESTMENTS ........... (3,685) 52 --
------------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $71,359,736 $14,463,352 $8,093,896
=========== =========== ==========
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
FREEDOM GROUP OF MONEY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FREEDOM FREEDOM
CASH MANAGEMENT FUND GOVERNMENT SECURITIES FUND
------------------------------ ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ......................... $ 71,363,421 $ 64,952,356 $ 14,463,300 $ 13,913,080
Net realized gain (loss) on investments ....... (3,685) -- 52 8,262
------------- ------------- ------------- ------------
Net increase in net assets resulting from
operations .................................. 71,359,736 64,952,356 14,463,352 13,921,342
DIVIDENDS TO SHAREHOLDERS ......................... (71,363,421) (64,952,356) (14,463,300) (13,913,080)
------------- ------------- ------------- ------------
(3,685) -- 52 8,262
------------- ------------- ------------- ------------
CAPITAL SHARE TRANSACTIONS:
(At Net Asset Value of $1 per share)
Proceeds from sale of shares ................... 5,556,198,753 4,507,108,299 1,060,548,970 1,187,233,854
Net asset value of shares issued to share-
holders in reinvestment of dividends ......... 69,100,632 62,392,885 13,800,298 13,179,702
Cost of shares redeemed ........................ (5,334,634,861) (4,306,537,450) (1,081,811,460) (1,151,455,435)
------------- ------------- ------------- ------------
Net increase (decrease) from capital share
transactions ................................. 290,664,524 262,963,734 (7,462,192) 48,958,121
------------- ------------- ------------- ------------
Net increase (decrease) in net assets .......... 290,660,839 262,963,734 (7,462,140) 48,966,383
NET ASSETS:
Beginning of year .............................. 1,346,624,830 1,083,661,096 317,400,262 268,433,879
------------- ------------- ------------- ------------
End of year .................................... $ 1,637,285,669 $ 1,346,624,830 $ 309,938,122 $ 317,400,262
=============== =============== =============== ===============
DIVIDENDS TO SHAREHOLDERS PER
SHARE ............................................ $ 0.0476 $ 0.0526 $ 0.0460 $ 0.0500
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
FREEDOM
TAX EXEMPT MONEY FUND
------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
<S> <C> <C>
Net investment income ......................... $ 8,093,896 $ 8,713,802
Net realized gain (loss) on investments ....... -- --
------------ ------------
Net increase in net assets resulting from
operations .................................. 8,093,896 8,713,802
DIVIDENDS TO SHAREHOLDERS ......................... (8,093,896) (8,713,802)
------------ ------------
-- --
------------ ------------
CAPITAL SHARE TRANSACTIONS:
(At Net Asset Value of $1 per share)
Proceeds from sale of shares ................... 1,066,733,465 1,033,773,788
Net asset value of shares issued to share-
holders in reinvestment of dividends ......... 7,489,562 8,090,985
Cost of shares redeemed ........................ (1,085,210,380) (1,015,833,634)
------------ ------------
Net increase (decrease) from capital share
transactions ................................. (10,987,353) 26,031,139
------------ ------------
Net increase (decrease) in net assets .......... (10,987,353) 26,031,139
NET ASSETS:
Beginning of year .............................. 274,076,452 248,045,313
------------ ------------
End of year .................................... $ 263,089,099 $ 274,076,452
=============== ===============
DIVIDENDS TO SHAREHOLDERS PER
SHARE ............................................ $ 0.0283 $ 0.0319
=============== ===============
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
FREEDOM MUTUAL FUND
FREEDOM GROUP OF TAX EXEMPT FUNDS
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES. Freedom Mutual Fund and Freedom Group of Tax
Exempt Funds (the "Trusts") are Massachusetts business trusts registered under
the Investment Company Act of 1940, as amended, as open-end management
companies. The Agreements and Declarations of Trust permit 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 (a "Fund"). The Freedom Mutual Fund
consists of the Freedom Cash Management Fund and the Freedom Government
Securities Fund. The Freedom Group of Tax Exempt Funds consists of the Freedom
Tax Exempt Money Fund and the Freedom California Tax Exempt Money Fund. The
financial statements of the Freedom California Tax Exempt Money Fund are
included in a separate annual report for that Fund.
The following is a summary of significant accounting policies followed by
the Trusts in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation and Transactions. Each Trust values its portfolio
securities utilizing the amortized cost valuation method. This method involves
valuing a portfolio security at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium. Cost is determined and
gains and losses are based upon the specific identification method for both
financial statement and federal income tax purposes. Investment securities
transactions are accounted for on the date the securities are purchased or sold.
Expenses. The majority of the expenses of each Trust are directly
identifiable to an individual Fund. Expenses which are not readily identifiable
as belonging to a specific Fund are allocated in such a manner as deemed
equitable by the Trustees, taking into consideration, among other things, the
nature and type of expense and the relative sizes of the Funds.
Trustees' fees of $6,000 per Trust, per year, plus $250 per meeting of the
Board of Trustees and $350 per meeting of any committee thereof, are paid to
each Trustee who is not an interested person of the Trusts. No remuneration is
paid by either Trust to any Trustee or officer of that Trust who is affiliated
with Freedom Capital Management Corporation, the Trusts' adviser.
The Trusts have entered into an insurance agreement with ICI Mutual
Insurance Company under which each 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.
32
<PAGE>
FREEDOM MUTUAL FUND
FREEDOM GROUP OF TAX EXEMPT FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Federal Income Tax. It is each 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 Funds 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 required.
Interest Income and Dividends to Shareholders. Interest income is accrued as
earned. Dividends to shareholders are declared daily from net investment income,
which consists of interest accrued or discount earned (including original issue
and market discount) less amortization of premium and the estimated expenses of
the Fund applicable to the dividend period.
Other. Investment security transactions are accounted for on the date the
securities are purchased or sold. The custodian takes possession through the
federal book-entry system of securities collateralizing repurchase agreements.
Collateral is marked-to-market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Funds in the event of
default by the seller. In connection with transactions in repurchase agreements,
if the seller defaults and the collateral declines, or if the seller enters an
insolvency proceeding, realization of the collateral by the Fund may be limited
or delayed.
The Funds 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 transaction.
The price that will be paid for the underlying securities is fixed at the time
the transaction is negotiated.
NOTE 2. INVESTMENT ADVISOR AND OTHER RELATED PARTY TRANSACTIONS. Freedom
Capital Management Corporation ("FCMC") is the parent of Freedom Distributors
Corporation as well as an affiliate of Sutro & Co., Inc. ("Sutro") and Tucker
Anthony Incorporated ("Tucker Anthony"). All are wholly owned subsidiaries of
Freedom Securities Corporation ("Freedom Securities"), formerly John Hancock
Freedom Securities. On November 29, 1996, John Hancock Subsidiaries, Inc. sold
approximately 95% of its interest in Freedom Securities to an investor group
which will include certain members of management and employees of Freedom
Securities and its subsidiaries, including FCMC. The consummation of the
transaction resulted in a change of control of the Adviser, causing the advisory
agreement between FCMC 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.
Shareholders have subsequently approved the new advisory agreement, as
necessitated by this change in control. The new advisory agreement is
substantially the same as the prior advisory agreement.
FCMC, the investment advisor of the Funds, furnishes the Funds with
administration and other services and office facilities in Boston. For these
services and facilities, each Fund pays a monthly fee, computed separately for
each Fund, based upon the average daily net asset value of each 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 hundreths of one percent (.45%) for
average daily net assets in excess of that amount. The Funds themselves pay no
salaries or compensation to any of their officers.
33
<PAGE>
FREEDOM MUTUAL FUND
FREEDOM GROUP OF TAX EXEMPT FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Tucker Anthony, Sutro and Freedom Distributors Corporation act as
distributors of the Trusts' shares and receive no compensation for such
services. Freedom Services Corp. (formerly John Hancock Clearing Corporation),
an affiliate of Tucker Anthony, received reimbursements from the Funds for
maintaining and servicing certain shareholder accounts for the year ended
December 31, 1996 as follows:
CASH GOVERNMENT TAX
MANAGEMENT SECURITIES EXEMPT MONEY
FUND FUND FUND
---------- ---------- ------------
$1,343,515 $116,155 $94,335
========== ======== =======
John Hancock Signature Services, Inc. ("JHSS"), formerly John Hancock
Investor Services, Corp., a wholly-owned subsidiary of the Berkeley Financial
Group is transfer agent for the Funds. JHSS received the following from the
Funds for the year ended December 31, 1996:
CASH GOVERNMENT TAX
MANAGEMENT SECURITIES EXEMPT MONEY
FUND FUND FUND
---------- ---------- ------------
$1,452,230 $127,890 $109,830
========== ======== ========
NOTE 3. Purchases and sales (including maturities) of investments (excluding
repurchase agreements) for the year ended December 31, 1996 were as follows:
CASH GOVERNMENT TAX
MANAGEMENT SECURITIES EXEMPT MONEY
FUND FUND FUND
---------- ---------- ------------
Purchases
U.S. Government .......... $ 178,720,375 $1,586,318,930 --
Other .................... 6,945,093,668 -- $ 771,272,900
Sales
U.S. Government .......... 222,000,000 1,618,561,629 --
Other .................... 6,621,250,638 -- 785,038,000
34
<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 Signature
Services, Incorporated
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, 1997, 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,
1997.
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TABLE OF CONTENTS
Page
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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>
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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.
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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
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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.
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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).
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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
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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. On June 12, 1996, it emerged from bankruptcy after the
successful sale of $880 million in municipal bonds allowed the county to pay off
the last of its creditors. On January 7, 1997, Orange County returned to the
municipal bond market with a $136 million bond issue maturing in 13 years at an
insured yield of 7.23%.
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
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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
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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.
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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 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. Issue any class of securities senior to any other class of
securities, except that each Fund may purchase when-issued securities as
described under "Investment Objectives and Policies".
12. 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:
13. 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.
14. Purchase securities of any issuer for the purpose of exercising
control or management, except in connection with a merger, consolidation,
acquisition or reorganization.
15. 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.
16. 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.
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17. 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.
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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.
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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
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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 4.78%, the compound
effective yield was 4.98%, and the Fund had an average weighted maturity of
investments of 38 days.
Government Securities Fund. For the seven day period ended December 31,
1996, the simple annualized yield of the Government Securities Fund was 4.68%,
the compound effective yield was 4.79%, and the Fund had an average weighted
maturity of investments of 44 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 3.26%, the
compound effective yield was 3.31%, and the Fund had an average weighted
maturity of investments of 34 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
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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
Signature Services, Incorporated ("JHSS") 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 JHSS 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.
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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
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<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.
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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-President of the Adviser since
February 1996, 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.
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.
- --------
* Trustee may be deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
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.
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 and Renzi are all officers of the Adviser as well as of
the Trusts.
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 3,775 3,928 10,339 20,800
Ernest T. Kendall 1,775 2,928 9,339 20,400
Richard B. Osterberg 3,775 3,928 10,339 20,400
Lawrence G. Kirshbaum 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
Patrick Grant(b) 715 766 2,292 4,200
Ralph Lowell, Jr.(b) 715 766 2,292 4,200
William Barron, III(b) 715 766 2,292 4,200
</TABLE>
(a) Includes compensation from the Tax Exempt Money Fund, Government
Securities Fund, Cash Management Fund, Freedom California Tax Exempt
Money Fund and FundManager Portfolios. The Trust does not provide any
pension or retirement benefits for the Trustees.
(b) Messrs. Grant, Lowell and Barron resigned as Trustees effective
December 31, 1995 but were compensated in fiscal year 1996 for certain
services performed in 1995.
As of January 31, 1997, Robert Bretholtz, Brookline Massachusetts was
the beneficial owner of approximately 6.82% 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 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 held by the
following companies and persons in approximately the following percentages:
Thomas H. Lee Equity Fund III., L.P. (49.9%), SCP Private Equity Partners, L.P.
(13.0%), John Hancock Subsidiaries, Inc. (4.9%) and 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"), Sutro & Co., Incorporated
and Tucker Anthony Incorporated ("Tucker Anthony" and together with Sutro and
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.
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 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 on 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 Fund paid the Adviser an
investment advisory fee of $6,993,034, $1,573,331 and $1,434,813 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, 1996 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>
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND [Flag Logo]
ONE BEACON STREET - BOSTON, MASSACHUSETTS 02108
(800) 453-8206 NATIONWIDE
Freedom California Tax Exempt Money Fund (the "Fund") is a no-load money
market fund. Its goal is to provide you with as high a level of current income
exempt from federal and California personal income taxes as is consistent with
the preservation of capital and the maintenance of liquidity.
The Fund seeks to maintain a stable net asset value of $1.00 per share. You
can invest, reinvest or redeem shares at any time without charge or penalty.
The Fund offers you a convenient way to invest in a portfolio of high
quality, short-term California Municipal Securities.
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE $1.00 PER SHARE NET ASSET VALUE. BECAUSE THE FUND IS NON-DIVERSIFIED AND
INVESTS PRIMARILY IN CALIFORNIA MUNICIPAL SECURITIES, AN INVESTMENT IN THE FUND
MAY BE RISKIER THAN AN INVESTMENT IN OTHER TYPES OF MONEY MARKET FUNDS.
This Prospectus sets forth concisely the information about the Fund 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, 1997, has been filed with th e Securities
and Exchange Commission and is available upon request without charge by writing
to the Fund 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.
FREEDOM CAPITAL MANAGEMENT CORPORATION
INVESTMENT ADVISER
SUTRO & CO. INCORPORATED
DISTRIBUTOR
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 CO NTRARY IS
A CRIMINAL OFFENSE.
PROSPECTUS -- February 28, 1997
ANNUAL REPORT -- December 31, 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
Certain Investment Strategies............................................. 6
Special Considerations and Risk Factors................................... 6
How to Purchase Shares.................................................... 7
How to Redeem Shares...................................................... 9
Freedom Asset Account..................................................... 12
Pricing of Our Shares..................................................... 12
Dividends................................................................. 13
Current Yield............................................................. 13
Taxes..................................................................... 13
Our Organization and Shares............................................... 15
Our Management............................................................ 15
Shareholder Services...................................................... 16
Additional Information.................................................... 17
Annual Report -- December 31, 1996........................................ 19
<PAGE>
INTRODUCTION
Freedom California Tax Exempt Money Fund (the "Fund") is an open-end
non-diversified investment company, commonly known as a money market mutual
fund. The 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, exempt from federal income tax and California personal
income tax.
BENEFITS TO OUR INVESTORS
The Fund offers 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 Fund's 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 the Fund without charge
for shares of the following money market funds in the Freedom Group of Money
Funds:
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, the
income of which is exempt from federal income tax.
Investments in the Fund are neither insured nor guaranteed by the U.S.
Government. There is no assurance that the Fund will be able to maintain a
stable $1.00 per share net asset value.
1
<PAGE>
SUMMARY OF OUR EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases.................................... None
Sales Load Imposed on Reinvested Dividends......................... None
Redemption Fees.................................................... None
Exchange Fees...................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)*
Management Fees (net of reimbursement or waiver)................. 0.35%
12b-1 Fees....................................................... None
Other Expenses................................................... 0.11%
TOTAL FUND OPERATING EXPENSES............................... 0.46%(a)
* For the fiscal year ended December 31, 1996.
(a) Annual operating expenses of the Fund in the table reflect the expenses that
were paid during the fiscal year ended December 31, 1996, net of the
Adviser's reimbursement or waiver of certain expenses amounting to 0.15%. In
the absence of a reimbursement or waiver by the Adviser, the Adviser's
management fees would have been .50% and the Fund's total operating expenses
would have been 0.61% of the Fund's net assets.
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
the Fund. For further information on management fees, see "Our Management."
EXAMPLE
The following example illustrates the effect of the Fund's expenses on the
value of a hypothetical $1,000 investment at the end of one, three, five and ten
year periods in the Fund. As noted in the table above, the Fund charges no
redemption fees of any kind. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR INVESTMENT RETURNS. ACTUAL EXPENSES
AND INVESTMENT RETURNS MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 1 Year 3 Years 5 Years 10 Years
investment, assuming (1) 5% annual return and (2) ------ ------- ------- --------
redemption at the end of each time period: $5 $15 $26 $58
</TABLE>
2
<PAGE>
OUR FINANCIAL HIGHLIGHTS
The table of FINANCIAL HIGHLIGHTS below represents a summary history of our
operations. The table uses the Fund's fiscal year (which ends December 31) and
expresses the information in terms of a single share outstanding throughout each
period. The table has been audited by Price Waterhouse LLP, ind ependent
accountants, whose unqualified report covering the fiscal periods 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
PERIOD BEGINNING INVESTMENT INVESTMENT END OF TOTAL PERIOD DAILY AVERAGE DAILY
ENDED OF PERIOD INCOME INCOME PERIOD RETURN** (THOUSANDS) NET ASSETS(a) NET ASSETS(a)
----- --------- ------ ------ ---- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996 $1.00 $0.0286 $(0.0286) $1.00 2.90% $115,337 0.46% 2.86%
December 31, 1995 1.00 0.0325 (0.0325) 1.00 3.29 85,204 0.47 3.25
December 31, 1994 1.00 0.0228 (0.0228) 1.00 2.32 72,659 0.46 2.28
December 31, 1993 1.00 0.0195 (0.0195) 1.00 1.96 90,479 0.33 1.95
December 31, 1992 1.00 0.0241 (0.0241) 1.00 2.45 67,929 0.29 2.41
December 31, 1991 1.00 0.0388 (0.0388) 1.00 3.94 50,005 0.27 3.89
December 31, 1990* 1.00 0.0183 (0.0183) 1.00 1.84 32,381 0.34 5.28+
</TABLE>
- ---------------
+ Annualized.
(a) Net of fees waived by the Adviser which amounted to $0.0015, $.0018, $.0020,
$.0028, $.0033, $.0042 and $.0017 per share in the years 1996, 1995, 1994,
1993, 1992, 1991 and 1990, respectively.
* From commencement of operations, August 27, 1990.
** Total return would have been lower had the Adviser not waived fees. Periods
less than a year are not annualized.
3
<PAGE>
OUR INVESTMENT OBJECTIVES
In order to provide you with liquidity, the Fund follows practices to
maintain a $1.00 share price: limiting its portfolio's 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 Fun d
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 the Fund invests in high quality securities, you should be aware that your
investment is not without risk even if all the securities i n the portfolio are
paid in full at maturity. The Fund has a fundamental investment objective with
an investment program to aid in achieving its objective. There is no assurance
that the Fund will achieve its investment objectives. All money market
instruments and debt securities, including short-term municipal securities, can
change in value when interest rates change or when an issuer's creditworthiness
changes.
The Fund will limit its portfolio investments 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 ("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"). The Fund will limit its i nvestments 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 a re unrated but
determined to be of comparable quality. All other Eligible Securities are
classified as second tier securities. A description of the ratings of the NRSROs
is contained in the Statement of Additional Information.
Investment Objective. The Fund seeks to achieve as high a rate of current
income exempt from federal and California personal 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 invests primarily in high quality short-term
California municipal securities ("California Municipal Securities") which are
described below. Normally, the Fund will seek to invest substantially a ll of
its assets in California Municipal Securities. 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 and California personal income taxes. Howe ver, under certain
circumstances, such as a decline in the issuance of California Municipal
Securities, the Fund may invest up to 20% of its assets in the following:
short-term, high quality municipal securities issued outside of California (the
income from which may be subject to California person al income taxes) and
certain high quality, taxable fixed income securities (the income from which may
be subject to federal and California personal income taxes). For temporary
defensive purposes, such as a national financial emergency, the Fund reserves
the right to invest more than 20% of its ass ets in securities other than
California Municipal Securities.
4
<PAGE>
Subject to the same 20% limit, the Fund is also authorized to invest in
California Municipal Securities subject to the federal individual alternative
minimum tax. The income from such securities is exempt from regular federal and
California personal income taxes, but may be a tax preference item for purposes
of the federal alternative minimum tax.
California Municipal Securities. "California Municipal Securities" are
generally understood to include debt obligations issued by the State of
California and its political subdivisions to obtain funds for various public
purposes. Such securities may have fixed or adjustable rates of interest. Cal
ifornia Municipal Securities are classified into two principal categories:
municipal bonds and municipal notes. Municipal bonds can be further classified
into three basic categories: general obligation bonds, revenue bonds and
industrial development bonds. General obligation bonds are secured by th e
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenue derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source, but not from
the general taxing power. In addition, certain types of "industrial development
bonds" issued by or on behalf of public authorities to obtain funds for
privately-operated facilities are included in the term California Municipal
Securities, provided that the interest paid thereon qualifie s as exempt from
federal and California state income taxes. Tax exempt industrial development
bonds, in most cases, are revenue bonds and do not generally carry the pledge of
the credit of the issuing municipality. Municipal notes, which are short-term
instruments, are obligations of the issuing mu nicipalities or agencies and are
sold in anticipation of a bond sale, collection of taxes or receipt of other
revenues.
The Fund will not generally invest more than 25% of its total assets in any
industry. Tax exempt California Municipal Securities issued by the State of
California and its political subdivisions are not considered part of any
industry. However, "industrial development bonds" described above will be
subject to this limitation. It is possible that the Fund may from time to time
invest more than 25% of its assets in a particular segment of the California
Municipal Securities market, such as hospital revenue obligations, housing
agency obligations, or airport revenue obligations. This would be the case only
if the Adviser determined that the yields available from obligations in a
particular segment of the market justified the additional risks associated with
such concentration. Economic, business, political and other developments
generally affecting the revenues of issuers in a market se gment (e.g. proposed
legislation or pending court decisions affecting the financing of projects and
market factors affecting the demand for their services or products) may have a
general adverse effect on all municipal securities in the segment. The Fund
reserves the right to invest more than 25% of its assets in industrial
development bonds. However, the interest on certain tax exempt securities which
the Fund may purchase will be included in income subject to the federal
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.
The Fund may invest in certain variable and floating rate demand notes.
Such securities have interest rates that are adjusted periodically. 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
and so may be treated as short-term investments under certain circumstances.
Certain of the California Municipal Securities may be backed by a letter of
credit issued by a domestic or 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 and Risk Factors."
5
<PAGE>
CERTAIN INVESTMENT STRATEGIES
Repurchase Agreements. The Fund 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. These transactions must be fully collateralized
at all times, but involve some credit risk to the Fund if the other party should
default on its obligation and the Fund is delayed or prevented from recovering
the collateral.
When-Issued Securities. The 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. If the Fund
invests in securities of this type, it will maintain a segregated account with
its custodian to pay for them and mark it to market daily.
Borrowing. The 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. The Fund may invest up to 10% of its net assets in
securities for which no readily available market exists or which are otherwise
illiquid (including repurchase agreements maturing in more than one week). The
Fund may purchase restricted securities eligible for resale to "qual ified
institutional buyers" pursuant to Rule 144A under the Securities Act of 1933.
However, if the Trustees determine that they 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. The Trustees will carefully
monitor the Fund's investments in these securities, 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 Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
SPECIAL CONSIDERATIONS AND RISK FACTORS
The ability of the Fund to achieve its investment objectives is dependent
on the continuing ability of the issuers of California 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 ot her types
of investments, California 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 California Municipal Securities that are backed by a letter
of credit issued by a foreign bank, the Fund considers the bank to be the
ultimate obligor and credit risk. 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.
There are risks in any investment program, and there is no assurance that
the Fund will achieve its investment objective. California Municipal Securities
are subject to relative degrees of credit risk and market volatility. Credit
risk relates to the issuer's (and any guarantor's) ability to make timely
6
<PAGE>
payments of principal and interest. Market volatility relates to the changes in
market price that occur as a result of variations in the level of prevailing
interest rates and yield relationships between sectors in the tax exempt
securities market and other market factors.
You should be aware that certain California constitutional amendments,
legislative measures, executive orders, administrative regulations, voter
initiatives and judicial decisions could result in certain adverse consequences
affecting California Municipal Securities. For instance, certain provision s of
the California Constitution and statutes that limit the taxing and spending
authority of California governmental entities may impair the ability of the
issuers of some California Municipal Securities to maintain debt service on
their obligations. Other measures affecting the taxing or spending authority of
California or its political subdivisions may be approved or enacted in the
future. Finally, the Fund will be affected by general changes in interest rates
nationally which will result in increases or decreases in the value of the
securities held by the Fund. For a more detailed discussion of the risks to
which California Municipal Securities are subject, see the Statement of
Additional Information.
The Fund is a "non-diversified" fund as defined in the Investment Company
Act of 1940. As a non-diversified fund, the Fund may invest a larger percentage
of its assets in individual issuers than a diversified fund. To the extent the
Fund makes investments in excess of five percent of its assets in a particular
issuer, its exposure to credit and market risks associated with that issuer is
increased and such investments, therefore, may make an investment in the Fund
riskier than an investment in a diversified fund. However, the Fund will be
subject to diversification requirements imposed under the Internal Revenue Code.
Except for the Fund's investment objective and certain investment
restrictions designated as fundamental in the Statement of Additional
Information, the investment policies described in this Prospectus and in the
Statement of Additional Information are not fundamental policies. The Trustees
may change any non-fundamental investment policies without shareholder approval.
HOW TO PURCHASE SHARES
GENERAL
Shares of the Fund are distributed by Freedom Distributors Corporation
("Freedom") and Sutro & Co. Incorporated ("Sutro"). State Street Bank and Trust
Company ("State Street") acts as the Fund's custodian. John Hancock Signature
Services, Incorporated ("JHSS") acts as the Fund's shareholder services and
transfer agent. You may open an account in the Fund by placing an order for at
least $1,000. You may then make subsequent investments of $100 or more.
Shares of the Fund 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 Sutro, utilizing an existing or new se curities
brokerage account with a Sutro account executive, or (2) directly through JHSS.
Orders to purchase shares do not become effective until receipt of "Federal
Funds" (monies credited to JHSS's account with its registered Federal Reserve
Bank) by JHSS. Whether you purchase shares through Sutro or directly through
JHSS, certificates for shares will not be issued.
7
<PAGE>
There is no minimum amount for initial or subsequent investment in
connection with purchases through the automatic "sweep" program (described
below) sponsored by Sutro. Where a bank, investment adviser or similar
institution has a large number of accounts and is willing to receive a monthly
summa ry 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 SUTRO
Purchase Through Sutro. If you have a brokerage account with Sutro, and have
not elected the automatic "sweep" program described below, you may purchase the
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). See "Sweep Program" below. If a properly completed order to
purchase Fund shares is received at any Sutro office before 12:00 noon New York
time and paid utilizing a free credit balance available on a brokerage account,
Sutro will transfer Federal Funds to the Fund and your order will be executed on
the same day. If a properly completed order to purchase Fund shares is received
at any Sutro office after 12:00 noon New York time and paid utilizing a free
credit balance available on a brokerage account, 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, Sutro may benefit
from the use of free credit balances in your account prior to their transfer to
the Fund.
Sutro will receive statements and dividends directly from the Fund and will
in turn provide you with account statements reflecting the Fund's purchases,
redemptions and dividend payments.
"Sweep" Program. You may also purchase the Fund's shares by participating
in the "sweep" program sponsored by Sutro in which any free credit balance (in
available funds) of any amount in your brokerage account is invested in the Fund
automatically no less frequently than weekly. Under the terms of this program,
you may have your free credit balance invested in shares of the Fund. Free
credit balances (in available funds) of $2,000 or more will be invested in
shares of the Fund automatically on the next business day and dividends on such
shares will begin on that 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 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 Fund owned by you will be redeemed at 12:00
noon the following business day to satisfy any remaining debits in the brokerage
account. Sutro may benefit from the use of free credit balances in your account
prior to their transfer to the Fund.
If you wish additional information concerning the "sweep" program, please
call your account executive.
8
<PAGE>
OTHER INVESTORS -- PURCHASE BY CHECK OR WIRE
Purchase by Mail. On an initial purchase, complete the Purchase Application
included in this Prospectus, indicating each of the services to be used, and
mail it, together with a check written against a U.S. bank and payable to
Freedom California Tax Exempt Money Fund, to:
John Hancock Signature Services, Incorporated
Freedom California Tax Exempt Money Fund
Attention: Dealer Services
P.O. Box 9102
Boston, Massachusetts 02205-9102
Subsequent purchases of $100 or more may also be made through JHSS 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 the Fund will be executed at the price next
determined after Federal Funds become immediately available to the Fund. Federal
Funds normally do not become available to the 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 ta ke longer to be
converted into Federal Funds. When you purchase shares by check, the Fund can
hold payment on redemptions until it is 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 the Fund through
JHSS by means of a wire order. Please call JHSS toll free at (800) 257-3336 for
instructions. You should then give instructions to your wiring bank to transmit
the specified amount in Federal Funds to: FirstSignature Bank & Trust,
Portsmouth, New Hampshire -- Freedom Group of Money Funds, Attention: Freedom
California Tax Exempt Money Fund, 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 JHSS 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 JHSS 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 JHSS. For your convenience, and so that you can continue
earning daily dividends for as long as possible, the Fund has 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.
9
<PAGE>
Shares of the Fund may be redeemed in several ways: (1) shares purchased
through a 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 SUTRO BROKERAGE ACCOUNT
In order to redeem shares purchased through a 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
Sutro office after 12:00 noon New York time, your order will be forw arded to
the 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 with out specific
instruction, and 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 Sutro brokerage account. Any such redemption requests
received by JHSS will be forwarded to the appropriate 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 the net asset value next
determined. If you send your redemption order to JHSS by mail, you must assume r
esponsibility 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 were 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 redemption are mailed to your address of record. If you
are uncertain as to the requirements for redemption, please call JHSS toll free
at (800) 257-3336. All redemption requests by mail should be mailed to:
John Hancock Signature Services, Incorporated
Freedom California Tax Exempt Money Fund
Attention: Dealer Services
P.O. Box 9102
Boston, Massachusetts 02205-9102
10
<PAGE>
Expedited Redemptions. If you have elected the expedited redemption option
on the Purchase Application on file with JHSS and wish to redeem $5,000 or more
from the Fund, you may request that payment be made in Federal Funds.
Shareholders may place orders for expedited redemption with JHSS without a
signature guarantee and have the proceeds sent by wire to a bank or trust
company account previously designated in writing. Please call JHSS toll free at
(800) 257-3336 for instructions. If the expedited redemption order is received
by JHSS'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 JHSS if
you do not have a brokerage account. If you have elected the checkwriting
service on the Purchase Application on file with JHSS, 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, trust, etc.) in any
amount. When your check is presented for payment, JHSS 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 JHSS 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 Fund reserves 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 for each stop payment order or check returned for
"insufficient funds."
ADDITIONAL INFORMATION ON REDEMPTION
Because the Fund incurs fixed costs in maintaining shareholder accounts,
the Fund reserves the right to involuntarily redeem shareholder accounts which
have less than $500 in them as of the end of any month. If the Fund elects to
redeem such accounts, it will notify the shareholders of its
11
<PAGE>
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 Fund 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 Fund in conjunction with a program of four financial services: (1)
a Sutro securities margin account ("securities account"); (2) one of the Freedom
Family of Money Market 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 FUND 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.
PRICING OF OUR SHARES
The net asset value per share of the Fund 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 JHSS 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 JHSS 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 the Fund,
less liabilities, and dividing by the number of shares of the Fund outstanding.
To determine the value of the assets of the 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.
12
<PAGE>
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, the 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 ma rket funds,
may also be used in comparing the performance of the Fund to other money market
funds with similar investment objectives. The Fund calculates its annualized
simple and compound yields based on a seven-day period. Since net investment
income of the Fund changes in response to fluctuation s in interest rates and
Fund expenses, any given yield quotation should not be considered representative
of the Fund's yield for any future period. CURRENT YIELD INFORMATION FOR THE
FUND MAY BE OBTAINED BY CALLING TOLL-FREE AT 1-800-453-8206.
TAXES
The Fund intends to qualify for tax treatment as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code") and applicable California law so as to be able to pay dividends
which will be exempt from federal and California personal income tax es.
Distributions of net short-term capital gains, if any, or any dividends from
taxable net investment income are taxable as ordinary dividends, whether
received in cash or reinvested in additional shares. Distributions of long-term
capital gains, if any, are taxable as such regardless of how long shares of the
Fund are held and whether paid in cash or reinvested in additional shares of the
Fund. In general, such taxable income distributions from the Fund are expected
to be negligible in comparison with tax exempt dividends. However, under unusual
circumstances, the Fund may invest in secur ities other than California
Municipal Securities. In such cases, a portion of the Fund's income may be
subject to California personal income taxes, federal income taxes, or both. For
corporate investors, dividends are not excludable in computing California
franchise or corporate income tax.
The Fund will inform you of the amount and nature of its distributions
annually. The Fund is 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
reg ulations. 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.
13
<PAGE>
The table below shows California taxpayers what an investor would have to
earn from a comparable taxable investment to equal the Fund's double tax-free
yield.
<TABLE>
<CAPTION>
HYPOTHETICAL
FREEDOM CALIFORNIA TAX EXEMPT
1997 Taxable Income* COMBINED CALIFORNIA MONEY FUND YIELD OF
-------------------------------------- AND FEDERAL MARGINAL
Single Return*** Joint Return INCOME BRACKET** 2% 3% 4% 5%
---------------- --------------------- --------------------------- ------- ------- ------- ---------
EQUIVALENT TAXABLE YIELD
<C> <C> <C> <C> <C> <C> <C>
$1- 4,908 $1 - 9,816 15.85% 2.38% 3.57% 4.75% 5.94%
$4,909 - 11,632 $9,817 - 23,264 16.70% 2.40% 3.60% 4.80% 6.00%
$11,633 - 18,357 $23,265 - 36,714 18.40% 2.45% 3.68% 4.90% 6.13%
$18,358 - 22,100 $36,715 - 36,900 20.10% 2.50% 3.75% 5.01% 6.26%
$22,101 - 25,484 $36,901 - 50,968 32.32% 2.96% 4.43% 5.91% 7.39%
$25,485 - 32,207 $50,969 - 64,414 33.76% 3.02% 4.53% 6.04% 7.55%
$32,208 - 53,500 $64,415 - 89,150 34.70% 3.06% 4.59% 6.13% 7.66%
$53,501 - 115,000 $89,151 - 140,000 37.42% 3.20% 4.79% 6.39% 7.99%
$115,001 - 250,000 $140,001 - 250,000 41.95% 3.45% 5.17% 6.89% 8.61%
$250,001 - up $250,001 - up 45.22% 3.65% 5.48% 7.30% 9.13%
</TABLE>
* Net amount subject to federal income tax after deductions and exemptions.
** This table is a combination of the 1997 federal and the 1996 California
taxable income brackets which are adjusted annually for inflation.
California will announce its inflation adjusted tax rates after May of 1997.
Thus, the above tax brackets are based on the most recent information
available, are subject to change, and should not be relied upon. The above
table does not apply to corporate investors. To implement the phase-out of
personal exemption deductions for single taxpayers having 1997 adjusted
gross taxable income of more than $117,950 (estimated) and married taxpayers
(filing jointly) having 1997 adjusted gross taxable income of more than
$176,950 (estimated), the exemption deduction is reduced by two percent for
each $2,550 (estimated) by which adjusted gross income exceeds the threshold
amount. For taxpayers filing a joint return having adjusted gross income of
more than $117,950 (estimated) or married taxpayers filing separate returns
having adjusted gross income of $58,975 (estimated), certain allowable
itemized deductions are reduced. These adjustments may result in combined
marginal tax rates greater than those indicated. In addition, for investors
who pay alternative minimum tax, tax-free yields may be equivalent to lower
yields than those shown above.
*** Other than surviving spouses, heads of households and married filing
separately.
Of course, there is no assurance that the Fund will achieve any specific
tax exempt yield. While it is expected that the Fund will invest principally in
California Municipal Securities, other income received by the Fund may be
taxable. The table does not take into account any state or local taxes payable
on Fund distributions except for California personal income tax.
14
<PAGE>
OUR ORGANIZATION AND SHARES
Freedom California Tax Exempt Money Fund is a separate series of Freedom
Group of Tax Exempt Funds, an open-end management investment company organized
as a Massachusetts business trust on June 1, 1982. The Board of Trustees
supervises our activities and reviews our contractual arrangements with co
mpanies 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. The Fund has the right to invest all of its
assets in the securities of a single open-end management investm ent company
with substantially the same fundamental investment objectives, policies and
limitations as the Fund, although the management of the Fund currently has no
intention to do so. Each share of the Fund has equal dividend, redemption and
liquidation rights and when issued is fully paid and no nassessable. 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).
Under the 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 the
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 the 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.
OUR MANAGEMENT
The Board of Trustees and officers provide broad supervision over the
affairs of the Fund.
Adviser
The Fund's Adviser, Freedom Capital Management Corporation, One Beacon
Street, Boston, Massachusetts provides the Fund with overall investment advisory
and administrative services, as well as general office facilities pursuant to an
advisory agreement (the "Advisory Agreement"). As compensation for its services,
under the Advisory Agreement the Adviser receives 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 Agreement
are paid by the Fund. These include, but are not limited to, taxes, legal,
transfer agent, custodian and auditing fees and printing and other expenses
related to the Fund's operations. Total expenses for the Fund for the year ended
December 31, 1996, reflected as an annualized percentage of the Fund's average
net assets, were 0.46%.
15
<PAGE>
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 Fund's shares, is a wholly-owned subsidiary of
the Adviser and an indirect subsidiary of JHFSC Acquisition Corp. Sutro, a
brokerage firm which is a member of the New York Stock Exchange and a
Distributor of the Fund's shares, is also an indirect, wholly-owned 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 Fund's shares and is an indirect 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 JHSS or monthly
from Sutro, showing the activity in your account.
Shares are maintained by the Fund on its register maintained by JHSS, and
the holders thereof will have the same rights and ownership with respect to such
shares as if certificates had been issued.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged without charge for shares of the
following money market funds in the Freedom Group of Money Funds:
o Freedom Cash Management Fund -- A money market fund investing in a
diversified portfolio of high-grade money market instruments.
o 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.
o Freedom Tax Exempt Money Fund -- A money market fund investing in a
diversified portfolio of high quality short-term municipal securities,
the income of which is exempt from federal income tax.
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 Fund on the date the
exchange request is received.
IF YOU HAVE A BROKERAGE ACCOUNT WITH SUTRO, YOU MUST PLACE EXCHANGE ORDERS
THROUGH YOUR ACCOUNT EXECUTIVE. IF YOU DO NOT HAVE AN ACCOUNT WITH SUTRO, YOU
MAY MAKE AN EXCHANGE IN WRITING OR BY TELEPHONE. Exchanges of shares can be made
by writing John Hancock Signature Services, Incorporated: Freedom Group of Money
Funds, Attention: Freedom Funds, Attention: Dealer Services, P.O. Box 9102,
Boston, Massachusetts 02205-9102. If you do not have a brokerage account with
16
<PAGE>
Sutro, you also have the automatic privilege of exchanging your shares
by telephone. To place a telephone exchange request, call JHSS at ( 800)
257-3336. JHSS 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 reaso nable
procedures, such as those described above, are not followed, the Fund may be
liable for any loss due to unauthorized or fraudulent instructions. In all other
cases, neither the Fund nor JHSS 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 to: John Hancock
Signature Services, Incorporated, 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 Fund reserves
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 Prospectus describing the Fu nd or Funds 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.
ADDITIONAL INFORMATION
QUESTIONS ABOUT THE FUND
For further information about the Fund, please contact your Sutro account
executive or call JHSS toll-free at (800) 257-3336.
TRANSFER AGENT, CUSTODIAN AND SHAREHOLDER SERVICES
John Hancock Signature Services, Incorporated ("JHSS") acts as transfer and
shareholder services agent for the Fund. JHSS 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 Fund.
Freedom Services Corporation ("FSC"), under the terms of a Service
Agreement with the Fund, 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 Fund through their brokerage a ccounts
at Sutro. FSC receives from the Fund an annual fee of $10.50 per account in
payment for the shareholder services it provides. Transfer agent charges from
JHSS are reduced for those Sutro 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 Fund.
17
<PAGE>
The financial statements of the Fund for the year ended December 31, 1996
appear on pages 19 through 28.
This Prospectus does not contain all the information included in the
Registration Statement 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 regulat
ions of the Securities and Exchange Commission. The Registration Statement
including the exhibits filed herewith 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 Statement of which this Prospectus forms a
part, each such statement being qualified in all respects by such reference.
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
(A Series of Freedom Group of Tax Exempt Funds)
In our opinion, the accompanying statements of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights appearing on page 3 of
the Prospectus present fairly, in all material respects, the financial position
of the Freedom California Tax Exempt Money Fund (the "Fund") at December 31,
1996, the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
January 31, 1997
19
<PAGE>
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
INVESTMENTS AS OF DECEMBER 31, 1996
PRINCIPAL
AMOUNT DESCRIPTION VALUE
------ ----------- -----
MUNICIPAL SECURITIES -- 98.1%
$2,190,000 Alameda County Multi- Family
Mortgage Bonds (Quail Run Apartments)
(FNMA Insured) 4.05%
1/2/97 $ 2,190,000
3,100,000 Alameda County TRANS 4.50% 6/30/97 3,109,549
1,300,000 Anaheim MFHA Series 85A (Harbor Cliff Project)
(Bank of America LOC) 4.00% 1/2/97 1,300,000
1,300,000 California Health Facilities
Authority (Catholic West -- B) (MBIA Insured/
Rabobank LOC) 4.00% 1/2/97 1,300,000
3,100,000 California Health Facilities Authority
(Catholic West -- C) (MBIA Insured/ Morgan
Guaranty LOC) 4.00% 1/2/97 3,100,000
400,000 California Health Facilities Authority
(Catholic West -- C) (MBIA Insured/ Rabobank
LOC) 4.00% 1/2/97 400,000
1,000,000 California Health Facilities Authority
(Kaiser Permanente) 4.00% 1/2/97 1,000,000
4,300,000 California Health Facilities Authority (St.
Francis Hospital) (Bank of America LOC) 4.05%
1/2/97 4,300,000
500,000 California PCFA Revenue Bonds (Chevron) 3.70%
5/15/97 500,000
900,000 California PCFA Revenue Bonds (Pacific Gas
& Electric) (Bank of America LOC) 4.75% 1/2/97 900,000
1,350,000 California PCFA Revenue Bonds (Southern
California Edison) 3.40% 1/6/97 1,350,000
2,000,000 California RANS 4.05% 6/30/97 2,000,000
PRINCIPAL
AMOUNT DESCRIPTION VALUE
------ ----------- -----
$2,000,000 California RANS 4.50% 6/30/97 $ 2,005,027
3,000,000 California School Cash Reserve Program 4.75%
7/2/97 3,012,960
1,000,000 California Statewide Community Development
Authority (Dresdner LOC) 5.00% 1/2/97 1,000,000
1,210,000 Central Coast Water Authority Series 96A
(AMBAC Insured) 4.00% 10/1/97 1,213,051
1,300,000 Duarte Redevelopment Agency Series A (Bank
of America LOC) 3.95% 1/2/97 1,300,000
7,000,000 Foothill/Eastern Transportation Agency
Series 95B (Morgan Guaranty LOC) 3.90% 1/2/97 7,000,000
1,800,000 Independent Cities (National Westminster
LOC) 4.00% 1/2/97 1,800,000
1,400,000 Irvine Ranch Water District Revenue Bonds
(Bank of America LOC) 5.00% 1/2/97 1,400,000
600,000 Irvine Ranch Water District Revenue Bonds
(Commerzbank LOC) 5.00% 1/2/97 600,000
500,000 Irvine Ranch Water District Revenue Bonds
(Landesbank Hessen LOC) 5.00% 1/2/97 500,000
6,700,000 Kern County (Union Bank of Switzerland LOC)
4.00% 1/2/97 6,700,000
1,800,000 Los Angeles County Housing Authority
(Citibank LOC) 3.00% 1/7/97 1,800,000
3,100,000 Los Angeles County IDA (Hon Industries
Project) (Morgan Guaranty LOC) 3.95% 1/2/97 3,100,000
See Notes to Financial Statements.
20
<PAGE>
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
INVESTMENTS AS OF DECEMBER 31, 1996 -- (CONTINUED)
PRINCIPAL
AMOUNT DESCRIPTION VALUE
------ ----------- -----
MUNICIPAL SECURITIES -- (CONTINUED)
$1,200,000 Los Angeles County Pension Obligation Bonds
Series 96B (AMBAC Insured/
Canadian Imperial Bank of Commerce LOC) 3.90%
1/2/97 $ 1,200,000
2,000,000 Los Angeles County Pension Obligation Bonds
Series 96C (AMBAC Insured/ Bank of Nova Scotia
LOC) 3.90% 1/2/97 2,000,000
1,500,000 Los Angeles County USD TRANS Series 96-97 4.50%
6/30/97 1,504,985
1,000,000 Los Angeles County USD TRANS Series 96-97 4.50%
9/30/97 1,003,683
1,000,000 Los Angeles County USD TRANS (Morgan Guaranty/
Credit Suisse LOC) 4.50% 6/30/97 1,002,564
3,300,000 Mountain View Housing Authority (Villa
Mariposa Project) (FGIC-SPI Insured) 4.00%
1/2/97 3,300,000
2,000,000 Orange County Sanitation District (AMBAC
Insured/ Barclays Bank LOC) 4.00% 1/2/97 2,000,000
1,500,000 Orange County Housing Authority (Costa Mesa
Project) (Chemical Bank LOC) 4.05% 1/2/97 1,500,000
5,100,000 Palm Springs Community Redevelopment Agency
(Citibank LOC) 4.00% 1/2/97 5,100,000
1,500,000 Puerto Rico Industrial, Medical &
Environmental PCFA (Shering Plough) (Morgan
Guaranty LOC) 3.75% 12/1/97 1,502,004
2,900,000 Riverside County (National Westminster LOC)
2.80% 1/7/97 2,900,000
PRINCIPAL
AMOUNT DESCRIPTION VALUE
------ ----------- -----
$2,000,000 Riverside County TRANS 4.50% 6/30/97 $ 2,005,687
3,500,000 Riverside County TRANS (Toronto Dominion Bank
LOC) 3.90% 1/2/97 3,500,000
1,000,000 Sacramento County MFHA Agency (Grouse Run)
Series 90A (Bank of America LOC) 4.05% 1/2/97 1,000,000
1,500,000 Sacramento Municipal Utility District
(Bayerische Landesbank LOC) 3.35% 1/2/97 1,500,000
1,000,000 Sacramento Municipal Utility District
(Bayerische Landesbank LOC) 3.50% 1/3/97 1,000,000
1,000,000 Sacramento Municipal Utility District
(Bayerische Landesbank LOC) 3.30% 1/13/97 1,000,000
1,000,000 Sacramento Municipal Utility District
(Bayerische Landesbank LOC) 3.35% 1/23/97 1,000,000
2,600,000 San Bernardino County (Canadian Imperial Bank
of Commerce LOC) 4.00% 1/2/97 2,600,000
3,000,000 San Diego County TRANS Series A 4.50% 7/2/97 3,010,800
2,000,000 San Francisco Redevelopment Agency (Citibank
LOC) 3.00% 1/7/97 2,000,000
500,000 San Jose MFHA (Fairway Glen Apartments) (FGIC-
SPI Insured) 4.00% 1/2/97 500,000
300,000 San Jose MFHA (Foxchase Apartments) (FGIC-SPI
Insured) 4.00% 1/2/97 300,000
4,000,000 Santa Clara County (Foxchase Apartments MFHA
(FGIC-SPI Insured) 4.00% 1/2/97 4,000,000
See Notes to Financial Statements.
21
<PAGE>
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
INVESTMENTS AS OF DECEMBER 31, 1996 --(CONTINUED)
PRINCIPAL
AMOUNT DESCRIPTION VALUE
------ ----------- -----
MUNICIPAL SECURITIES -- (CONTINUED)
$1,900,000 Santa Clara Electric Revenue Bonds (National
Westminster LOC) 3.95% 1/2/97 $ 1,900,000
2,000,000 Simi Valley Housing Authority (Bank of America
LOC) 4.00% 1/2/97 2,000,000
5,400,000 Southern California Public Power District
(Swiss Bank LOC) 3.90% 1/2/97 5,400,000
2,485,000 Vallejo County Housing Authority (FNMA
Insured) 4.05% 1/2/97 2,485,000
2,000,000 West & Central Basin Finance Authority
(Toronto Dominion Bank LOC) 3.55% 1/9/97 2,000,000
---------
TOTAL INVESTMENTS -- 98.1% 113,095,310(A)
-----------
Other Assets & Liabilities, Net -- 1.9% 2,241,335
-----------
TOTAL NET ASSETS -- 100.0% $115,336,645
============
Legend:
IDA -- Industrial Development Authority
LOC -- Letter of Credit
MFHA -- Multi-Family Housing Authority
PCFA -- Pollution Control Financing Authority
RANS -- Revenue Anticipation Notes
TRANS -- Tax & Revenue Anticipation Notes
Insurance Abbreviations:
AMBAC -- American Municipal Bond Assurance Corporation
FGIC-SPI -- Federal Guaranty Insurance Corporation-
Securities Purchase Inc.
FNMA -- Federal National Mortgage Association
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.
22
<PAGE>
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
ASSETS
Investments, at amortized cost $ 113,095,310
Cash 657,085
Receivable for Fund shares sold 1,270,203
Interest receivable 801,252
Prepaid expenses 5,484
-----------
TOTAL ASSETS 115,829,334
-----------
LIABILITIES
Payable for Fund shares redeemed 414,316
Dividends payable 10,999
Accrued expenses:
Investment adviser's fee 35,529
Transfer agent & shareholder servicing fee 13,957
Audit fees 4,906
Printing and postage 3,497
Trustees' fee 2,473
Other 7,012
------------
TOTAL LIABILITIES 492,689
------------
NET ASSETS $115,336,645
============
NET ASSETS CONSIST OF:
Capital paid in $115,334,437
Accumulated net realized gain 2,208
------------
$115,336,645
============
SHARES ISSUED AND OUTSTANDING (UNLIMITED SHARES
AUTHORIZED) 115,334,437
------------
NET ASSET VALUE PER SHARE $ 1.00
============
See Notes to Financial Statements
23
<PAGE>
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
STATEMENT OF OPERATIONS
DECEMBER 31, 1996
INTEREST INCOME $ 3,507,030
-----------
EXPENSES
Investment adviser's fee 528,064
Transfer agent & shareholder services 51,605
Custodian 2,285
Printing, postage and stationery 16,510
Registration expense 6,360
Membership dues 3,384
Insurance expense 3,529
Legal 10,020
Audit 12,825
Compensation of Trustees 5,290
Other 735
-----------
Total expenses before waiver 640,607
Less: Fees waived by Adviser (158,420)
-----------
NET EXPENSES 482,187
-----------
NET INVESTMENT INCOME 3,024,843
-----------
NET REALIZED GAIN/LOSS ON INVESTMENTS --
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,024,843
===========
See Notes to Financial Statements
24
<PAGE>
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 3,024,843 $ 2,827,034
Net realized gain/loss on investments -- --
------------- -------------
Net increase in net assets resulting from operations 3,024,843 2,827,034
------------- -------------
DIVIDENDS TO SHAREHOLDERS (3,024,843) (2,827,034)
------------- -------------
-- --
------------- -------------
CAPITAL SHARE TRANSACTIONS:
(At Net Asset Value of $1 per share)
Proceeds from sale of shares 385,547,845 304,441,189
Net asset value of shares issued to shareholders in
reinvestment of dividends 2,968,834 2,768,062
Cost of shares redeemed (358,384,518) (294,663,687)
------------- -------------
Net increase from capital share transactions 30,132,161 12,545,564
------------- -------------
Net increase in net assets 30,132,161 12,545,564
NET ASSETS:
Beginning of year 85,204,484 72,658,920
------------- -------------
End of year $ 115,336,645 $ 85,204,484
============= =============
DIVIDENDS TO SHAREHOLDERS PER SHARE $ 0.0286 $ 0.0325
============= ============
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
(A SERIES OF FREEDOM GROUP OF TAX EXEMPT FUNDS)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES. 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
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. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation and Transactions. The Fund values its portfolio
securities utilizing the amortized cost valuation method. This method involves
valuing a portfolio security at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium. Cost is determined and
gains and losses are based upon the specific identification method for both
financial statement and federal income tax purposes. Investment securities
transactions are accounted for on the date the securities 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 transaction. 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
identifiable to an individual fund. Expenses which are not readily identifiable
as belonging to a specific fund are allocated in such a manner as deemed
equitable by the Trustees, taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
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 remuneration is
paid by the Trust to any Trustee or officer of the Trust who is affiliated with
Freedom Capital Management Corporation, the Trust's adviser.
The Trust has entered into an insurance agreement with ICI Mutual Insurance
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.
26
<PAGE>
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
(A SERIES OF FREEDOM GROUP OF TAX EXEMPT FUNDS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 required.
Interest Income and Dividends to Shareholders. Interest income is accrued as
earned. Dividends to shareholders are declared daily from net investment income,
which consists of interest accrued or discount earned (including 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 certain 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 parent of Freedom
Distributors Corporation as well as an affiliate of Sutro & Co., Inc. ("Sutro")
and Tucker Anthony Incorporated ("Tucker Anthony"). All are wholly owned
subsidiaries of Freedom Securities Corporation ("Freedom Securities"), formerly
John Hancock Freedom Securities. On November 29, 1996, John Hancock
Subsidiaries, Inc. sold approximately 95% of its interest in Freedom Securities
to an investor group which will include certain members of management and
employees of Freedom Securities and its subsidiaries, including FCMC. The
consummation of the transaction resulted in a change of control of the Adviser,
causing the advisory agreement between FCMC 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. Shareholders have subsequently approved the new advisory
agreement, as necessitated by this change in control. The new advisory agreement
is substantially the same as the prior advisory agreement.
FCMC, the investment advisor of the Trust, furnishes the Fund with
administration and other services and office facilities in Boston. For these
services and facilities, 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
hundredths 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.
FCMC may voluntarily waive part or all of its management fee for a period
under the terms of the advisory agreement. Such waivers were provided to the
Fund for the year ended December 31, 1996 and may be discontinued at any time.
27
<PAGE>
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
(A SERIES OF FREEDOM GROUP OF TAX EXEMPT FUNDS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Sutro, Tucker Anthony and Freedom Distributors Corporation act as
distributors of the Fund's shares and receive no compensation for such services.
Freedom Services Corporation (formerly John Hancock Clearing Corporation),
received reimbursements of $23,865 for maintaining and servicing certain
shareholder accounts for the year ended December 31, 1996.
John Hancock Signature Services, Inc. ("JHSS"), formerly John Hancock
Investor Services Corp., a wholly-owned subsidiary of the Berkeley Financial
Group is transfer agent for the Fund. JHSS received $27,740 for the year ended
December 31, 1996.
NOTE 3. Purchases and sales (including maturities) of investments for the
year ended December 31, 1996 were as follows:
Purchases of investments................... $324,595,825
Sales of investments....................... $294,629,030
28
<PAGE>
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] 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 consti-
tute an offering by the Fund or by the Distributors in any
jurisdiction in which such offering may not lawfully be made.
F01ARR 0296 [Recycled Bug]
FREEDOM
CALIFORNIA
[Logo of Bear & Flag]
TAX EXEMPT
MONEY FUND
PROSPECTUS AND
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FREEDOM GROUP OF TAX EXEMPT FUNDS
Freedom California Tax Exempt Money Fund
(The "Fund")
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Fund's Prospectus dated February 28, 1997, 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,
1997.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
GENERAL INFORMATION...............................................................................................1
INVESTORS FOR WHOM THE FUND IS DESIGNED...........................................................................1
INVESTMENT OBJECTIVES AND POLICIES................................................................................2
Additional Information on California Municipal Securities................................................2
Risk Factors - California Municipal Securities...........................................................4
Special Types of California Municipal Securities.........................................................7
Temporary Taxable and Tax-Exempt Investments.............................................................8
Risk Considerations......................................................................................9
INVESTMENT RESTRICTIONS...........................................................................................9
PORTFOLIO TRANSACTIONS...........................................................................................11
CURRENT YIELD....................................................................................................12
ADDITIONAL INFORMATION ON REDEMPTION.............................................................................12
NET ASSET VALUE..................................................................................................12
ADDITIONAL INFORMATION ON TAXES..................................................................................13
MANAGEMENT OF THE FUND...........................................................................................16
THE INVESTMENT ADVISER...........................................................................................18
DISTRIBUTION OF SHARES OF THE FUND...............................................................................20
CUSTODIAN........................................................................................................20
FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANTS.................................................................20
INFORMATION ABOUT SECURITIES RATINGS OF NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS ("NRSROs").....................................................21
</TABLE>
<PAGE>
GENERAL INFORMATION
Freedom Group of Tax Exempt Funds (the "Trust") is an open-end
management investment company organized as a Massachusetts business trust on
June 1, 1982. The Trust currently has two series, Freedom Tax Exempt Money Fund,
a tax exempt money market fund which is described in a separate prospectus and
statement of additional information, and Freedom California Tax Exempt Money
Fund (the "Fund"). The Fund seeks to obtain as high a rate of current income
exempt from federal and State of California personal income taxes as is
consistent with the preservation of capital and maintenance of liquidity by
investing primarily in high-quality, short-term California Municipal Securities.
The assets received by the Fund from the issue and sale of its shares,
and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, constitute the underlying assets of the Fund. The
underlying assets of the Fund are required to be segregated on the books of
account and are to be charged with the expenses in respect to the 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 the Fund has equal dividend, redemption and liquidation
rights with other shares of the Fund and when issued is fully paid and
nonassessable. Under the Trust's Master Trust Agreement, 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 Trust 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 the Fund
is entitled to one vote per share (with proportionate voting for fractional
shares) regardless of the relative net asset value thereof. Under the 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 the 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
Agreement also provides 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 Trust forwards
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.
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who, because of their tax bracket,
would benefit from receiving income exempt from federal and California personal
income taxes. The Fund is not appropriate for retirement plans where income is
already tax-deferred.
The Fund offers the economic advantages of block purchases of
securities and diversification. Securities and instruments of the types in which
the Fund invests 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
<PAGE>
unless money market instruments are bought directly from issuers in amounts of
$1,000,000 or more. The Fund also offers 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 Fund 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 Fund'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 Fund's
investment objectives and policies in the Prospectus.
Additional Information on California Municipal Securities
Following purchase by the Fund, a California Municipal Security may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the 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
Moody's or S&P for California 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 California 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.
2
<PAGE>
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).
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 which 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 governmental entity'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 California Municipal Securities that are,
or may become, available which are similar to the foregoing municipal notes and
municipal bonds. California 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 California Municipal Security. Such external agreement may
be issued by a foreign bank.
For the purpose of the Fund's investment restrictions set forth
beginning on page 9, the identification of the "issuer" of California 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
3
<PAGE>
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 California 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
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
California Municipal Securities may be materially affected. The Fund may invest
more than 25% of its total assets in California 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
California Municipal Securities of a similar type. However, the Fund believes
that the most important consideration affecting the credit risk is the quality
of particular issues of California Municipal Securities, rather than factors
affecting all, or broad classes of, California Municipal Securities.
Risk Factors - California Municipal Securities
Since the Fund's portfolio concentrates its investments in California
Municipal Securities, the Fund is affected by any political, economic,
regulatory or other developments which constrain the taxing and spending
authority of California issuers or otherwise affect the ability of California
issuers to pay interest or repay principal. The following information
constitutes only a brief summary of some of such developments and does not
purport to be a complete description.
Certain of the California Municipal Securities in which the Fund
invests may be obligations of issuers that rely, as a source of revenue, in
whole or in part, directly or indirectly, on ad valorem real property taxes. In
1978, state voters approved an amendment to the State Constitution known as
Proposition 13, which added Article XIIIA to the State Constitution. The effect
of Article XIIIA is to limit ad valorem taxes on real property and to restrict
the ability of taxing entities to increase real property tax revenues. In
addition, Article XIIIA provides that additional taxes may be levied by cities,
counties and special districts only upon approval of not less than a two-thirds
vote of the "qualified electors" of such city, county or district, and requires
not less than a two-thirds vote of each of the two houses of the State
Legislature to enact any changes in state taxes for the purpose of increasing
revenues, whether by increased rates or changes in methods of computation.
Certain California Municipal Securities may be obligations of
issuers which rely in whole or in part on state revenues for payment of such
obligations. After the adoption of Article XIIIA, legislation was adopted which
provided for the reallocation of property taxes and other revenues to local
public agencies, increased state aid to such agencies, and the assumption by the
state of certain obligations previously paid out of local funds. More recent
legislation has, however, reduced state assistance payments to local
governments. There can be no assurance that any particular level of state aid to
local governments will be maintained in future years.
In 1979, an amendment was passed adding Article XIIIB to the State
Constitution. As amended in 1990, Article XIIIB imposes an "appropriations
limit" on the spending authority of the state and local government entities. In
general, the appropriations limit is based on certain 1978-1979 expenditures,
adjusted annually to reflect changes in the cost of living, population and
certain services provided by state and local government entities. If a
governmental entity raises revenues beyond its "appropriations limit" in any
year, a portion of the excess which cannot be appropriated within the following
year's limit must be returned to the entity's taxpayers within the two
subsequent fiscal years, generally by a tax credit, refund, or temporary
suspension of tax rates or fee schedules. One of the exclusions from these
limitations is "debt service" (defined as "appropriations required to pay the
cost of interest and redemption charges, including the funding of any reserve or
sinking fund required in connection therewith, on
4
<PAGE>
indebtedness existing or legally authorized as of January 1, 1979 or on bonded
indebtedness thereafter approved" by the voters). During the 1986-87 fiscal
year, when excess revenues could not be carried over to the following year, the
State General Fund collected approximately $1 billion more than could be spent
under the Article XIIIB limitation. These excess revenues were returned to
taxpayers, and no assurance exists that similar excess tax collections will not
recur in the future.
In 1988 and 1990, Article XIIIB was amended to require the State
Legislature to establish a prudent state reserve, and to require the transfer of
50% of excess revenues to the State School Fund; any amounts allocated to the
State School Fund will increase the appropriations limit. It was further amended
in 1990 to exclude from the appropriations limit appropriations for qualified
capital outlay projects, certain increases in transportation-related taxes, and
certain emergency appropriations. In 1988, California voters approved an
initiative known as Proposition 98, which, in addition to amending Article
XIIIB, amended Article XVI to require a minimum level of funding for public
schools and community colleges.
In addition to the adoption of Articles XIIIA and XIIIB, in June 1982
state voters approved initiative measures which: (1) repealed the state gift and
inheritance taxes and enacted a California death tax, and (2) reduced state
personal income tax revenues by increasing the amount by which personal income
tax brackets will be adjusted for inflation. The State Legislature has also
adopted other changes in revenue laws which reduce state tax revenues by
exempting business inventories from state personal property taxation, excluding
acquisitions of real estate to replace property transferred to a public entity
from the definition of "change of ownership" for property tax purposes, and
adopting a variety of tax credits.
In 1986, state voters approved an initiative measure known as
Proposition 62, which among other things requires that any tax for general
governmental purposes imposed by local governments be approved by a two-thirds
vote of the governmental entity's legislative body and by a majority of its
electorate, requires that any special tax (levied for other than general
governmental purposes) imposed by a local government be approved by a two-thirds
vote of its electorate, and restricts the use of revenues from a special tax to
the purposes or for the service for which the special tax was imposed. In 1996,
state voters approved an initiative measure known as Proposition 218, which
imposed similar voter approval requirements for local taxes imposed by charter
cities in California. In September 1995 the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality of
certain local taxes enacted by non-charter cities in California without voter
approval. It is not possible to predict the impact of the decision.
In July 1991, California increased taxes by adding two new marginal tax
rates, at 10% and 11%, effective for tax years 1991 through 1995. After 1995,
the maximum personal income tax rate returned to 9.3%, and the alternative
minimum tax rate dropped from 8.5% to 7%. In addition, legislation in July 1991
raised the sales tax by 1.25%, 0.5% of which was a permanent addition to
counties that was specifically earmarked to trust funds to pay for health and
welfare programs whose administration had been transferred to such counties. An
additional 0.5% of the sales tax rate was scheduled for termination on June 30,
1993, but was extended by legislation through December 31, 1993. The approval of
Proposition 172 on the November 1993 ballot by the voters extended this increase
permanently.
5
<PAGE>
The application and interpretation of a number of the foregoing
provisions of the State Constitution and laws are currently and will probably
continue to be the subject of numerous lawsuits in the California courts. It is
not possible to predict the outcome of litigation or the ultimate scope and
impact of such provisions, their implementing legislation and regulations issued
by the State Board of Equalization. However, the outcome of such litigation,
legislation and regulations could substantially impact local property tax
collections and the ability of state agencies, local governments and districts
to make future payments on outstanding debt obligations.
Certain debt obligations in which the Fund invests may be payable
solely from the revenues of specific institutions, or may be secured by specific
properties, which are subject to provisions of California law that could
adversely affect the holders of such obligations. For example, the revenues of
California health care institutions may be subject to state laws, and California
laws limit the remedies of a creditor secured by a mortgage or deed of trust.
The effects of these various constitutional and statutory provisions
upon the ability of the issuers of California Municipal Securities to pay
interest and principal on their obligations remains unclear. In addition, other
measures affecting the taxing or spending authority of the state or its
political subdivisions may be enacted in the future.
California is the most populous state in the nation with a total
population at the 1990 census of 29,976,000. Growth has been incessant since
World War II, with population gains in each decade since 1950 of between 18% and
49%. During the last decade, population rose 26%. The State now comprises 12.3%
of the nation's population and 12.9% of its total personal income. Its economy
is broad and diversified with major concentrations in high technology research
and manufacturing, aerospace and defense-related manufacturing, trade, real
estate, and financial services. After experiencing strong growth throughout much
of the 1980's, the State was adversely affected by both the national recession
and the cutbacks in aerospace and defense spending which have had a severe
impact on the economy in Southern California. ln 1990, unemployment moved above
the national average for the first time in many years and has since remained
significantly above the U.S. average, although the gap is narrowing and is
projected to close to within 1% of the national average in 1997.
California's economy has been recovering from its recession since then.
As employment has again begun to grow, financial operations have gradually
improved. Positive operating results of the past three years are expected to
continue this year, allowing the expected elimination of the previous budget
deficit.
Still, there are long-term uncertainties resulting from strict property
tax limits and the share of the budget which must be devoted to education as
well as the issues which necessarily accompany an economy in transition from
defense-related aerospace to the diverse clusters of high technology,
manufacturing and service industries, best described as the information economy.
The Governor's proposed budget for 1997-1998 contains General Fund
expenditures for 1997-98 which have increased by 16.2% over 1991-1992 levels,
while revenues for the same time period have increased 20.7%. For 1997-1998
total supplemental security income/state supplemental payment ("SSI/SSP")
General Fund expenditures are projected to be $1.66 billion, comparing to $2.069
billion in 1996-1997.
This decrease results from program changes including federal welfare
reform, which eliminated eligibility for approximately 243,700 legal immigrants,
of which approximately 160,000 are expected to become naturalized citizens and
again become eligible for SSI/SSP. Federal welfare reform also eliminated
eligibility for approximately 10,500 children whose disability no longer
qualifies for SSI/SSP, most of whom will qualify for temporary assistance for
needy families ("TANF").
General Fund expenditures in 1996-1997 are $277 million greater than
the 1996 budget act due to the failure of the federal government to provide
maintenance of effort ("MOE") relief in the federal welfare reform bill. The
budget assumes federal legislation will be enacted to provided MOE relief in
1997-98. The budget also assumes federal reimbursement of $299 million for
incarceration costs of adult and juvenile illegal immigrant felons for
1997-1998. The cost to California of incarceration and parole supervision of
these illegal immigrant felons is estimated to be $518 million annually.
The most common measure of bonded indebtedness is the ratio of net
tax-supported debt to General Fund revenues. Using this measure, for 1996-97
California's debt is 5.3% and would rise to a maximum of 5.5% in 1998-99 if no
other bonds are authorized. This statistic is based on general obligation debt
which relies on the General Fund for repayment (i.e., excludes self-liquidating
general obligation debt) and on all lease-revenue debt. This debt measure will
rise to 5.7% in 1999-2000 if the bond programs proposed in the Governor's Budget
are implemented.
Because of the State of California's continuing budget problems, the
rating of the State's general obligation bonds was downgraded in July 1994 from
Aa to A1 by Moody's Investors Service, Inc., from A+ to A by Standard & Poor's
Corporation, and from AA to A by Fitch Investors Services, Inc. All three rating
agencies expressed uncertainty in the State's ability to balance the budget by
1996. However, in 1996, citing California's improving economy and budget
situation, both Fitch and Standard & Poor's raised their ratings from A to A+.
On December 6, 1994, Orange County (California) became the largest
municipality in the United States to file for protection under the federal
bankruptcy laws. On June 12, 1996, it emerged from bankruptcy after the
successful sale of $880 million in municipal bonds allowed the county to pay off
the last of its creditors. On January 7, 1997, Orange County returned to the
municipal bond market with a $136 million bond issue maturing in 13 years at an
insured yield of 7.23%.
Los Angeles County, the nation's largest county, is also experiencing
financial difficulty. It has not yet recovered from the ongoing loss of revenue
caused by state property tax shift initiatives in 1993 through 1995. Entering
the most recent fiscal year, the county faced a budgetary shortfall of
approximately $1.0 billion, resulting in curtailments of virtually every
program, hiring and promotion restrictions and lay-offs. The county's budgetary
difficulties have continued into 1996-1997 with its future financial status
still uncertain.
6
<PAGE>
Special Types of California Municipal Securities
In addition to the general types of California Municipal Securities
discussed above, the Fund may invest in the following special types of
California Municipal Securities.
When-Issued Securities. California 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 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
California 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 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.
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Variable Rate and Floating Rate Instruments. The 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.
Temporary Taxable and Tax-Exempt Investments
Although the Fund will be invested primarily in California Municipal
Securities, the Fund is authorized to place up to 20% of its net assets in
taxable investments, cash reserves or short-term municipal securities issued
outside of California 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,
cash reserves or short-term municipal securities issued outside of California.
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) or Standard & Poor's (AAA or AA) (or equivalently rated by
another NRSRO);
(e) repurchase agreements with respect to an underlying
security which would otherwisequalify 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 California Municipal
Securities. Interest income from taxable investments will be taxable to
shareholders as ordinary income under federal tax laws and California personal
income tax. Consequently, the Fund intends to invest its assets in California
Municipal Securities to the maximum extent possible and prudent.
The short-term tax exempt municipal securities of non-California
issuers in which the Fund may invest include tax anticipation notes, revenue
anticipation notes, general obligation bonds, industrial revenue bonds,
construction loan notes and tax anticipation commercial paper. Such securities
will be limited to those obligations which, at the time of purchase, are (a)
rated in the top two categories of Moody's (Aaa or Aa) or Standard & Poor's (AAA
or AA) or, in the case of municipal notes, rated MIG-1 by Moody's, or A-1 by
S&P; or (b) unrated municipal obligations which,
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<PAGE>
in the opinion of the Adviser, have credit characteristics equivalent to such
ratings. The income from such securities is exempt from federal income taxes but
may not be exempt from California personal income taxes.
Repurchase Agreements. Repurchase agreements maturing in more than
seven days, together with any other illiquid instruments held by the 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 the 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 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
There can be no assurance that the 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
California Municipal Securities market.
Yields on California 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
The following investment restrictions 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 9 below, the Fund may not:
1. Purchase securities on margin; sell short; purchase warrants; or
write, purchase, or sell straddles, spreads, or combinations thereof.
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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 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 issued or guaranteed by the California state government or a
political subdivision thereof and obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
6. Purchase or sell real estate, except this shall not prevent the Fund
from investing in securities secured by real estate or interests therein.
7. Purchase or sell commodities or commodity futures contracts, or oil,
gas or mineral exploration or development programs.
8. Make loans, except that the Fund may hold debt instruments and enter
into repurchase agreements in accordance with its investment objectives and
policies.
9. Issue any class of securities senior to any other class of
securities, except that the Fund may purchase when-issued securities as
described in the Prospectus and herein.
10. 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 11 through 14 below, the Fund may not:
11. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, and
except for purchases of securities of money market mutual funds.
12. Purchase securities of any issuer for the purpose of exercising
control or management, except in connection with a merger, consolidation,
acquisition or reorganization.
13. 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
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U.S.Government or its agencies, or California 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).
14. 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.
15. 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, 13 and
14, 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.
PORTFOLIO TRANSACTIONS
The Advisory Agreement authorizes the Adviser (subject to the control
of the Board of Trustees) to select brokers and dealers to execute purchases and
sales of portfolio securities. The Advisory Agreement directs the Adviser to use
its best efforts to obtain the best overall terms for the Fund, 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.
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 Fund paid no brokerage commissions.
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 Fund 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 Fund. 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 the
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by the 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 the 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
Sutro, Tucker Anthony Incorporated or any affiliated person (as defined in the
1940 Act) thereof.
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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 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 the 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.
For the seven day period ended December 31, 1996, the simple annualized
yield of the Fund was 3.41%, the compound effective yield was 3.47%, and the
Fund had an average weighted maturity of investments of 37 days.
ADDITIONAL INFORMATION ON REDEMPTION
The Fund may suspend redemption privileges or postpone the date of
payment on shares for more than seven days during any period (1) when the New
York Stock Exchange is closed (other than for weekends 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 the Fund 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 the Fund's portfolio at the time.
NET ASSET VALUE
As disclosed in the Prospectus, the net asset value per share of the
Fund is determined at 12:00 noon New York time Monday through Friday, as
described below. The Fund will be closed on the following national business
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 Fund is determined daily under the
general supervision of the Trust's Board of Trustees by the Fund's 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 Fund's portfolio
securities that the current net asset value of the Fund's redeemable securities
might be materially affected by changes in the value of the portfolio
securities. Purchase or redemption orders accepted by John Hancock Signature
Services, Incorporated ("JHSS") 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
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<PAGE>
by JHSS 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 the Fund, less
liabilities, and dividing by the number of shares outstanding. To determine the
value of the assets of the 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 Fund has adopted a policy of normally holding portfolio
securities to maturity, all portfolio securities of the Fund 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 the Fund. If in some
extraordinary circumstance the 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 Trust complies with the provisions of Rule 2a-7 under the 1940 Act
which permits the 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 has agreed to establish procedures to stabilize the net asset value for
the 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 Board
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 Board of 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 Fund must (a) maintain a dollar weighted average
portfolio maturity of 90 days or less, (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 Board of
Trustees in accordance with procedures established by the Board of Trustees, and
(d) comply with certain reporting and recordkeeping procedures. The Trust's
officers will periodically review the method of valuation and recommend changes
to the Board of Trustees which may be necessary to assure that the portfolio
securities of the Fund are valued at their fair value as determined by the
Trustees in good faith. The Fund will limit its investments to securities that
present minimal credit risks, as determined by the Board of Trustees in
accordance with the procedures established by the Board 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.
Since there is no sales load involved in an investment in the Fund,
100% of the shareholder's purchase price is invested in shares of the Fund.
ADDITIONAL INFORMATION ON TAXES
Taxation of the Fund
The Fund intends to qualify and elects 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, the Fund will not be liable for federal
income taxes on its taxable net investment income and capital gain net income
that are distributed to shareholders,
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provided that the Fund distributes at least 90% of its net investment income
(other than capital gains) and net short-term capital gain for the taxable year.
To qualify for tax treatment as a "regulated investment company" under the Code,
the 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 and 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 (the "90% test");
(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 investments
held for less than three months (the "30% test"); and (iii) satisfy certain
other diversification requirements at the close of each quarter of the Fund's
taxable year. Furthermore, in order to be entitled to pay tax-exempt interest
income dividends to its shareholders, the Fund must satisfy the requirement
that, at the close of each quarter of its taxable year, at least 50% of the
value of its total assets consists of obligations the interest of which is
exempt from federal income tax. The Fund intends to satisfy this requirement.
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 Fund intends to make sufficient
distributions to avoid this 4% excise tax.
Taxation of Shareholders
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
and California personal income taxes. If any portion of the Fund's dividends is
not exempt from federal or California personal income taxes, the Fund will
advise shareholders in the annual tax information notice of the percentage of
both tax exempt and taxable income. In accordance with the Code, expenses of the
Fund will be allocated pro rata between taxable and nontaxable income.
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 they are paid in cash or in additional shares. The excess of net
long-term capital gain over net short-term capital loss, 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 they are paid in cash or in additional shares. However, it is
expected that any such amounts will be insubstantial in relation to the tax
exempt interest generated by the Fund.
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 the Fund
pays the dividend during the following January. It is expected that none of the
Fund's distributions will qualify for the 70% corporate dividends-received
deduction.
The Fund designates and pays exempt-interest dividends from interest
earned on all tax exempt obligations. Such exempt-interest dividends may be
excluded by shareholders of the Fund from their gross income for federal income
tax purposes.
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 or her
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.
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<PAGE>
To the extent that the Fund's dividends distributed to shareholders are
derived from interest income exempt from federal income tax and are properly
designated as "exempt-interest dividends" by the Fund, they will be excludable
from a shareholder's gross income for federal income tax purposes. Shareholders
who are recipients of Social Security benefits should be aware that exempt
interest dividends received from the Fund must be 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.
All distributions of investment income during the year will have the
same percentage designated as tax exempt. Since the Fund invests primarily in
tax exempt securities, the percentage will be substantially the same as the
amount actually earned during any particular distribution period.
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.
Opinions relating to the validity of tax exempt securities and the
exemption of interest thereon from federal and California income taxes are
rendered by recognized bond counsel to the issuers. Neither the Adviser's nor
the Fund's counsel makes any review of proceedings relating to the issuance of
tax-exempt securities or the bases of such opinions.
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 California 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.
California Taxation
The State of California has adopted legislation incorporating the
federal provisions relating to regulated investment companies. Thus, to the
extent the Fund distributes its income annually, the Fund will be exempt from
the California franchise and corporate income tax as a regulated investment
company under Section 24871 of the California Revenue and Taxation Code.
As a regulated investment company, the Fund may distribute dividends
("California exempt-interest dividends") that are exempt from the California
personal income tax to its individual shareholders, provided 50% or more of the
value of the total assets of the Fund at the close of each quarter of its
taxable year consists of obligations the interest on which (when held by an
individual) is exempt from personal income taxation under California law. The
Fund intends to satisfy this requirement so that it can distribute California
exempt-interest dividends. If the Fund fails to so qualify, no part of its
dividends will be exempt from the California personal income tax.
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The portion of dividends constituting California exempt-interest
dividends is that portion derived from interest on obligations of California and
its municipalities and localities which pay interest excludable from income
under California law. Distributions from the Fund that are attributable to
sources other than those described in the preceding sentence generally will be
taxable to such shareholders as ordinary income. In addition, distributions
other than exempt-interest dividends to such shareholders are includable in
income that may be subject to the California alternative minimum tax. Any
dividends paid to corporate shareholders subject to the California franchise or
corporate income tax will be taxed as ordinary dividends to such shareholders.
The total amount of California exempt-interest dividends paid by the Fund to all
of its individual shareholders with respect to any taxable year cannot exceed
the amount of interest received by the Fund during such year on California
Municipal Obligations less any expenses and expenditures (including any
dividends paid to corporate shareholders) deemed to have been paid from such
interest.
Because, unlike federal law, California law does not impose personal
income tax on an individual's Social Security benefits, the receipt of
California exempt-interest dividends will have no effect on an individual's
California personal income tax.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Fund will not generally be deductible for California income tax
purposes. If the shareholders of the Fund receive any California exempt-interest
dividends and sell their shares within six months of their acquisition, then any
loss, to the extent of the amount of exempt-interest dividends received on the
sale, will be disallowed. Any loss realized upon the redemption of shares within
thirty days before or after the acquisition of other shares of the same series
may be disallowed under the "wash sale" rules.
With respect to individual shareholders, California does not treat
tax-exempt interest as a tax preference item for purposes of its alternative
minimum tax. Distributions other than exempt-interest dividends are includable
in income subject to the California alternative minimum tax.
The foregoing is only a summary of some of the important California
personal income tax considerations generally affecting the Fund and its
shareholders. No attempt is made to present a detailed explanation of the
California personal income tax treatment of the Fund or its shareholders, and
this discussion is not intended as a substitute for careful planning.
Accordingly, potential investors in the Fund should consult their tax advisers
with respect to the application of California taxes to the receipt of the Fund's
dividends and to their own California tax situation.
MANAGEMENT OF THE FUND
The Trustees and executive officers of the Trust 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.
- ---------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
16
<PAGE>
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, Massachusetts
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 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-President of the Adviser since
February 1996, 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.
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 Manger at Shawmut Investment Advisers.
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.
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 at New England Securities from March 1989 to July 1992.
- ---------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
17
<PAGE>
Messrs. Dodge, Danello, Kirshbaum, Marandett, McCarthy and Spencer and
Mesdames Currie, Rego and Renzi are all officers of the Adviser as well as of
the Trust.
During the last fiscal year of the Trust, the Trustees were compensated
as follows:
<TABLE>
<CAPTION>
Aggregate Total
Compensation Compensation
Name of From the California from Fund Complex
Trustee Tax Exempt Money Fund Paid to Trustees (a)
<S> <C> <C>
Dexter A. Dodge $0 $0
Richard A. Farrell 2,758 20,800
Ernest T. Kendall 1,758 20,400
Richard B.Osterberg 2,758 20,400
Lawrence G. Kirshbaum 0 0
William H. Darling 0 0
John R. Haack 0 0
Laurence R. Veator, Jr. 0 0
Patrick Grant(b) 427 4,200
Ralph Lowell, Jr.(b) 427 4,200
William Barron, III(b) 427 4,200
</TABLE>
(a) Includes compensation from the Freedom Tax Exempt Money Fund, Freedom
Government Securities Fund, Freedom Cash Management Fund, California
Tax Exempt Money Fund and the FundManager Portfolios. The Trust does
not provide any pension or retirement benefits for the Trustees.
(b) Messrs. Grant, Lowell and Barron resigned as Trustees effective
December 31, 1995 but were compensated in fiscal year 1996 for certain
services performed in 1995.
Although the nominees of the Fund may at times be the record holders of
in excess of 5% of shares of the Fund by virtue of holding shares in "street
name," to the knowledge of the Trust, no person owns beneficially 5% or more of
the shares of the Fund. As of January 31, 1997, the officers and Trustees of the
Trust as a group own less than 1% of the outstanding shares of the Fund.
THE INVESTMENT ADVISER
The investment adviser for the Fund is Freedom Capital 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 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. 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 held by the
following persons and companies are approximately the following percentages:
Thomas H. Lee Equity Fund III., L.P. (49.9%), SCP Private Equity Partners, L.P.
(13.0%), John Hancock Subsidiaries, Inc. (4.9%), and 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" or the "Distributor")
serves as distributor and principal underwriter for the Fund pursuant to a
distribution agreement with the Trust. Freedom, established in 1987, is a
wholly-owned subsidiary of the Adviser. Sutro & Co. Incorporated and Tucker
18
<PAGE>
Anthony Incorporated, brokerage firms which are members of the New York Stock
Exchange, are also distributors for the Fund and indirect subsidiaries of JHFSC
Acquisition Corp.
Pursuant to an investment advisory agreement dated as of November 29,
1996 (the "Advisory Agreement") between the Trust and the Adviser, the Adviser
agreed to act as investment adviser and manager to the Fund. As manager and
investment adviser, the Adviser will: (a) furnish continuously an investment
program for the Fund and determine, subject to the overall supervision and
review of the Board of Trustees, which investments should be purchased, held,
sold or exchanged, (b) provide supervision over all aspects of the Fund's
operations except those which are delegated to a custodian, transfer agent or
other agent, and (c) provide the Trust with such executive, administrative and
clerical personnel, officers and equipment as are deemed necessary for the
conduct of the business of the Trust.
The Fund 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 Fund), proxy statements and
reports to regulatory agencies; expenses relating to the issuance, registration
and qualification of shares of the Fund; 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 the 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 John Hancock or any of their affiliates; expenses of
trustees' and shareholders' meetings; trade association memberships; insurance
premiums; and any extraordinary expenses.
The Advisory Agreement was approved by the outstanding shareholders of
the Fund at a meeting held on December 16, 1996. The Advisory Agreement for the
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" (as defined in the 1940 Act) of any such party. The Advisory Agreement
will continue in effect 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 Agreement or
"interested persons" of any such party. The Advisory Agreement may be terminated
on 60 days written notice by either party and will terminate automatically if it
is assigned.
Mr. Osterberg, a Trustee of the Trust, 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.
19
<PAGE>
For the fiscal year ended December 31, 1994, the Fund incurred
investment advisory fees in the amount of $410,414. During the fiscal year ended
December 31, 1994, the Adviser waived $164,965 of that amount.
For the fiscal year ended December 31, 1995, the Fund incurred
investment advisory fees in the amount of $434,998. During the fiscal year ended
December 31, 1995, the Adviser waived $152,510 of that amount.
For the fiscal year ended December 31, 1996, the Fund incurred
investment advisory fees in the amount of $528,064. During the fiscal year
ended December 31, 1996, the Advisor waived $158,420 of that amount.
DISTRIBUTION OF SHARES OF THE FUND
The Trust has entered into a Distribution Agreement with Freedom
Distributors Corporation, Tucker Anthony Incorporated and Sutro & Co.
Incorporated (the "Distributors") whereby the Distributors act as exclusive
selling agents of the Fund selling shares of the Fund on a "best efforts" basis.
Although the Distributors distribute shares of the Fund on a continuous basis,
shares may also be purchased directly from the Fund. No underwriting commissions
or discounts are paid to the Distributors in connection with their distribution
of shares of the Fund.
CUSTODIAN
All cash and securities of the Fund are held by State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02106, as custodian.
FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110
serves as the Trust's independent accountants, providing audit services,
including review and consultation, in connection with various filings by the
Trust with the Securities and Exchange Commission and tax authorities.
The financial statements and the report of the independent accountants
with respect to the Fund for the fiscal year ended December 31, 1996 are
included in the Fund's Prospectus.
20
<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."
Municipal Bonds
MOODY'S INVESTORS SERVICE, INC. ("Moody's")
Aaa: Municipal bonds which are rated Aaa are judged to be of the best
quality. They 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: Municipal bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large, fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Municipal bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category. The modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S CORPORATION ("S&P")
AAA: Municipal bonds rated AAA are highest grade obligations. They
possess the ultimate degree of protection as to principal and interest. In the
market they move with interest rates and hence provide the maximum safety on all
counts.
AA: Municipal bonds rated AA also qualify as high-grade obligations,
and in the majority of instances differ from AAA issues only in small degree.
Here, too, prices move with the long-term money market.
A: Municipal bonds rated A are regarded as upper medium grade. They
have considerable investment strength but are not entirely free from adverse
effects of changes in economic and trade conditions. Interest and
21
<PAGE>
principal are regarded as safe. They predominantly reflect money rates in their
market behavior, but also to some extent, economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Municipal Notes
MOODY's
Moody's ratings for state and municipal and other short-term
obligations will be designated Moody's Investment Grade ("MIG"). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of the
first importance in long-term borrowing risk are of lesser importance in the
short run. Symbols used will be as follows:
MIG-1 - Notes are of the best quality enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both.
MIG-2 - Notes are of high quality, with margins of protection ample, although
not so large as in the preceding group.
MIG-3 - Notes are of favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding grades. Market access
for refinancing, in particular, is likely to be less well established.
MIG-4 - Notes are of adequate quality, carrying specific risk but having
protection commonly regarded as required of an investment security and not
distinctly or predominantly speculative.
S&P's
SP-1 - Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2 - Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
Commercial Paper
MOODY's
Moody's Commercial Paper ratings, which are also applicable to
municipal paper investments permitted to be made by the Fund, are opinions of
the ability of issuers to repay punctually their promissory obligations not
having an original maturity in excess of nine months. Moody's employs the
following designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
22
<PAGE>
S&P's
S&P's ratings are a current assessment of the likelihood of timely
payment of debt having an original maturity of no more than 365 days. Ratings
are graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues within the "A" category are delineated
with the numbers 1, 2, and 3 to indicate the relative degree of safety, as
follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
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 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.
Note: Certain NRSROs utilize rankings within rating categories
indicated by a + or -. The Fund, in accordance with industry practice,
recognizes 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.
23
<PAGE>
PART C
To the Registration Statement of Freedom Group of
Tax Exempt Funds including Freedom Tax Exempt Money
Fund (the "Tax Exempt Fund") and Freedom California
Tax Exempt Money Fund (the "California 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 fiscal periods
ended 1986 through 1995 with respect to the
Tax Exempt Fund and for the period August
27, 1990 (commencement of operations)
through December 31, 1990 and the fiscal
periods ended 1991 through 1996 with respect
to the California Fund.
Financial Statements for the Tax Exempt Fund
and the California Fund for the fiscal
period 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 (a) Amended and Restated Agreement and
Declaration of Trust (Master Trust
Agreement) dated September 27, 1982.
(b) Amendment No. 1 to Master Trust
Agreement.
(c) Amendment No. 2 to Master Trust
Agreement.
(d) Amendment No. 3 to Master Trust
Agreement.
- -------------
C-1
<PAGE>
Exhibit No. Description
(e) Amendment No. 4 to Master Trust
Agreement.
2 By-Laws as amended and restated.
3 None.
4 Specimen share certificate for the Tax
Exempt Fund and California Fund.
5 Advisory Agreement dated November 29, 1996
between Registrant and Freedom Capital
Management Corporation incorporated by
reference to Post-Effective Amendment No.
20.
6 Distribution Agreement dated November 29,
1996 between the Registrant, Tucker Anthony
Incorporated, Freedom Distributors
Corporation and Sutro & Co., Incorporated.
7 None.
8 (a) Custodian Agreement between Registrant
and State Street Bank and Trust Company.
(b) Letter Agreement to add the California
Fund to Custodian Agreement.
9 Transfer Agency and Service Agreement
between Freedom Group of Tax Exempt Funds
and John Hancock Fund Services, Inc.,
recently renamed John Hancock Signature
Services, Incorporated, dated as of June 19,
1993.
C-2
<PAGE>
10 Opinion and Consent of Goodwin, Procter &
Hoar with respect to Tax Exempt Fund,
Opinion and Consent of Goodwin, Procter &
Hoar with respect to the California Fund.
11 Consent of Price Waterhouse LLP.
12 Not Applicable.
13 Investment Letter.
14 None.
15 None.
16 None.
17 Financial Data Schedules for the Tax Exempt
Fund and the California Fund.
18 None.
19 Powers of Attorney.
- ----------
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:
Title of Class Number of Record Holders
Freedom Tax Exempt Money Fund 8,772
Freedom California Tax Exempt 2,371
Money Fund
C-3
<PAGE>
Item 27. Indemnification.
Under Article VII of the Registrant's Amended and Restated
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. It is a wholly-owned subsidiary of Freedom
Securities Corporation. 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 Freedom Securities Corporation is at One Beacon Street,
Boston, Massachusetts. The Adviser offers a wide range of investment advisory
services to both individuals and institutions.
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 Freedom Securities Corporation, Thomas H.
Lee Equity Fund III, L.P. and SCP Private Equity Partners, L.P.
C-4
<PAGE>
The Adviser also acts as investment adviser for two other
registered investment companies, Freedom Mutual Fund and FundManager Portfolios.
The following information is provided with respect to each
director and executive officer of the Adviser:
<PAGE>
<TABLE>
<CAPTION>
Business and Other
Position Positions Within
Name With Adviser Last Two Years
<S> <C> <C>
Dexter A. Dodge Chairman, Managing Director of the
Managing Adviser. Director
Director of Freedom Distributors
Corporation.
John J. Danello President, President and
Managing Director of
Director, Clerk Freedom Distributors
and General Corporation.
Counsel
Richard V. Howe Managing Managing Director of
Director the Adviser.
Business and Other
Position Positions Within
Name With Adviser Last Two Years
Michael M. Spencer Senior Vice Portfolio Manager at
President and Shawmut Investment Advisers.
Director of Fixed-
Income Investments
Arthur E. McCarthy Director Managing Director of
Tucker Anthony
Incorporated.
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Lawrence G. Kirshbaum Director Chief Financial Officer of
Freedom Securities Corporation
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 Director President and Chief
Executive Officer of
Freedom Securities Corporation
Inc. Chairman and Chief Executive
Officer of Tucker Anthony
Incorporated.
Terrence J. Gerlich Managing Managing Director of the Adviser
Director
Ellen C. Varney Senior Vice Senior Vice President and Chief
President and Financial Officer of Adviser since
Chief Financial February 1996. Financial Manager
Officer of John Hancock from September
1990 to December 1995.
Charles B. Lipson President of the President and founder of the M.D.
M.D. Hirsch Hirsch Division of the Adviser
Division of the since February 1995. President
Adviser and Chief Operating Officer.
Officer of the M.D. Hirsch Division
of Republic Asset Management
Corporation from February 1991 to
December 1994.
Michael D. Hirsch Chairman, Chairman, M.D. Hirsch Division of
M.D. Hirsch the Adviser since February 1995.
Division of the Vice President and Executive Vice
Adviser Chairman and Managing Director,
Portfolio Manager M.D. Hirsch
Division of Republic Asset
Management Corporation from June
1993 to February 1994.
</TABLE>
Item 29. Principal Underwriters.
(a) Freedom Distributors Corporation ("Freedom") acts as co-distributor
with Sutro & Co. Incorporated ("Sutro"), and Tucker Anthony Incorporated
("Tucker Anthony") with respect to the California Fund and the Tax Exempt Fund.
Freedom, Sutro and Tucker Anthony also act as co-distributors for Freedom Mutual
Fund and Fund Manager Trust, and Freedom acts as a distributor for Freedom
Investment Trust, Freedom Investment Trust II and Freedom Investment Trust III,
all registered investment companies.
(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.
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
Kevin J. McKay (2)................................................... Executive Vice President
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.
(b)(3) The name and principal business address of each
director and officer of Sutro, together with the offices held by such persons
with Sutro, are set forth below. No officer or director of Sutro holds any
office with the Registrant.
C-7
<PAGE>
<TABLE>
<CAPTION>
Name and Principal
Business Address Offices With Sutro
<S> <C>
John F. Luikart (1).......................................................... President and CEO
Mary Jane Delaney (1)........................................................ Executive Vice President
and General Counsel
John H. Goldsmith (2)........................................................ Director
Raymond J. Minehan (1)........................................................ Executive Vice President
John W. Eisle (1)............................................................ Executive Vice President
Thomas R. Weinberger (3)..................................................... Executive Vice President
</TABLE>
(1) Business address is 201 California Street, San Francisco, California 94111.
(2) Business address is One Beacon Street, Boston, Massachusetts 02108.
(3) Business address is 11150 Santa Monica Blvd., Los Angeles, California 90025
(c) Not applicable.
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.
C-8
<PAGE>
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-9
<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(b) 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 27th day of February, 1997.
FREEDOM GROUP OF TAX EXEMPT FUNDS
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 February 27, 1997
- ---------------------------
Dexter A. Dodge
Principal Financial and
Accounting Officer
/s/ Lawrence G. Kirshbaum Trustee February 27, 1997
- ---------------------------
Lawrence G. Kirshbaum
* Trustee February 27, 1997
- --------------------------
Richard A. Farrell
* Trustee February 27, 1997
- ---------------------------
Ernest T. Kendall
* Trustee February 27, 1997
- ---------------------------
Richard B. Osterberg
* Trustee February 27, 1997
- ---------------------------
William H. Darling
* Trustee February 27, 1997
- ---------------------------
John R. Haack
* Trustee February 27, 1997
- ---------------------------
Laurence R. Veator, Jr.
*By: /s/ Lawrence G. Kirshbaum
-------------------------
Lawrence G. Kirshbaum,
Attorney-in-Fact under
Powers of Attorney
included as Exhibit 17.
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Manually
Numbered
Exhibit No. Description Page
- ---------- ----------- ------
<S> <C> <C>
1 (a) Amended and Restated Agreement and Declaration of
Trust (Master Trust Agreement) dated September 27,
1982
(b) Amendment No. 1 to Master Trust Agreement.
(c) Amendment No. 2 to Master Trust Agreement.
(d) Amendment No. 3 to Master Trust Agreement.
(e) Amendment No. 4 to Master Trust Agreement.
2 By-Laws as amended and restated.
3 None.
4 Specimen share certificates for the Tax Exempt Fund and
California Fund.
5 Advisory Agreement dated November 29, 1996 between
Registrant and Freedom Capital Management
Corporation incorporated by reference to
Post-Effective Amendment No. 20.
6 Distribution Agreement dated November 29, 1996
between the Registrant and Tucker Anthony
Incorporated, Sutro & Co., Incorporated and Freedom
Distributors Corporation.
7 None.
</TABLE>
<TABLE>
<CAPTION>
Manually
Numbered
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
8 Custodian Agreement between Registrant and State
Street Bank and Trust Company. Letter Agreement to
add the California Fund.
9 Transfer Agency and Service Agreement between
Freedom Group of Tax Exempt Funds and John Hancock
Fund Services, Inc., dated as of June 19, 1993.
10 (a) Opinion and Consent of Goodwin, Procter & Hoar
dated November 12, 1982.
(b) Opinion and Consent of Goodwin, Procter & Hoar with
respect to the California Fund dated June 19, 1990.
11 Consent of Price Waterhouse LLP.
12 Not Applicable.
13 Investment Letter.
14 None.
15 None.
16 None.
17 Financial Data Schedules.
19 Powers of Attorney.
</TABLE>
2
<PAGE>
TUCKER ANTHONY GROUP OF TAX EXEMPT FUNDS
AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST made at
Boston, Massachusetts this 27th day of September, 1982, by the Trustees
hereunder, and by the holders of shares of beneficial interest to be issued
hereunder as hereinafter provided.
WITNESSETH
WHEREAS this Trust has been formed to carry on the business of an
investment company; and
WHEREAS the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the benefit of the holders from time to
time of shares of beneficial interest in this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name. This Trust shall be known as "Tucker Anthony Group of
Tax Exempt Funds" and the Trustees shall conduct the business of the Trust under
that name or any other name as they may from time to time determine.
Section 1.2 Definitions. Whenever used herein, unless otherwise
required by the context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust established
by this Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named herein or
elected in accordance with Article III;
(c) "Shares" refers to the transferable units of interest into which
the beneficial interest in the Trust or any Series or Sub-Series of the Trust
(as the context may require) shall be divided from time to time;
(d) "Series" refers to Series of Shares established and designated
under or in accordance with the provisions of Article IV;
(e) "Sub-Series" refers to Sub-Series within a Series established and
designated under or in accordance with the provisions of Article IV.
(f) "Shareholder" means a record owner of Shares;
(g) The "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations thereunder, all as amended from time to time;
(h) The term "Commission" shall have the meaning given it in the 1940
Act;
(i) "Declaration of Trust" shall mean this Agreement and Declaration
of Trust as amended or restated from time to time; and
(j) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time.
Section 7.1 contains additional definitions applicable specifically to
Article VII.
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to operate as an investment company and to
offer Shareholders one or more investment programs primarily in securities and
debt instruments.
ARTICLE III
THE TRUSTEES
Section 3.1 Number, Designation, Election, Term, etc.
(a) Initial Trustees. Upon his execution of this Declaration of Trust
or a counterpart hereof or some other writing in which he accepts such
Trusteeship and agrees to the provisions hereof, each of Hugh A. Dunlap, Jr.,
Arthur J. Petone, Richard R. Doll, Ephron Catlin, and Patrick Grant shall become
a Trustee hereof.
(b) Number. The Trustees serving as such, whether named above or
hereafter becoming such, may increase or decrease (to
2
<PAGE>
not fewer than three) the number of Trustees to a number other than the number
theretofore determined. No decrease in the number of Trustees shall have the
effect of removing any Trustee from office prior to the expiration of his term,
but the number of Trustees may be decreased in conjunction with the removal of a
Trustee pursuant to subsection (e) of this Section 3.1.
(c) Term. Each Trustee, whether named above or hereafter becoming a
Trustee, shall serve as a Trustee until the next annual meeting of Shareholders
or any special meeting in lieu thereof and until the election and qualification
of his successor, or until such Trustee sooner dies, resigns, retires or is
removed.
(d) Resignation and Retirement. Any Trustee may resign his trust or
retire as a Trustee, by written instrument signed by him and delivered to the
other Trustees or to any officer of the Trust, and such resignation or
retirement shall take effect upon such delivery or upon such later date as is
specified in such instrument.
(e) Removal. Any Trustee may be removed with or without cause at any
time either by written instrument, signed by at least two-thirds of the number
of Trustees prior to such removal specifying the date upon which such removal
shall become effective, or by the Shareholders at any meeting called for the
purpose.
(f) Vacancies. Any vacancy or anticipated vacancy resulting from any
reason, including without limitation the death, resignation, retirement, removal
or incapacity of any of the Trustees, or resulting from an increase in the
number of Trustees by the other Trustees may (but so long as there are at least
three remaining Trustees, need not unless required by the 1940 Act) be filled
either by a majority of the remaining Trustees through the appointment in
writing of such other person as such remaining Trustees in their discretion
shall determine (unless a Shareholder election is required under the 1940 Act)
or by the election by the Shareholders, at a meeting called for the purpose, of
a person to fill such vacancy, and such appointment or election shall be
effective upon the written acceptance of the person named therein to serve as a
Trustee and agreement by such person to be bound by the provisions of this
Declaration of Trust, except that any such appointment or election in
anticipation of a vacancy to occur by reason of retirement, resignation, or
increase in number of Trustees to be effective at a later date shall become
effective only at or after the effective date of said retirement, resignation,
or increase in number of Trustees. As soon as any Trustee so appointed or
elected shall have accepted such appointment or election and shall have agreed
in writing to be bound by this Declaration of Trust and the appointment or
election is effective, the Trust estate shall vest in
3
<PAGE>
the new Trustee, together with the continuing Trustees, without any further act
or conveyance.
(g) Effect of Death, Resignation, etc. The death, resignation,
retirement, removal, or incapacity of the Trustees, or any one of them, shall
not operate to annul or terminate the Trust.
(h) No Accounting. Except to the extent required by the 1940 Act or
under circumstances which would justify his removal for cause, no person ceasing
to be a Trustee as a result of his death, resignation, retirement, removal or
incapacity (nor the estate of any such person) shall be required to make an
accounting to the Shareholders or remaining Trustees upon such cessation.
Section 3.2 Powers of Trustees. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility and the purposes of the Trust. Without limiting the
foregoing, the Trustees may adopt By-Laws not inconsistent with this Declaration
of Trust providing for the conduct of the business and affairs of the Trust and
may amend and repeal them to the extent that such By-Laws do not reserve that
right to the Shareholders; they may as they consider appropriate elect and
remove officers and appoint and terminate agents and consultants and hire and
terminate employees, any one or more of the foregoing of whom may be a Trustee,
and may provide for the compensation of all of the foregoing; they may appoint
from their own number, and terminate, any one or more committees consisting of
two or more Trustees, including without implied limitation an executive
committee, which may, when the Trustees are not in session and subject to the
1940 Act, exercise some or all of the power and authority of the Trustees as the
Trustees may determine; in accordance with Section 3.3 they may employ one or
more Advisers, Administrators, Depositories and Custodians and may authorize any
Depository or Custodian to employ sub-custodians or agents and to deposit all or
any part of such assets in a system or systems for the central handling of
securities and debt instruments, retain transfer, dividend, accounting or
Shareholder servicing agents or any of the foregoing, provide for the
distribution of Shares by the Trust through one or more distributors, principal
underwriters or otherwise, set record dates or times for the determination of
Shareholders or various of them with respect to various matters; they may
compensate or provide for the compensation of the Trustees, officers, advisers,
administrators, custodians, other agents, consultants and employees of the Trust
or the Trustees on such terms as they deem appropriate; and in general they may
delegate to any officer of the Trust, to any committee of the Trustees and to
any employee, adviser, administrator, distributor,
4
<PAGE>
depository, custodian, transfer and dividend disbursing agent, or any other
agent or consultant of the Trust such authority, powers, functions and duties as
they consider desirable or appropriate for the conduct of the business and
affairs of the Trust, including without implied limitation the power and
authority to act in the name of the Trust and of the Trustees, to sign documents
and to act as attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with
the 1940 Act or other applicable law, the Trustees shall have power and
authority:
(a) Investments. To invest and reinvest cash and other property, and
to hold cash or other property uninvested without in any event being bound or
limited by any present or future law or custom in regard to investments by
trustees;
(b) Disposition of Assets. To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the assets of the Trust;
(c) Ownership Powers. To vote or give assent, or exercise any rights
of ownership, with respect to stock or other securities, debt instruments or
property; and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities, debt instruments
or property as the Trustees shall deem proper;
(d) Subscription. To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities or debt
instruments;
(e) Form of Holding. To hold any security, debt instrument or property
in a form not indicating any trust, whether in bearer, unregistered or other
negotiable form, or in the name of the Trustees or of the Trust or in the name
of a custodian, sub-custodian or other depository or a nominee or nominees or
otherwise;
(f) Reorganization. To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer, any
security or debt instrument of which is or was held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by such corporation
or issuer, and to pay calls or subscriptions with respect to any security or
debt instrument held in the Trust;
(g) Voting Trusts. To join with other holders of any securities or
debt instruments in acting through a committee, depositary, voting trustee or
otherwise, and in that connection to deposit any security or debt instrument
with, or transfer any
5
<PAGE>
security or debt instrument to, any such committee, depository or trustee, and
to delegate to them such power and authority with relation to any security or
debt instrument (whether or not so deposited or transferred) as the Trustees
shall deem proper, and to agree to pay, and to pay, such portion of the expenses
and compensation of such committee, depository or trustee as the Trustees shall
deem proper; or to revoke or terminate any existing agency or contract created
or entered into pursuant to the terms of this Declaration of Trust.
(h) Compromise. To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy, including but not
limited to claims for taxes;
(i) Partnership and Joint Ventures. To enter into joint ventures,
general or limited partnerships and any other combinations or associations;
(j) Borrowing and Security. To borrow funds and to mortgage and pledge
the assets of the Trust or any part thereof to secure obligations arising in
connection with such borrowing;
(k) Guarantees. To endorse or guarantee the payment of any notes or
other obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust property or any part thereof to secure any of or all such obligations;
(l) Insurance. To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, consultants, investment advisers, managers,
administrators, distributors, principal underwriters, or independent
contractors, or any thereof (or any person connected therewith), of the Trust
individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such person in
any such capacity, including any action taken or omitted that may be determined
to constitute negligence, whether or not the Trust would have the power to
indemnify such person against such liability; and
(m) Pension and Similar Plans. To pay pensions for faithful service,
as deemed appropriate by the Trustees, and to adopt, establish and carry out
pension, profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trust and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
6
<PAGE>
Except as otherwise provided by the 1940 Act or other applicable law,
this Declaration of Trust or the By-Laws, any action to be taken by the Trustees
may be taken by a majority of the Trustees present at a meeting of Trustees (a
quorum, consisting of at least a majority of the Trustees then in office, being
present), within or without Massachusetts, including any meeting held by means
of a conference telephone or other communications equipment by means of which
all persons participating in the meeting can hear each other at the same time
and participation by such means shall constitute presence in person at a
meeting, or by written consents of a majority of the Trustees then in office.
Section 3.3 Certain Contracts. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time and without limiting the
generality of their powers and authority otherwise set forth herein, enter into
one or more contracts with any one or more corporations, trusts, associations,
partnerships, limited partnerships, other type of organizations, or individuals,
("Contracting Party") to provide for the performance and assumption of some or
all of the following services, duties and responsibilities to, for or of the
Trust and/or the Trustees, and to provide for the performance and assumption of
such other services, duties and responsibilities in addition to those set forth
below as the Trustees may determine appropriate:
(a) Advisory. Subject to the general supervision of the Trustees and
in conformity with the stated policy of the Trustees with respect to the
investments of the Trust or of the assets belonging to any Series of Shares of
the Trust (as that phrase is defined in subsection (a) of Section 4.2), to
manage such investments and assets, make investment decisions with respect
thereto, and to place purchase and sale orders for portfolio transactions
relating to such investments and assets;
(b) Administration. Subject to the general supervision of the Trustees
and in conformity with any policies of the Trustees with respect to the
operations of the Trust, to supervise all or any part of the operations of the
Trust, and to provide all or any part of the administrative and clerical
personnel, office space and office equipment and services appropriate for the
efficient administration and operations of the Trust;
(c) Distribution. To distribute the Shares of the Trust, to be
principal underwriter of such Shares, and/or to act as agent of the Trust in the
sale of Shares and the acceptance or rejection of orders for the purchase of
Shares;
(d) Custodian and Depository. To act as depository for and to maintain
custody of the property of the Trust and accounting records in connection
therewith;
7
<PAGE>
(e) Transfer and Dividend Disbursing Agency. To maintain records of
the ownership of outstanding Shares, the issuance and redemption and the
transfer thereof, and to disburse any dividends declared by the Trustees and, in
accordance with the policies of the Trustees and/or the instructions of any
particular Shareholder, to reinvest any such dividends;
(f) Shareholder Servicing. To provide service with respect to the
relationship of the Trust and its Shareholders, records with respect to
Shareholders and their Shares, and similar matters; and
(g) Accounting. To handle all or any part of the accounting
responsibilities, whether with respect to the Trust's properties, Shareholders
or otherwise.
The same person may be the Contracting Party for some or all of the services,
duties and responsibilities to, for and of the Trust and/or the Trustees, and
the contracts with respect thereto may contain such terms interpretive of or in
addition to the delineation of the services, duties and responsibilities
provided for, including provisions that are not inconsistent with the 1940 Act
relating to the standard of duty of and the rights to indemnification of the
Contracting Party and others, as the Trustees may determine.
Section 3.4 Transactions With Related Parties.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is
a shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
Contracting Party, or of or for any parent or affiliate of any
Contracting Party or that the Contracting Party or any parent or
affiliate thereof is a Shareholder or has an interest in the Trust, or
that
(ii) any Contracting Party may have a contract providing for the
rendering of any similar services to one or more other corporations,
trusts, associations, partnerships, limited partnerships or other
organizations, or has other business or interests,
shall not affect the validity of any contract for the performance and assumption
of services, duties and responsibilities to, for or of the Trust and/or the
Trustees or disqualify any Shareholder Trustee or officer of the Trust from
voting upon or executing the same or create any liability or accountability to
the Trust or its Shareholders, provided that in the case of any relationship or
interest referred to in the preceding clause (i) on the
8
<PAGE>
part of any Trustee or officer of the Trust either (A) the material facts as to
such relationship or interest have been disclosed to or are known by the
Trustees not having any such relationship or interest and the contract involved
is approved in good faith by a majority of such Trustees not having any such
relationship or interest (even though such unrelated or disinterested Trustees
are less than a quorum of all of the Trustees), (B) the material facts as to
such relationship or interest and as to the contract have been disclosed to or
are known by the Shareholders entitled to vote thereon and the contract involved
is specifically approved in good faith by vote of the Shareholders so entitled
to vote, or (C) the specific contract involved is fair to the Trust as of the
time it is authorized, approved or ratified by the Trustees or by the
Shareholders.
Any Trustee, officer or other agent of the Trust, and any organization
in which any such person is interested may acquire, own, hold and dispose of
Shares of any Series of the Trust to the same extent as if such person were not
a Trustee, officer or other agent of the Trust; and the Trust may issue and sell
or cause to be issued and sold and may purchase Shares of any Series from any
such person or any such organization subject only to the general limitations,
restrictions or other provisions applicable to the sale or purchase of Shares of
such Series generally.
Section 3.5 Payment of Trust Expenses and Compensation of Trustees.
The Trustees are authorized to pay or to cause to be paid out of the principal
or income of the Trust, or partly out of principal and partly out of income, and
to charge or allocate the same to, between or among such one or more of the
Series that may be established and designated pursuant to Article IV, as the
Trustees deem fair, all expenses, fees, charges, taxes and liabilities incurred
or arising in connection with the Trust, or in connection with the management
thereof, including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers, employees,
investment adviser, administrator, distributor, principal underwriter, auditor,
counsel, depository, custodian, transfer agent, dividend disbursing agent,
accounting agent, Shareholder servicing agent, and such other agents,
consultants, and independent contractors and such other expenses and charges as
the Trustees may deem necessary or proper to incur. Without limiting the
generality of any other provision hereof, the Trustees shall be entitled to
reasonable compensation from the Trust for their services as Trustees and may
fix the amount of such compensation.
Section 3.6 Ownership of Assets of the Trust. Title to all of the
assets of the Trust shall at all times be considered as vested in the Trustees.
9
<PAGE>
ARTICLE IV
SHARES
Section 4.1 Description of Shares. The beneficial interest in the
Trust shall be divided into Shares, all without par value and of one class, but
the Trustees shall have the authority from time to time to divide the class of
Shares into two or more Series of Shares (including without limitation those
Series specifically established and designated in Section 4.2), as they deem
necessary or desirable, to establish and designate such Series, and to fix and
determine the relative rights and preferences as between the different Series of
Shares as to right of redemption and the price, terms and manner of redemption,
special and relative rights as to dividends and other distributions and on
liquidation, sinking or purchase fund provisions, conversion rights, and
conditions under which the several Series shall have separate voting rights or
no voting rights. Except as aforesaid, as otherwise provided herein, or as
provided in an instrument of the Trustees properly establishing and designating
a Series, all Shares of the different Series shall be identical.
The Shares of each Series may be issued or reissued from time to time
in one or more Sub-Series ("Sub-Series"), as determined by the Board of
Trustees. Each Sub-Series shall be appropriately designated, prior to the
issuance of any Shares thereof, by some distinguishing letter, number or title.
All Shares within a Sub-Series shall be alike in every particular. All Shares of
each Series shall be of equal rank and have the same powers, preferences and
rights, and shall be subject to the same qualifications, limitations and
restrictions without distinction between the Shares of different Sub-Series
thereof, except with respect to such differences in the rate or rates of
dividends or distributions among such Sub-Series as the Board of Trustees shall
from time to time determine to be necessary in order to comply with the 1940 Act
or other applicable laws, including differences in the rate or rates of
dividends or distributions.
The number of authorized Shares and the number of Shares of each Series
that may be issued is unlimited. The Trustees may increase or decrease the
number of Shares of any Series, but the number of Shares of any Series shall not
be decreased below the number then outstanding. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired of
any Series into one or more Series that may be established and designated from
time to time. The Trustees may classify or reclassify from time to time any
unissued Shares of any Series by fixing or altering the terms thereof and by
assigning such unissued Shares to an existing or newly created Sub-Series. The
Trustees may from time to time increase the number of Shares allocated to any
Sub-Series already created by providing that any unissued Shares of the
applicable Series shall constitute
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part of such Sub-Series, or may decrease the number of Shares allocated to any
Sub-Series already created by providing that any unissued Shares previously
assigned to such Sub-Series shall no longer constitute part thereof. The Board
of Trustees is empowered (i) to redesignate any issued Shares of any Series by
assigning a distinguishing letter, number or title to such shares and (ii) to
reclassify all or any part of the issued Shares of any Series to make them part
of an existing or newly created Sub-Series. The Trustees may hold as treasury
Shares (of the same or some other Series or Sub-Series), reissue for such
consideration and on such terms as they may determine, or cancel, at their
discretion from time to time, any Shares of any Series reacquired by the Trust.
The Trustees may issue Shares of any Series for such consideration and
on such terms as they may determine (or for no consideration if pursuant to a
Share dividend or split-up), all without action or approval of the Shareholders.
All Shares when so issued on the terms determined by the Trustees shall be fully
paid and non-assessable (but may be subject to mandatory contribution back to
the Trust as provided in subsection (i) of Section 4.2).
The Trustees may from time to time close the transfer books or
establish record dates and times for the purposes of determining the holders of
Shares entitled to be treated as such, to the extent provided or referred to in
Section 5.3.
The establishment and designation of any Series of Shares in addition
to those established and designated in Section 4.2, or any Sub-Series, shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such Series or Sub-Series, or as otherwise provided in such
instrument. At any time that there are no Shares outstanding of any particular
Series or Sub-Series previously established and designated, the Trustees may by
an instrument executed by a majority of their number abolish that Series or
Sub-Series and the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an amendment to this
Declaration of Trust.
Section 4.2 Establishment and Designation of Series. Without limiting
the authority of the Trustees set forth in Section 4.1 to establish and
designate any further Series, the Trustees hereby establish and designate one
Series of Shares: "Tucker Anthony Cash Management Fund" Shares. The Tucker
Anthony Cash Management Fund Shares and any Shares of any further Series that
may from time to time be established and designated by the Trustees shall
(unless the Trustees otherwise determine with respect to some further Series or
Sub-Series at the time of establishing and designating the same) have the
following relative rights and preferences:
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(a) Assets Belonging to Series. All consideration received by the
Trust for the issue or sale of Shares of a particular Series, together with all
assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of account of the Trust.
Such consideration, assets, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, together with any General Items
allocated to that Series as provided in the following sentence, are herein
referred to as "assets belonging to" that Series. In the event that there are
any assets, income, earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as belonging to any particular Series
(collectively "General Items"), the Trustees shall allocate such General Items
to and among any one or more of the Series established and designated from time
to time in such manner and on such basis as they, in their sole discretion, deem
fair and equitable; and any General Items so allocated to a particular Series
shall belong to that Series. Each such allocation by the Trustees shall be
conclusive and binding upon the Shareholders of all Series for all purposes.
(b) Liabilities Belonging to Series. The assets belonging to each
particular Series shall be charged with the liablilities of the Trust in respect
of that Series and all expenses, costs, charges and reserves attributable to
that Series, and any general liabilities, expenses, costs, charges or reserves
of the Trust which are not readily identifiable as belonging to any particular
Series shall be allocated and charged by the Trustees to and among any one or
more of the Series established and designated from time to time in such manner
and on such basis as the Trustees in their sole discretion deem fair and
equitable. The liabilities, expenses, costs, charges and reserves allocated and
so charged to a Series are herein referred to as "liabilities belonging to" that
Series. Each allocation of liabilities, expenses, costs, charges and reserves by
the Trustees shall be conclusive and binding upon the holders of all Series for
all purposes.
(c) Income Belonging to Series. The Board of Trustees shall have full
discretion, to the extent not inconsistent with Massachusetts law and the 1940
Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding.
Income belonging to a Series includes all income, earnings and profits
derived from assets belonging to that Series, less
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any expenses, costs, charges or reserves belonging to that Series, for the
relevant time period, all determined in accordance with generally accepted
accounting principles.
(d) Dividends. Dividends and distributions on Shares of a particular
Series may be paid with such frequency as the Trustees may determine, which may
be daily or otherwise pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may determine, to the holders
of Shares of that Series, from such of the income and capital gains, accrued or
realized, from the assets belonging to that Series, as the Trustees may
determine, after providing for actual and accrued liabilities belonging to that
Series.
Except as hereafter provided, all dividends on Shares of a particular
Series shall be paid only out of the income belonging to that Series and capital
gains distributions on Shares of a particular Series shall be paid only out of
the capital gains belonging to that Series. All dividends and distributions on
Shares of a particular Series shall be distributed pro rata to the holders of
that Series in proportion to the number of Shares of that Series held by such
holders at the date and time of record established for the payment of such
dividends or distributions, except that in connection with any dividend or
distribution program or procedure the Trustees may determine that no dividend or
distribution shall be payable on Shares as to which the Shareholder's purchase
order and/or payment have not been received by the time or times established by
the Trustees under such program or procedure, and except that there may be
differences in the rate or rates of dividends or distributions between different
Sub-Series of a Series pursuant to a resolution, which may be a standing
resolution, of the Board of Trustees.
The Trust intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1954, as amended, or any successor or comparable
statute thereto, and regulations promulgated thereunder. Inasmuch as the
computation of net income and gains for federal income tax purposes may vary
from the computation thereof on the books of the Trust, the Board of Trustees
shall have the power, in its sole discretion, to distribute in any fiscal year
as dividends, including dividends designated in whole or in part as capital
gains distributions, amounts sufficient, in the opinion of the Board of
Trustees, to enable the Trust to qualify as a regulated investment company and
to avoid liability of the Trust for federal income tax in respect of that year.
However, nothing in the foregoing shall limit the authority of the Board of
Trustees to make distributions greater than or less than the amount necessary to
qualify as a regulated investment company and to avoid liability of the Trust
for such tax.
Dividends and distributions may be made in cash or Shares or a
combination thereof as determined by the Trustees or pursuant to any program
that the Trustees may have in effect at the
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time for the election by each Shareholder of the mode of the making of such
dividend or distribution to that Shareholder. Any such dividend or distribution
paid in Shares will be paid at the net asset value thereof as determined in
accordance with subsection (i) of Section 4.2.
(e) Liquidation. In the event of the liquidation or dissolution of the
Trust, the Shareholders of each Series that has been established and designated
shall be entitled to receive, as a Series, when and as declared by the Trustees,
the excess of the assets belonging to that Series over the liabilities belonging
to that Series. The assets so distributable to the Shareholders of any
particular Series shall be distributed among such Shareholders in proportion to
the number of Shares of that Series held by them and recorded on the books of
the Trust. The liquidation of any particular Series with Shares then outstanding
may be authorized by vote of a majority of the Trustees then in office subject
to the approval of a majority of the outstanding voting securities of that
Series, as defined in the 1940 Act.
(f) Voting. On each matter submitted to a vote of the Shareholders,
each holder of a Share shall be entitled to one vote for each Share standing in
his name on the books of the Trust irrespective of the Series thereof and all
Shares of all Series shall vote as a single class ("Single Class Voting");
provided, however, that (i) as to any matter with respect to which a separate
vote of any Series is required by the 1940 Act or would be required under the
Massachusetts Business Corporation Law if the Trust were a Massachusetts
business corporation, such requirements as to a separate vote by that Series
shall apply in lieu of Single Class Voting as described above; (ii) in the event
that the separate vote requirements referred to in (i) above apply with respect
to one or more Series, then, subject to (iii) below, the Shares of all other
Series shall vote as a single class; and (iii) as to any matter which does not
affect the interest of a particular Series, only the holders of Shares of the
one or more affected Series shall be entitled to vote.
(g) Redemption by Shareholder. Each holder of Shares of a particular
Series shall have the right at such times as may be permitted by the Trust, but
no less frequently than once each week, to require the Trust to redeem all or
any part of his Shares of that Series at a redemption price equal to the net
asset value per Share of that Series next determined in accordance with
subsection (i) of this Section 4.2 after the Shares are properly tendered for
redemption, less such redemption charge, if any, as is determined by the Board
of Trustees, which redemption charge shall not exceed one percent (1%) of said
net asset value per Share. Payment of the redemption price shall be in cash;
provided, however, that if the Trustees determine, which determination shall be
conclusive, that conditions exist which make payment wholly in cash unwise or
undesirable, the Trust may make
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payment wholly or partly in securities or other assets belonging to the Series
of which the Shares being redeemed are part at the value of such securities or
assets used in such determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the holders of Shares of any
Series to require the Trust to redeem Shares of that Series during any period or
at any time when and to the extent permissible under the 1940 Act.
(h) Redemption by Trust. Each Share of each Series that has been
established and designated is subject to redemption by the Trust at the
redemption price which would be applicable if such Share was then being redeemed
by the Shareholder pursuant to subsection (g) of this Section 4.2 at any time if
the Trustees determine in their sole discretion that failure to so redeem may
have materially adverse consequences to all or any of the holders of the Shares,
or any Series thereof, of the Trust, and upon such redemption the holders of the
Shares so redeemed shall have no further right with respect thereto other than
to receive payment of such redemption price. In addition, the Board of Trustees,
in its sole discretion, may require a Shareholder to redeem all of his Shares of
any Series within thirty days after the end of any month, if the value of all of
his Shares of that Series at the end of said month is less than the minimum
amount established from time to time by the Board of Trustees.
(i) Net Asset Value. The net asset value per Share of any Series shall
be the quotient obtained by dividing the value of the net assets of that Series
(being the value of the assets belonging to that Series less the liabilities
belonging to that Series) by the total number of Shares of that Series
outstanding, all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time and in a manner not inconsistent with the 1940 Act.
The Trustees may determine to maintain the net asset value per Share
of any Series at a designated constant dollar amount and in connection therewith
may adopt procedures not inconsistent with the 1940 Act for the continuing
declarations of income attributable to that Series as dividends payable in
additional Shares of that Series at the designated constant dollar amount and
for the handling of any losses attributable to that Series. Such procedures may
provide that in the event of any loss each Shareholder shall be deemed to have
contributed to the capital of the Trust attributable to that Series his pro rata
portion of the total number of Shares required to be cancelled in order to
permit the net asset value per Share of that Series to be maintained, after
reflecting such loss, at the designated constant dollar amount. Each Shareholder
of the Trust shall be deemed to
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have agreed, by his investment in any Series with respect to which the Trustees
shall have adopted any such procedure, to make the contribution referred to in
the preceding sentence in the event of any such loss.
The Trustees may determine that the net asset value of different
Sub-Series within a Series may differ to the extent necessary to equitably
reflect the consequences of differing dividend rates as between said Sub-Series.
(j) Transfer. All Shares of each particular Series shall be
transferable, but transfers of Shares of a particular Series will be recorded on
the Share transfer records of the Trust applicable to that Series only at such
times as Shareholders shall have the right to require the Trust to redeem Shares
of that Series and at such other times as may be permitted by the Trustees.
(k) Equality. All Shares of each particular Series shall represent an
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities belonging to that Series), and each Share of any particular
Series shall be equal to each other Share of that Series; but the provisions of
this sentence shall not restrict any distinctions permissible under subsection
(c) of this Section 4.2 that may exist with respect to dividends and
distributions on Shares of different Sub-Series of the same Series or as
otherwise provided therein. The Trustees may from time to time divide or combine
the Shares of any particular Series into a greater or lesser number of Shares of
that Series without thereby changing the proportionate beneficial interest in
the assets belonging to that Series or in any way affecting the rights of Shares
of any other Series.
(l) Fractions. Any fractional Share of any Series or Sub-Series, if
any such fractional Share is outstanding, shall carry proportionately all the
rights and obligations of a whole Share of that Series or Sub-Series, including
with respect to voting, receipt of dividends and distributions, redemption of
Shares, and liquidation of the Trust.
(m) Conversion Rights. Subject to compliance with the requirements of
the 1940 Act, the Trustees shall have the authority to provide that holders of
Shares of any Series shall have the right to convert said Shares into Shares of
one or more other Series of Shares in accordance with such requirements,
including the payment of a sales commission where appropriate, and procedures as
may be established by the Trustees.
Section 4.3 Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or of a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each Series
that has been established and designated. No certificates certifying the
ownership
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of Shares need be issued except as the Trustees may otherwise determine from
time to time. The Trustees may make such rules as they consider appropriate for
the issuance of Shares certificates, the use of facsimile signatures, the
transfer of Shares and similar matters. The record books of the Trust as kept by
the Trust or any transfer or similar agent, as the case may be, shall be
conclusive as to who are the Shareholders and as to the number of Shares of each
Series or Sub-Series held from time to time by each such Shareholder.
Section 4.4 Investments in the Trust. The Trustees may accept
investments in the Trust from such persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as they
from time to time authorize. The Trustees may authorize any distributor,
principal underwriter, custodian, transfer agent or other person to accept
orders for the purchase of Shares that conform to such authorized terms and to
reject any purchase orders for Shares whether or not conforming to such
authorized terms.
Section 4.5 No Preemptive Rights. Shareholders shall have no preemptive
or other right to subscribe to any additional Shares or other securities issued
by the Trust.
Section 4.6 Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the continuance of
the Trust shall not operate to terminate the Trust, or entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not entitle
the Shareholder to any title in or to the whole or any part of the Trust
property or right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or agent
of the Trust shall have any power to bind personally any Shareholder, nor except
as specifically provided herein to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 5.1 Voting Powers. The Shareholders shall have power to vote
only (i) for the election or removal of Trustees
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as provided in Section 3.1, (ii) with respect to any contract with a Contracting
Party as provided in Sections 3.3 and 3.4 as to which Shareholder approval is
required by the 1940 Act, (iii) with respect to any termination or
reorganization of the Trust or any Series to the extent and as provided in
Sections 8.1 and 8.2, (iv) with respect to any amendment of this Declaration of
Trust to the extent and as provided in Section 8.3, (v) to the same extent as
the stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivately or as a class action on behalf of the Trust or the Shareholders, and
(vi) with respect to such additional matters relating to the Trust as may be
required by the 1940 Act, this Declaration of Trust, the By-Laws or any
registration of the Trust with the Commission (or any successor agency) or any
state, or as the Trustees may consider necessary or desirable.
There shall be no cumulative voting in the election of Trustees. Shares
may be voted in person or by proxy. A proxy with respect to Shares held in the
name of two or more persons shall be valid if executed by any one of them unless
at or prior to exercise of the proxy the Trust receives a specific written
notice to the contrary from any one of them. A proxy purporting to be executed
by or on behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall rest on the
challenger. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration of Trust
or the By-Laws to be taken by Shareholders.
Section 5.2 Meetings. There shall be an annual meeting of Shareholders
on the date fixed in the By-Laws at the office of the Trust in Boston,
Massachusetts, or at such other place as may be designated in the call thereof,
which call shall be made by the Trustees. In the event that such meeting is not
held in any year on the date fixed in the By-Laws, whether the omission be by
oversight or otherwise, a subsequent special meeting may be called by the
Trustees and held in lieu of the annual meeting with the same effect as though
held on such date. Special meetings may also be called by the Trustees from time
to time for the purpose of taking action upon any matter requiring the vote or
authority of the Shareholders as herein provided or upon any other matter deemed
by the Trustees to be necessary or desirable. Written notice of any meeting of
Shareholders shall be given or caused to be given by the Trustees by mailing
such notice at least seven days before such meeting, postage prepaid, stating
the time, place and purpose of the meeting, to each Shareholder at the
Shareholder's address as it appears on the records of the Trust. Upon written
demand for a special meeting (including a meeting involving only the holders of
Shares of one or more but fewer than all Series) by Shareholders holding at
least 10% of the Shares then outstanding of all Series entitled to vote upon
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any one matter proposed to be submitted to the special meeting, the Trustees
shall call a special meeting of Shareholders to consider such matter or matters.
If the Trustees shall fail to call or give notice of such special meeting of
Shareholders for which a proper demand has been made within thirty days after
such demand, then such Shareholders may call and give notice of such special
meeting, and thereupon the meeting shall be held in the manner provided for
herein in case of call thereof by the Trustees.
Section 5.3 Record Dates. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date and time not more
than 60 days prior to the date of any meeting of Shareholders or other action as
the date and time of record for the determination of Shareholders entitled to
vote at such meeting or any adjournment thereof or to be treated as Shareholders
of record for purposes of such other action, and any Shareholder who was a
Shareholder at the date and time so fixed shall be entitled to vote at such
meeting or any adjournment thereof or (subject to any provisions permissible
under subsection (d) of Section 4.2 with respect to dividends or distributions
on Shares that have not been ordered and/or paid for by the time or times
established by the Trustees under the applicable dividend or distribution
program or procedure then in effect) to be treated as a Shareholder of record
for purposes of such other action, even though he has since that date and time
disposed of his Shares, and no Shareholder becoming such after that date and
time shall be so entitled to vote at such meeting or any adjournment thereof or
to be treated as a Shareholder of record for purposes of such other action.
Section 5.4 Quorum and Required Vote. A majority of the Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, but any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held, within a reasonable
time after the date set for the original meeting without the necessity of
further notice. A majority of the Shares voted at a meeting at which a quorum is
present shall decide any questions and a plurality shall elect a Trustee.
However, when a different vote is required by the 1940 Act or an express
provision of this Declaration of Trust or the By-Laws, that provision shall
apply.
Section 5.5 Action by Written Consent. Subject to the provisions of
the 1940 Act and other applicable law, any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such other
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proportion thereof as shall be required by the 1940 Act or by any express
provision of this Declaration of Trust or the By-Laws) consent to the action in
writing and such written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
Section 5.6 Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
stockholders of a Massachusetts business corporation under the Massachusetts
Business Corporation Law.
Section 5.7 Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
LIMITATION OF LIABILITY; INDEMNIFICATION
OF SHAREHOLDERS
Section 6.1 Trustees, Shareholders, etc. Not Personally Liable. All
persons extending credit to, contracting with or having any claim against the
Trust shall look only to the assets of the Trust for payment under such credit,
contract or claim; and neither the Shareholders nor the Trustees, nor any of the
Trust's officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Every note, bond, contract, instrument, certificate
or undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only by or for the
Trust or the Trustees and not personally. Nothing in this Declaration of Trust
shall protect any Trustee or officer against any liability to the Trust or the
Shareholders to which such Trustee or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of Trustee or of such
officer.
Section 6.2 Notice of Limited Liability. Every note, bond, contract,
instrument, certificate or undertaking made or issued by the Trustees or by any
officers or officer shall give notice that this Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and shall recite to the
effect that the same was executed or made by or on behalf of the Trust or by
them as Trustees or Trustee or as officers or officer and not individually and
that the obligations of such instrument are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust, but the omission thereof shall not operate to bind any Trustees
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or Trustee or officers or officer or Shareholders or Shareholder individually.
Section 6.3 Trustee's Good Faith Action; Expert Advice; No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. A Trustee shall be liable for his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
and shall not be liable for errors of judgment or mistakes of fact or law.
Subject to the foregoing, (a) the Trustees shall not be responsible or liable in
any event for any neglect or wrongdoing of any officer, agent, employee,
consultant, adviser, administrator, distributor or principal underwriter,
custodian or transfer, dividend disbursing, Shareholder servicing or accounting
agent of the Trust, nor shall any Trustee be responsible for the act or omission
of any other Trustee; (b) the Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of Trust
and their duties as Trustees, and shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice;
and (c) in discharging their duties, the Trustees, when acting in good faith,
shall be entitled to rely upon the books of account of the Trust and upon
written reports made to the Trustees by any officer appointed by them, any
independent public accountant, and (with respect to the subject matter of the
contract involved) any officer, partner or responsible employee of a Contracting
Party appointed by the Trustees pursuant to Section 3.3. The Trustees as such
shall not be required to give any bond or surety or any other security for the
performance of their duties.
Section 6.4 Liability of Third Persons Dealing with Trustees. No
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred to the Trust or
upon its order.
Section 6.5 Indemnification of Shareholders. In case any Shareholder
or former Shareholder shall be charged or held to be personally liable for any
obligation or liability of the Trust solely by reason of being or having been a
Shareholder and not because of such Shareholder's acts or omissions or for some
other reason, the Trust (upon proper and timely request by the Shareholder)
shall assume the defense against such charge and satisfy any judgment thereon,
and the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled out of
the assets of the Trust estate to be held harmless from and indemnified against
all loss and expense arising from such liability.
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ARTICLE VII
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND AGENTS
Section 7.1 Definitions. For purposes of this Article VII:
(a) "Covered Person" means an individual: (i) who is a present or
former trustee, officer, agent, or employee of the Trust or who serves or served
another corporation, partnership, joint venture, trust, or other enterprise in
one of these capacities at the request of the Trust; and (ii) who by reason of
his position was, is, or is threatened to be made a party to a Proceeding. It
shall also include such person's heirs, executors and administrators.
(b) "Proceeding" includes any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative.
(c) "Disabling Conduct" means willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the Covered Person's
office.
(d) "Disinterested Trustee" means a Trustee who is neither an
"interested person" as defined in Section 2(a)(19) of the 1940 Act nor a party
to the Proceeding(s) in question.
Section 7.2 Actions In Name of Trust or Shareholder. The Trust shall
indemnify any Covered Person 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,
incurred in connection with the defense or disposition of any Proceeding by or
in the name of the Trust or any Shareholder in his capacity as such if one of
the following conditions is satisfied:
(a) a favorable final decision on the merits (which includes a
dismissal of the Proceeding for insufficiency of the evidence) is made by a
court or administrative body before whom it was brought against the Covered
Person; or
(b) a reasonable determination is made, based upon a review of the
facts (but without a hearing), that the Covered Person was not liable by reason
of Disabling Conduct, by either (i) the vote of a majority of a quorum of
Disinterested Trustees, or (ii) independent legal counsel in a written opinion,
or
(c) a determination is made to indemnify the Covered Person utilizing
procedures approved by the Board of Trustees by resolution or otherwise if the
Trustees shall have received an opinion of independent legal counsel that
indemnification in
22
<PAGE>
accordance with such procedures is not inconsistent with the 1940 Act.
Section 7.3 Other Actions. The Trust shall indemnify any Covered
Person against any 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, incurred in connection
with the defense or disposition of any Proceeding other than a Proceeding of the
type described in Section 7.2, except with respect to any matter as to which the
Covered Person shall have engaged in Disabling conduct or shall have been
finally adjudicated in the Proceeding 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 Trust.
Section 7.4 Advances of Expenses. The Trust shall advance attorneys'
fees or other expenses incurred by a Covered Person in defending a Proceeding,
upon the undertaking by or on behalf of the Covered Person to repay the advance
unless it is ultimately determined that such Covered Person is entitled to
indemnification, so long as one of the following conditions is met: (i) the
Covered Person shall provide security for his undertaking, (ii) the Trust shall
be insured against losses arising by reason of any lawful advances, or (iii) a
majority of a quorum of the Disinterested Trustees, or an independent legal
counsel in a written opinion, shall determine, based on a review of readily
available facts (as opposed to a full hearing), that there is reason to believe
that the Covered Person ultimately will be found entitled to indemnification.
Section 7.5 Indemnification Not Exclusive. The right of indemnification
provided by this Article VII shall not be exclusive of or affect any other
rights to which any such Covered Person may be entitled.
Section 7.6 Insurance. The Trust may purchase and maintain insurance on
its behalf and on behalf of any Covered Person against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Trust would have the power to indemnify him
against such liability under the provisions of this Article VII.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Duration and Termination of Trust. Unless terminated as
provided herein, the Trust shall continue without limitation of time. The Trust
may be terminated at any time by a majority of the Trustees then in office,
subject to a favorable
23
<PAGE>
vote of a majority of the outstanding voting securities, as defined in the 1940
Act, Shares of each Series voting separately by Series.
Upon termination, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall in accordance with such procedures
as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with the
provisions of subsection (e) of Section 4.2.
Section 8.2 Reorganization. The Trustees may sell, convey and transfer
the assets of the Trust, or the assets belonging to any one or more Series, to
another trust, partnership, association or corporation organized under the laws
of any state of the United States, or to the Trust to be held as assets
belonging to another Series of the Trust, in exchange for cash, shares or other
securities (including, in the case of a transfer to another Series of the Trust,
Shares of such other Series) with such transfer being made subject to, or with
the assumption by the transferee of, the liabilities belonging to each Series
the assets of which are so transferred; provided, however, that if Shareholder
approval is required by the 1940 Act, no assets belonging to any particular
Series shall be so transferred unless the terms of such transfer shall have
first been approved at a meeting called for the purpose by the affirmative vote
of the holders of a majority of the outstanding voting securities, as defined in
the 1940 Act, of that Series. Following such transfer, the Trustees shall
distribute such cash, shares or other securities (giving due effect to the
assets and liabilities belonging to and any other differences among the various
Series the assets belonging to which have so been transferred) among the
Shareholders of the Series the assets belonging to which have been so
transferred; and if all of the assets of the Trust have been so transferred, the
Trust shall be terminated.
Section 8.3 Amendments. All rights granted to the Shareholders under
this Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or repeal the prohibition of assessment upon the Shareholders without the
express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time by an instrument in
writing signed by a majority of the then Trustees (or by an officer of the Trust
pursuant to the vote of a majority of such Trustees), when authorized so to do
by the vote in accordance with subsection (e) of Section 4.2 of Shareholders
holding a majority of
24
<PAGE>
the Shares entitled to vote, except that amendments (a) establishing and
designating any new Series or Sub-Series of Shares not established and
designated in Section 4.2, (b) abolishing a Series or Sub-Series at a time when
there are no Shares thereof outstanding, (c) having the purpose of changing the
name of the Trust or the name of any Series or Sub-Series theretofore
established and designated, or (d) supplying any omission, curing any ambiguity
or curing, correcting or supplementing any provision hereof which is internally
inconsistent with any other provision hereof or which is defective or
inconsistent with the 1940 Act or with the requirements of the Internal Revenue
Code and applicable regulations for the Trust's obtaining the most favorable
treatment thereunder available to regulated investment companies, shall not
require authorization by Shareholder vote. Subject to the foregoing, any such
amendment shall be effective as provided in the instrument containing the terms
of such amendment or, if there is no provision therein with respect to
effectiveness, upon the execution of such instrument and of a certificate (which
may be a part of such instrument) executed by a Trustee or officer of the Trust
to the effect that such amendment has been duly adopted.
Section 8.4 Filing of Copies; References; Headings. The original or a
copy of this instrument and of each amendment hereto shall be kept at the office
of the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with the
Secretary of the Commonwealth of Massachusetts and with the Boston City Clerk,
as well as any other governmental office where such filing may from time to time
be required, but the failure to make any such filing shall not impair the
effectiveness of this instrument or any such amendment. Anyone dealing with the
Trust may rely on a certificate by an officer of the Trust as to whether or not
any such amendments have been made, as to the identities of the Trustees and
officers, and as to any matters in connection with the Trust hereunder; and,
with the same effect as if it were the original, may rely on a copy certified by
an officer of the Trust to be a copy of this instrument or of any such
amendments. In this instrument and in any such amendment, references to this
instrument, and all expressions like "herein", "hereof" and "hereunder" shall be
deemed to refer to this instrument as a whole as the same may be amended or
affected by any such amendments. The masculine gender shall include the feminine
and neuter genders. Headings are placed herein for convenience of reference only
and shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. This instrument may be executed in
any number of counterparts each of which shall be deemed an original.
Section 8.5 Applicable Law. This Declaration of Trust is made in the
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered
25
<PAGE>
according to the laws of said Commonwealth, including the Massachusetts Business
Corporation Law as the same may be amended from time to time, to which reference
is made with the intention that matters not specifically covered herein or as to
which an ambiguity may exist shall be resolved as if the Trust were a business
corporation organized in Massachusetts, but the reference to said Business
Corporation Law is not intended to give the Trust, the Trustees, the
Shareholders or any other person any right, power, authority or responsibility
available only to or in connection with an entity organized in corporate form.
The Trust shall be of the type referred to in Section 1 of Chapter 182 of the
Massachusetts General Laws and of the type commonly called a Massachusetts
business trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals in the City of Boston, Massachusetts for themselves and their assigns, as
of the day and year first above written.
------------------------
William A. Barron III
/s/ Nelson S. Barrett, Jr.
------------------------
Nelson S. Barrett, Jr.
/s/ Hugh A. Dunlap, Jr.
------------------------
Hugh A. Dunlap, Jr.
/s/ Richard A. Farrell
------------------------
Richard A. Farrell
------------------------
Patrick Grant
/s/ Arthur J. Petone
------------------------
Arthur J. Petone
C194/G
9/17/82
26
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss.
Then personally appeared the above-named William A. Barron III who
acknowledged the foregoing instrument to be his free act and deed, before me,
this 1st day of June, 1982.
----------------------
Notary Public
My commission expires:
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss.
Then personally appeared the above-named Nelson S. Barrett, Jr. who
acknowledged the foregoing instrument to be his free act and deed, before me,
this 1st day of June, 1982.
/s/ Judi A. Hatfield
----------------------
Notary Public
My commission expires: 4/22/88
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss.
Then personally appeared the above-named Hugh A. Dunlap, Jr. who
acknowledged the foregoing instrument to be his free act and deed, before me,
this 1st day of June, 1982.
/s/ Judi A. Hatfield
----------------------
Notary Public
My commission expires: 4/22/88
27
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss.
Then personally appeared the above-named Richard A. Farrell who
acknowledged the foregoing instrument to be his free act and deed, before me,
this 1st day of June, 1982.
/s/ Judi A. Hatfield
----------------------
Notary Public
My commission expires: 4/22/88
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss.
Then personally appeared the above-named Patrick Grant who
acknowledged the foregoing instrument to be his free act and deed, before me,
this 1st day of June, 1982.
----------------------
Notary Public
My commission expires:
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss.
Then personally appeared the above-named Arthur J. Petone who
acknowledged the foregoing instrument to be his free act and deed, before me,
this 1st day of June, 1982.
/s/ Judi A. Hatfield
----------------------
Notary Public
My commission expires: 4/22/88
C194/G
9/17/82
28
<PAGE>
TUCKER ANTHONY GROUP OF TAX EXEMPT FUNDS
AMENDMENT NO. 1 TO RESTATED AGREEMENT AND DECLARATION OF TRUST
Amendment No. 1 to Restated Agreement and Declaration of Trust dated
September 27, 1982, made at Boston, Massachusetts, this 1st day of May 1985.
WITNESSETH
WHEREAS, Section 8.3 of a Restated Agreement and Declaration of Trust
dated September 27, 1982, as amended (the "Declaration") of Tucker Anthony Group
of Tax Exempt Funds provides that the provisions of the Declaration may be
amended at any time by an instrument in writing signed by an officer of the
Trust pursuant to the vote of a majority of the Trustees, when authorized to do
so by a vote of Shareholders holding a majority of the shares entitled to vote;
and
WHEREAS, at the Annual Meeting of Shareholders of The Trust held on
Friday, April 26, 1985, the holders of a majority of the outstanding shares of
the Trust authorized the amendment to the Declaration contained herein and the
Trustees have authorized the President of the Trust to execute and file this
Amendment to the Declaration;
NOW, THEREFORE, the undersigned Hugh A. Dunlap, Jr., the duly elected
and serving President of the Trust, pursuant to the foregoing authorization,
hereby amends the Declaration as follows:
(a) Section 3.1(c) shall be deleted and replaced in full with the
following:
(c) Election and Term. The Trustees shall be elected by the
Shareholders of the Trust at the annual meeting of Shareholders held in 1985.
Each Trustee, whether named above or hereafter becoming a Trustee, shall serve
as a Trustee hereunder during the lifetime of this Trust and until its
termination as hereinafter provided except as such Trustee sooner dies, resigns
or is removed. Subject to Section 16(a) of the 1940 Act, the Trustees may elect
their own successors and may, pursuant to Section 3.1(f) hereof, appoint
Trustees to fill vacancies.
(b) Section 3.1(e) shall be deleted end replaced in full with the
following:
(e) Removal. Any Trustee may be removed with or without cause at any
time: (i) by written instrument, signed by at least two-thirds of the number of
Trustees prior to such removal, specifying the date upon which such removal
shall become effective; or (ii) by vote of Shareholders holding not less than
two-thirds of the Shares then outstanding, cast in person or by proxy at any
meeting called for the purpose; or (ii) by a written declaration signed by
Shareholders holding not less than two-thirds of the Shares then outstanding and
filed with the Trust's Custodian.
(c) Section 3.1(f) shall be deleted and shall be replaced in full
with the following:
(d) Vacancies. Any vacancy or anticipated vacancy resulting from any
reason, including without limitation the death, resignation, retirement, removal
or incapacity of any of the Trustees, or resulting from an increase in the
number of Trustees by the other Trustees may (but so long as there are at least
two remaining Trustees, need not unless required by the 1940 Act) be filled by a
majority of the remaining Trustees, subject to the provisions of Section 16(a)
of the 1940 Act, through the appointment in writing of such other person as such
remaining Trustees in their discretion shall determine and such appointment
shall be effective upon the written acceptance of the person named therein to
serve as a Trustee and agreement by such person to be bound by the provisions of
this Declaration of Trust, except that any such appointment in anticipation of a
vacancy to occur by reason of retirement, resignation, or increase in number of
Trustees to be effective at a later date shall become effective only at or after
the effective date of said retirement, resignation, or increase in number of
Trustees. As soon as any Trustee so appointed shall have accepted such
appointment and shall have agreed in writing to be bound by this Declaration of
Trust and the appointment is effective, the Trust estate shall vest in the new
Trustee, together with the continuing Trustees, without any further act or
conveyance.
(d) Section 5.2 shall be deleted and shall be replaced in full by the
following:
2
<PAGE>
Section 5.2 Meetings. No annual or regular meeting of Shareholders is
required. Special meetings of Shareholders may be called by the Trustees from
time to time for the purpose of taking action upon any matter requiring the vote
or authority of the Shareholders as herein provided or upon any other matter
deemed by the Trustees to be necessary or desirable. Written notice of any
meeting of Shareholders shall be given or caused to be given by the Trustees by
mailing such notice at least seven days before such meeting, postage prepaid,
stating the time, place and purpose of the meeting, to each Shareholder at the
Shareholder's address as it appears on the records of the Trust. The Trustees
shall promptly call and give notice of a meeting of Shareholders for the purpose
of voting upon removal of any Trustee of the Trust when requested to do so in
writing by Shareholders holding not less than 10% of the Shares then
outstanding. If the Trustees shall fail to call or give notice of any meeting of
Shareholders for a period of 30 days after written application by Shareholder
holding at least 10% of the Shares then outstanding requesting a meeting be
called for any other purpose requiring action by the Shareholders as provided
herein or in the By-laws, then Shareholders holding at least 10% of the Shares
then outstanding may call and give notice of such meeting, and thereupon the
meeting shall be held in the manner provided for herein in case of call thereof
by the Trustees.
(e) Section 5.8 appearing below shall be added.
Section 5.8 Shareholder Communications. Whenever ten or more
Shareholders of record who have been such for at least six months preceding the
date of application, and who hold in the aggregate either Shares having a net
asset value of at Least $25,000 or at least 1% of the outstanding Shares,
whichever is less, shall apply to the Trustees in writing, stating that they
wish to communicate with other Shareholders with a view to obtaining signatures
to a request for a Shareholder meeting and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall within
five business days after receipt of such application either (1) afford to such
applicants access to a list of the names and addresses all Shareholders as
recorded on the books of the Trust or Series, as applicable, or (2) inform such
applicants as to the approximate number of Shareholders of record, and the
approximate cost of mailing to them the proposed communication and form of
request.
If the Trustees elect to follow the course specified in paragraph (2)
above the Trustees, upon the written request of such applicants, accompanied by
a tender of the material to be mailed and of the reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all Shareholders of
record at their addresses as recorded on the books, unless within five business
days after such tender the Trustees shall mail to such applicants and file with
Securities and Exchange Commission,
3
<PAGE>
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. The
Trustees shall thereafter comply with the requirements of the Investment Company
Act of 1940.
WITNESS my hand and seal this 1st day of May, 1985.
/s/ Hugh A. Dunlap
--------------------------
Hugh A. Dunlap, Jr.,
President of Tucker Anthony Group of
Tax Exempt Funds
COMMONWEALTH OF MASSACHUSETTS )
) S.S.
COUNTY OF SUFFOLK )
Then personally appeared the above-named Hugh A. Dunlap, Jr. and
acknowledged this instrument to be his free act and deed this 1st day of May ,
1985.
/s/ Judi A. Hatfield
--------------------------
Notary Public
My commission expires:
4/22/88
--------------------------
C273/X
4/30/85
270971.C1 PAGE 1
- --------------------------------------------------------------------------------
TUCKER ANTHONY GROUP OF TAX EXEMPT FUNDS
AMENDMENT NO. 1 TO
AMENDMENT AND RESTATEMENT OF
AGREEMENT AND DECLARATION OF TRUST
This Amendment No. 1 to the Amendment and Restatement of the Agreement
and Declaration of Trust dated June 1, 1982 is made at Boston, Massachusetts as
of May 22, 1989 by the Trustees hereunder.
WITNESSETH
WHEREAS, the Trustees wish to change the name of the Trust from
"Tucker Anthony Group of Tax Exempt Funds" to "Freedom Group of Tax Exempt
Funds"; and
WHEREAS, the Trustees wish to change the name of the Series
established and designated under or in accordance with the provisions of Article
IV from "Tucker Anthony Tax Exempt Money Fund" to "Freedom Tax Exempt Money
Fund"; and
WHEREAS, the Trustees have the authority, under Section 8.3(c) of the
Agreement and Declaration of Trust, to make amendments to the Agreement and
Declaration of Trust to change the name of the Trust and any of the Series by an
instrument in writing signed by a majority of the then Trustees, without the
necessity of a shareholder vote;
NOW, THEREFORE, the Trustees hereby amend the Agreement and
Declaration of Trust as heretofore in effect as follows:
(a) Section 1.1 shall be deleted and replaced in its
entirety with the following:
Section 1.1 Name. This Trust shall be known as "Freedom
Group of Tax Exempt Funds" and the Trustees shall conduct
the business of the Trust under that name or any other name
as they may from time to time determine.
(b) Section 4.2 shall be amended by changing the name of the
Series designated as "Tucker Anthony Tax Exempt Money Fund" to
"Freedom Tax Exempt Money Fund."
IN WITNESS WHEREOF, the undesigned have hereunto set their hands and
seals in the City of Boston, Massachusetts for themselves and their assigns, as
of the day first written above.
/s/ Hugh A. Dunlap, Jr.
----------------------------
Hugh A. Dunlap, Jr.
/s/ Arthur J. Petone
----------------------------
Arthur J. Petone
/s/ William A. Barron III
----------------------------
William A. Barron III
/s/ Ralph Lowell, Jr.
----------------------------
Ralph Lowell, Jr.
/s/ Richard A. Farrell
----------------------------
Richard A. Farrell
/s/ Patrick Grant
----------------------------
Patrick Grant
YP-0408/T
FREEDOM GROUP OF TAX EXEMPT FUNDS
AMENDMENT NO. 3 TO
AMENDMENT AND RESTATEMENT OF
AGREEMENT AND DECLARATION OF TRUST
AMENDMENT NO. 3 to the Amendment and Restatement of the Agreement and
Declaration of Trust dated June 1, 1982, as amended, made at Boston,
Massachusetts as of this 15th day of June, 1990.
WITNESSETH
WHEREAS, Section 8.3 of the Amendment and Restatement of Agreement and
Declaration of Trust dated June 1, 1982, as amended (the "Agreement"), of
Freedom Group of Tax Exempt Funds (the "Trust") provides that the Agreement may
be amended at any time, so long as such amendment does not adversely affect the
rights of any shareholder; and
WHEREAS, Section 4.1 of the Agreement of the Trust provides that the Trustees of
the Trust may establish and designate additional Series of Shares by an
instrument in writing, signed by a majority of Trustees of the Trust.
NOW, THEREFORE, the Trustees hereby state:
1. That Section 4.2 of the Agreement and all other appropriate references in the
Agreement are amended to designate and establish a new series of shares (in
addition to the "Freedom Tax Exempt Money Fund" series heretofore established
and designated) to be known as the "Freedom California Tax Exempt Money Fund",
effective as of this date, such new series to have the relative rights and
preferences set forth in Subsections (a) through (m) of Section 4.2 of the
Agreement.
2. Furthermore, that the initial paragraph of Section 4.2 of the Agreement as
heretofore in effect is amended to read as follows:
"Section 4.2 Establishment and Designation of Series. Without limiting
the authority of the Trustees set forth in Section 4.1 to establish
and designate any further Series, the Trustees hereby establish and
designate two Series of Shares: "Freedom Tax Exempt Money Fund" Shares
and "Freedom California Tax Exempt Money Fund" Shares. The Shares of
such Series and any Shares of any further Series that may from time to
time be established and designated by the Trustees shall (unless the
Trustees otherwise determine with respect to some further Series or
Sub-Series at the time of establishing and designating the same) have
the following relative rights and preferences:"
The undersigned, being a majority of the Trustees of the Trust, hereby certify
that the Amendment set forth above has been duly adopted in accordance with the
provisions of the Amendment and Restatement of Agreement and Declaration of
Trust.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals
for themselves and their assigns, as of this 15th day of June, 1990.
/s/ Hugh A. Dunlap, Jr.
--------------------------------
Hugh A. Dunlap, Jr.
/s/ Patrick Grant
--------------------------------
Patrick Grant
/s/ Richard A. Farrell
--------------------------------
Richard A. Farrell
/s/ William A. Barron III
--------------------------------
William A. Barron III
/s/ Ralph Lowell, Jr.
--------------------------------
Ralph Lowell, Jr.
-2-
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
) SS.
COUNTY OF SUFFOLK )
Then personally appeared each of the above named Hugh A. Dunlap, Jr., Patrick
Grant, Richard A. Farrell, William A. Barron III, and Ralph Lowell, Jr. and
acknowledged this instrument to be his free act and deed, before me, this l5th
day of June, 1990.
/s/ John Danello
--------------------------------
Notary Public
(SEAL) My Commission expire as: 12-5-91
-------
-3-
<PAGE>
270985.C1 Page 1
- --------------------------------------------------------------------------------
FREEDOM GROUP OF TAX EXEMPT FUNDS
AMENDMENT NO. 4 TO
AMENDMENT AND RESTATEMENT OF
AGREEMENT AND DECLARATION OF TRUST
AMENDMENT NO. 4 to the Amendment and Restatement of the Agreement and
Declaration of Trust dated June 1, 1982, as amended, made at Boston,
Massachusetts as of this 31st day of July, 1990.
WITNESSETH
WHEREAS, Section 8.3 of the Amendment and Restatement of Agreement and
Declaration of Trust dated June 1, 1982, as amended (the "Agreement"), of
Freedom Group of Tax Exempt Funds (the "Trust") provides that the Agreement may
be amended at any time, so long as such amendment does not adversely affect the
rights of any shareholder; and
WHEREAS, the Trustees wish to correct the designation of an amendment
to the Agreement dated May 22, 1989 which was incorrectly entitled "Amendment
No. 1 to Amendment and Restatement of Agreement and Declaration of Trust;" such
amendment should have been entitled "Amendment No. 2 to Amendment and
Restatement of Agreement and Declaration of Trust."
NOW, THEREFORE, the Trustees hereby state:
That the amendment to the Agreement dated May 22, 1989 is designated
and entitled "Amendment No. 2 to Amendment and Restatement of Agreement and
Declaration of Trust."
The undersigned, being a majority of the Trustees of the Trust, hereby
certify that the Amendment set forth above has been duly adopted in accordance
with the provisions of the Amendment and Restatement of Agreement and
Declaration of Trust.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals for themselves and their assigns, as of this 31st day of July, 1990.
/s/ Hugh A. Dunlap, Jr. /s/ William A. Barron, III
- --------------------------------- ------------------------------------
Hugh A. Dunlap, Jr. William A. Barron, III
/s/ Patrick Grant /s/ Ralph Lowell, Jr.
- --------------------------------- ------------------------------------
Patrick Grant Ralph Lowell, Jr.
/s/ Richard A. Farrell
- ---------------------------------
Richard A. Farrell
<PAGE>
270985.C1 Page 2
- --------------------------------------------------------------------------------
COMMONWEALTH OF MASSACHUSETTS )
) SS.
COUNTY OF SUFFOLK )
Then personally appeared each of the above-named Hugh A. Dunlap, Jr.,
Patrick Grant, Richard A. Farrell, William A. Barron, III, and Ralph Lowell, Jr.
and acknowledged this instrument to be his free act and deed, before me, this
31st day of July, 1990.
/s/ Regina M. Pisa
------------------------------------
Notary Public
My Commission Expires: 1/24/99
--------------
DP-0377/T
BY-LAWS
OF
FREEDOM GROUP OF TAX EXEMPT FUNDS
ARTICLE 1
Agreement and Declaration
of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject
to the Declaration of Trust, as from time to time in effect (the "Declaration of
Trust"), of the Freedom Group of Tax Exempt Funds, the Massachusetts business
trust established by the Declaration of Trust (the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust
shall be located in Boston, Massachusetts.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held at
any time and at any place designated in the call of the meeting when called by
the Chairman of the Trustees, the President or the Chief Financial Officer or by
two or more Trustees, sufficient notice thereof being given to each Trustee by
the Secretary or an Assistant Secretary or by the officer of the Trustees
calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special
meeting to send notice by mail at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to the Trustee at his or
her usual or last known business or residence address or to give notice to him
or her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before or after the meeting, is filed with the
records of the
<PAGE>
meeting, or to any Trustee who attends the meeting without protesting prior
thereto or at its commencement the lack of notice to him or her. Neither notice
of a meeting nor a waiver of a notice need specify the purposes of the meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees
then in office shall constitute a quorum. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
2.5 Participation by Telephone. One or more of the Trustees or of any
committee of the Trustees may participate in a meeting thereof by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a
Chairman of the Trustees, a President, a Chief Financial Officer, a Treasurer, a
Secretary and such other officers, including Vice Presidents, if any, as the
Trustees from time to time may in their discretion elect. The Trust may also
have such agents as the Trustees from time to time may in their discretion
appoint. The Chairman of the Trustees shall be a Trustee and may but need not be
a shareholder; and any other officer may be but none need be a Trustee or
shareholder. Any two or more offices may be held by the same person.
3.2 Election. The Chairman of the Trustees, the President, the Chief
Financial Officer, the Treasurer, and the Secretary shall be elected annually by
the Trustees at a meeting held within the first four months of the Trust's
fiscal year. The meeting at which the officers are elected shall be known as the
annual meeting of Trustees. Other officers, if any, may be elected or appointed
by the Trustees at said meeting or at any other time. Vacancies in any office
may be filled at any time.
3.3 Tenure. The Chairman of the Trustees, the President, the Chief
Financial Officer, the Treasurer, and the Secretary shall hold office until the
next annual meeting of the Trustees and until their respective successors are
chosen and qualified, or in each case until he or she sooner dies, resigns, is
removed or becomes disqualified. Each other officer shall hold office and each
agent shall retain authority at the pleasure of the Trustees.
3.4 Powers. Subject to the other provisions of these By-Laws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him or her as if the Trust were
2
<PAGE>
organized as a Massachusetts business corporation and such other duties and
powers as the Trustees may from time to time designate.
3.5 Chairman; President. Unless the Trustees otherwise provide, the
Chairman of the Trustees, or, if there is none, or in the absence of the
Chairman, the President shall preside at all meetings of the shareholders and of
the Trustees. The Chairman shall be the chief executive officer.
3.6 Vice President. The Vice President, or if there be more than one
Vice President, the Vice Presidents in the order determined by the Trustees (or
if there be no such determination, then in the order of their election) shall in
the absence of the President or in the event of his inability or refusal to act,
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
Presidents shall perform such other duties and have such other powers as the
Board of Trustees may from time to time prescribe.
3.7 Chief Financial Officer. The Chief Financial Officer shall be the
chief financial and accounting officer of the Trust, and shall, subject to the
provisions of the Declaration of Trust and to any arrangement made by the
Trustees with a custodian, investment adviser or manager, or transfer,
shareholder servicing or similar agent, be in charge of the valuable papers,
books of account and accounting records of the Trust, and shall have such other
duties and powers as may be designated from time to time by the Trustees or by
the President.
3.8 Treasurer. The Treasurer shall, in the absence of the Chief
Financial Officer or in the event of his inability or refusal to act, perform
the duties and exercise the powers of the Chief Financial Officer and shall
perform such other duties and have such other powers as the Board of Trustees
may from time to time prescribe.
3.9 Secretary. The Secretary shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust. In the absence
of the Secretary from any meeting of the shareholders or Trustees, an assistant
secretary, or if there be none or if he or she is absent, a temporary secretary
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.10 Assistant Secretary The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Trustees (or
if there be no determination, then in the order of their election), shall, in
the absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Trustees may from
time to time prescribe.
3.11 Resignations and Removals. Any Trustee or officer may resign at
any time by written instrument signed by him or her and delivered to the
Chairman, the President or the
3
<PAGE>
Secretary or to a meeting of the Trustees. Such resignation shall be effective
upon receipt unless specified to be effective at some other time. The Trustees
may remove any officer elected by them with or without cause. Except to the
extent expressly provided in a written agreement with the Trust, no Trustee or
officer resigning and no officer removed shall have any right to any
compensation for any period following his or her resignation or removal, or any
right to damages on account of such removal.
ARTICLE 4
Committees
4.1 General. The Trustees, by vote of a majority of the Trustees then
in office, may elect from their number an Executive Committee or other
committees and may delegate thereto some or all of their powers except those
which by law, by the Declaration of Trust, or by these By-Laws may not be
delegated. Except as the Trustees may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided by
the Trustees or in such rules, its business shall be conducted so far as
possible in the same manner as is provided by these By-Laws for the Trustees
themselves. All members of such committees shall hold such offices at the
pleasure of the Trustees. The Trustees may abolish any such committee at any
time. Any committee to which the Trustees delegate any of their powers or duties
shall keep records of its meetings and shall report its action to the Trustees.
The Trustees shall have power to rescind any action of any committee, but no
such rescission shall have retroactive effect.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers and Committees shall render such additional reports as they may deem
desirable or as may from time to time be required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. The fiscal year of the Trust shall be fixed by resolution
of the Trustees.
4
<PAGE>
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die
with the word "Massachusetts", together with the name of the Trust and the year
of its organization cut or engraved thereon, but, unless otherwise required by
the Trustees, the seal shall not be necessary to be placed on, and its absence
shall not impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the Chairman, President, Chief Financial Officer, any Vice President, or by the
Treasurer and need not bear the seal of the Trust.
ARTICLE 9
Issuance of Share Certificates
9.1 Share Certificates. In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates either in limited cases or to all shareholders. In that event, a
shareholder may receive a certificate stating the number of shares owned by him,
in such form as shall be prescribed from time to time by the Trustees. Such
certificate shall be signed by the president or a vice president and by the
treasurer or assistant treasurer. Such signatures may be facsimiles if the
certificate is signed by a transfer agent, or by a registrar, other than a
Trustee, officer or employee of the Trust. In case any officer who has signed or
whose facsimile signature has been placed on such certificate shall cease to be
such officer before such certificate is issued, it may be issued by the Trust
with the same effect as if he were such officer at the time of its issue.
5
<PAGE>
9.2 Loss of Certificates. In case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 Issuance of New Certificate to Pledgee. A pledgee of shares
transferred as collateral security shall be entitled to a new certificate if the
instrument of transfer substantially describes the debt or duty that is intended
to be secured thereby. Such new certificate shall express on its face that it is
held as collateral security, and the name of the pledgor shall be stated
thereon, who alone shall be liable as a shareholder, and entitled to vote
thereon.
9.4 Discontinuance of Issuance of Certificates. The Trustees may at any
time discontinue the issuance of share certificates and may, by written notice
to each shareholder, require the surrender of shares certificates to the Trust
for cancellation. Such surrender and cancellation shall not affect the ownership
of shares in the Trust.
ARTICLE 10
Dealings with Trustees and Officers
10.1 General. Any Trustee, officer or other agent of the Trust may acquire,
own and dispose of shares of the Trust to the same extent as if he were not a
Trustee, officer or agent; and the Trustees may accept subscriptions to shares
or repurchase shares from any firm or company in which any Trustee, officer or
other agent of the Trust may have an interest.
ARTICLE 11
Amendments to the By-Laws
11.1 General. These By-Laws may be amended or repealed, in whole or in part,
by a majority of the Trustees then in office at any meeting of the Trustees, or
by one or more writings signed by such a majority.
349828.c1
6
<PAGE>
NUMBER [FLAG LOGO] SHARES
FREEDOM GROUP OF TAX EXEMPT FUNDS
(A MASSACHUSETTS BUSINESS TRUST)
FREEDOM TAX EXEMPT MONEY FUND
SHARES OF BENEFICIAL INTEREST
ACCOUNT NO. ALPHA CODE
CUSIP 356 386 102
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE REGISTERED OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES (WITHOUT PAR VALUE) OF
- -------------------------FREEDOM TAX EXEMPT MONEY FUND--------------------------
a Series of Shares established and designated under the Master Trust Agreement
of FREEDOM GROUP OF TAX EXEMPT FUNDS, a Massachusetts business trust (the
"Trust") dated June 1, 1982 as amended from time to time ( the "Trust
Agreement"). The terms of the Trust Agreement, a copy of which is on file with
the Secretary of the Commonwealth of Massachusetts, are hereby incorporated by
references as fully as if set forth herein in their entirety. As provided in the
Trust Agreement, the beneficial interest in the Trust has been divided into
Shares of such Series as may be established and designated from time to time,
and the Shares evidenced hereby represent the beneficial interest in an
undivided proportionate part of the assets belonging to the above designated
Series subject to the liabilities belonging to such Series. Such Series and
other Series have the relative rights and preferences set forth in the Trust
Agreement, and the Trust will furnish to the holder of this certificate upon
written request and without charge a statement of such relative rights and
preferences. THE SHARES EVIDENCED HEREBY ARE SUBJECT TO REDEMPTION BY THE TRUST
pursuant to the procedures that may be determined by the Trustees in accordance
with the Trust Agreement. This certificate is issued by the Trustees of FREEDOM
GROUP OF TAX EXEMPT FUNDS FUND not individually but as Trustees under the Trust
Agreement, and represents Shares of the above designated Series and does not
bind in any of the Trustees, Shareholders, Officers, Employees or Agents of the
Trust personally but only the assets and property of the Trust. Subject to the
provisions of the Trust Agreement, the Shares represented by this certificate
are transferable upon the books of the Trust by the registered holder hereof in
person or by his duly authorized attorney upon surrender of this certificate.
[SEAL]
WITNESS the facsimile signatures of the President and Treasurer of the Trust and
the signature of its duly authorized agent.
Dated
/s/ Thomas J. Brown /s/ Hugh A. Dunlap, Jr.
Treasurer President
Countersigned: STATE STREET BANK & TRUST COMPANY
By Transfer Agent
Authorized Signature
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT- Custodian
-------- --------
(Cust) (Minor)
TEN ENT -as tenants by the entireties under Uniform Gifts to Minors
JT TEN -as joint tenants with right Act
of survivorship and not as --------------------------
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
-----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
----------------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of
assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer the said shares on the books of the within-named Trust with
full power of substitution in the premises.
Dated,
------------------
---------------------------------
NOTICE: The signature of this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement or any change whatever.
<PAGE>
NUMBER SHARES
FREEDOM GROUP OF TAX EXEMPT
FUNDS
(A Massachusetts Business Trust)
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
SHARES OF BENEFICIAL INTEREST
ACCOUNT NO. ALPHA CODE CUSIP 356 386 201
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the registered owner of
FULLY PAID AND NON-ASSESSABLE SHARES (WITHOUT PAR VALUE) OF
- --------------------FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND--------------------
a Series of Shares established and designated under the Agreement and
Declaration of Trust of FREEDOM GROUP OF TAX EXEMPT FUNDS, a Massachusetts
business trust (the "Trust") dated June 1, 1982 as amended from time to time
(the "Trust Agreement"). The terms of the Trust Agreement, a copy of which is on
file with the Secretary of the Commonwealth of Massachusetts, are hereby
incorporated by reference as fully as if set forth herein in their entirety. As
provided in the Trust Agreement, the beneficial interest in the Trust has been
divided into shares of such Series as may be established and designated from
time to time, and the Shares evidenced hereby represent the beneficial interest
in an undivided proportionate part of the assets belonging to the above
designated Series subject to the liabilities belonging to such Series. Such
Series and other Series have the relative rights and preferences set forth in
the Trust Agreement, and the Trust will furnish to the holder of this
certificate upon written request and without charge a statement of such relative
rights and preferences. THE SHARES EVIDENCED HEREBY ARE SUBJECT TO REDEMPTION BY
THE TRUST pursuant to the procedures that may be determined by the Trustees in
accordance with the Trust Agreement. This certificate is issued by the Trustees
of FREEDOM GROUP OF TAX EXEMPT FUNDS not individually but as Trustees under the
Trust Agreement, and represents Shares of the above designated Series and does
not bind any of the Trustees, Shareholders, Officers, Employees or Agents of the
Trust personally but only the assets and property of the Trust. Subject to the
provisions of the Trust Agreement, the Shares represented by this certificate
are transferable upon the books of the Trust by the registered holder hereof in
person or by his duly authorized attorney upon surrender of this certificate.
WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent.
[SEAL] Dated
/s/ Thomas J. Brown /s/ Hugh A. Dunlap, Jr.
Treasurer President
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-.....Custodian......
TEN ENT - as tenants by the entireties (Custodian) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts
of survivorship and not as to Minors Act
tenants in common .....................
(State)
Additional abbreviations may also be used though not in the above list.
For value received.........................hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEES
- -------------------------------------- ........................................
................................................................................
Please print or typewrite name and address including postal zip code of assignee
................................................................................
................................................................................
......................................................................... Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
................................................................................
................................................................................
Attorney to transfer the said shares on the books of the within-named Trust with
full power of substitution in the premises.
Dated......................
........................................
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the Certificate, in every particular, without
alteration or enlargement or any change whatever.
DISTRIBUTION AGREEMENT
Distribution Agreement dated as of the 29th day of November, 1996 among
TUCKER ANTHONY INCORPORATED, a corporation organized under the laws of the
Commonwealth of Massachusetts ("Tucker Anthony"), FREEDOM DISTRIBUTORS
CORPORATION, a corporation organized under the laws of the Commonwealth of
Massachusetts ("Freedom") and SUTRO & CO., INCORPORATED, a corporation organized
under the laws of the State of Nevada ("Sutro"), (sometimes herein referred to
collectively as "Distributor"), and FREEDOM GROUP OF TAX EXEMPT FUNDS, a
Massachusetts business trust having a place of business at One Beacon Street,
Boston, Massachusetts (sometimes herein referred to as "the Trust") which
proposes to offer shares of beneficial interest in different series representing
interests in different portfolios of assets (each series being referred to
herein as a "Fund"). Wherever the term "Distributor" appears in this
Distribution Agreement, it shall refer to Tucker Anthony, Freedom and Sutro with
respect to the Freedom Group of Tax Exempt Funds generally and Freedom and Sutro
with respect to the Freedom California Tax Exempt Money Fund.
WITNESSETH:
In consideration of the agreements herein contained and for other good
and valuable consideration, receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed:
1. Appointment of Distributor.
(a) The Trust hereby appoints the Distributor as its exclusive agent to
sell and distribute shares of each Fund of the Trust then in existence at the
offering price thereof as from time to time determined in the manner herein
provided. The Distributor hereby accepts such appointment and agrees during the
term of this Distribution Agreement to provide the services and to assume the
obligations herein set forth without compensation.
(b) The Trust hereby appoints Freedom Distributors Corporation and
Sutro & Co., Inc. as its exclusive agents with respect to shares of Freedom
California Tax Exempt Money Fund to sell and distribute such shares of the
Freedom California Tax Exempt Money Fund at the offering price thereof as
determined in the manner herein provided. Freedom Distributors Corporation and
Sutro & Co., Inc. hereby accept such appointment.
2. Basis of Sale of Shares. Distributor does not agree to sell any
specific number of shares. Shares will be sold by Distributor as agent for the
Trust only against orders therefor. Distributor will not purchase shares from
anyone other than the Trust except as agent for the Trust, and Distributor will
not take "short" positions in shares of the Trust.
3. Offering Price. The offering price for shares of any Fund of the
Trust shall be the "net asset value per share" for that Fund determined in
accordance with the Agreement and Declaration of Trust of the Trust. The net
asset value per share for each Fund shall be determined at such time and on such
days as are established by the Board of Trustees of the Trust from time to time.
<PAGE>
4. Manner of Offering. Distributor will conform to the securities laws
of any jurisdiction in which it sells, directly or indirectly, any shares.
Distributor also agrees to furnish to the Trust sufficient copies of any
agreements, plans or sales literature it intends to use in connection with any
sales of shares in adequate time for the Trust to file and clear them with the
proper authorities before they are put in use, and not to use them until so
filed and cleared.
5. Allocation of Expenses.
(a) The Trust, either directly or through its investment adviser, will
be responsible for, and shall pay the expenses of:
(i) providing all necessary services, including fees and
disbursements of counsel, related to the preparation, setting in type, printing
and filing of any registration statement and/or prospectus required under the
Securities Act of 1933, as amended, or under state securities laws, covering its
shares, and all amendments and supplements thereto, the mailing of any such
prospectus to existing shareholders, and preparing, setting in type, printing
and mailing periodic reports to existing shareholders;
(ii) the cost of all registration or qualification fees;
(iii) the cost of preparing temporary and permanent share
certificates for shares of the Trust;
(iv) all the federal and state (if any) issue and/or transfer
taxes payable upon the issue by or (in the case of treasury shares) transfer
from the Trust to the Distributor of any and all shares distributed hereunder.
(b) The Distributor agrees that, after the prospectus and periodic
reports have been set in type, it will bear the expense of printing and
distributing any copies thereof which are to be used in connection with the
offering of shares to investors. The Distributor further agrees that it will
bear the expenses of preparing, printing and distributing any other literature
used by the Distributor or furnished by it for use in connection with the
offering of the shares for sale to the public, and any expenses of advertising
in connection with such offering. The Distributor will also pay fees for
services rendered by the transfer agent on behalf of the Distributor.
(c) The Trust will be responsible for, and shall pay the
expenses of, maintaining shareholder accounts and furnishing or causing to be
furnished to each shareholder a statement of his account. Where shares of the
Trust are carried for the account of a customer by the Distributor in a broker
controlled account together with other assets of the customer, the Trust will be
responsible for and shall pay the Distributor or its affiliate the amount of
$10.50 per shareholder account for the Distributor's services in maintaining
shareholder accounts and furnishing statements of account with respect to such
broker controlled accounts. The $10.50 payment shall be in lieu of all other
payments to the Distributor, including any and all out of pocket expenses
incurred by the Distributor on behalf of the Trust."
<PAGE>
6. Distributor Is Independent Contractor. Distributor shall be an
independent contractor. Distributor is responsible for its own conduct, for the
employment, control and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents or employees.
Distributor assumes full responsibility for its agents and employ ees under
applicable statutes and agrees to pay all employer taxes thereunder.
7. Term of Contract. This Distribution Agreement shall go into effect
on the date hereof and shall continue in effect thereafter for successive
periods of one year each if such continuance is approved at least annually
thereafter (i) either by an affirmative vote of a majority of the outstanding
shares of the Trust or by the Board of Trustees of the Trust, and (ii) in either
case by a majority of the Trustees of the Trust who are not interested persons
of the Distributor or (otherwise than as Trustees) of the Trust, cast in person
at a meeting called for the purpose of voting on such approval. Written notice
of discontinuance of this Distribution Agreement may be given by one party
hereto to the other not less than sixty (60) days before expiration of its
initial term or before the expiration of any succeeding annual period.
8. Assignment. This Distribution Agreement may not be assigned by the
Distributor and shall automatically terminate in the event of an attempted
assignment by the Distributor; provided, however, that the Distributor may
employ such other person, persons, corporation, or corporations, as it shall
determine in order to assist it in carrying out this Distribution Agreement.
9. Indemnification by Distributor. Distributor agrees to indemnify and
hold harmless the Trust or any other person who has been, is, or may hereafter
be an officer, director or employee of the Trust against any loss, damage or
expense reasonably incurred by any of them in connection with any claim or in
connection with any action, suit, or proceeding to which any of them may be a
party, which arises out of or is alleged to arise out of or is based upon any
untrue statement or alleged untrue statement of a material fact, or the omission
or alleged omission to state a material fact necessary to make the statements
made not misleading, on the part of Distributor or any agent or employee of
Distributor or any other person for whose acts Distributor is responsible or is
alleged to be responsible, unless such statement or omission was made in
reliance upon written information furnished by the Trust. The term "expenses"
for purposes of this and the next paragraph includes amounts paid in
satisfaction of judgments or in settlements which are made with Distributor's
consent. The foregoing rights of indemnification shall be in addition to any
other rights to which the Trust or a Trustee may be entitled as a matter of law.
10. Indemnification by Trust. The Trust agrees to indemnify and hold
harmless the Distributor and each person who has been, is, or may hereafter be
an officer, director, employee or agent of the Distributor against any loss,
damage or expense reasonably incurred by any of them in connection with any
claim or in connection with any action, suit or proceeding to which any of them
may be a party, which arises out of or is alleged to arise out of or is based
upon any untrue or alleged untrue statement of material fact, or the omission or
alleged omission to state a material fact necessary to make the statements
therein not misleading, contained in a registration statement or prospectus, or
any amendment or supplement thereto, unless such statement or omission was made
in reliance upon written information furnished by the Distributor. The foregoing
rights of indemnification shall be in addition to any other rights to which the
Distributor
<PAGE>
may be entitled as a matter of law. Nothing contained herein shall relieve
Distributor of any lia bility to the Trust or its shareholders to which
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties or reckless
disregard of its obligations and duties hereunder.
11. Non-exclusive Agreement. The services of the Distributor to the
Trust hereunder shall not be deemed to be exclusive, and the Distributor shall
be free to (a) render similar services to, and act as underwriter or distributor
in connection with the distribution of shares of, other investment companies,
and (b) engage in any other businesses and activities from time to time.
12. Amendment. This Distribution Agreement may be amended at any time
by mutual agreement in writing of the parties hereto, provided that any such
amendment is approved by a majority of the Trustees of the Trust who are not
interested persons of the Distributor or by the holders of a majority of the
outstanding shares of the Trust.
13. Governing Law. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Massachusetts.
14. Limitation of Liability. The Agreement and Declaration of Trust
establishing the Trust, dated June 1, 1982, as restated on September 27, 1982,
and as further amended (the "Declaration"), a copy of which is on file in the
Office of the Secretary of the Commonwealth of Massachusetts, provides that the
name "Freedom Group of Tax Exempt Funds" refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of the Trust shall be held
to any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim otherwise in connection with the
affairs of said Trust but the Trust Estate only shall be liable.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
<PAGE>
IN WITNESS WHEREOF, this Distribution Agreement has been executed for
the Distributors and the Trust by their duly authorized officers, as of the date
first set forth above.
FREEDOM DISTRIBUTORS TUCKER ANTHONY INCORPORATED
CORPORATION
By: /s/ John Danello By: /s/ Arthur E. McCarthy
---------------- ----------------------
President Managing Director
ATTEST: /s/ Maureen M. Renzi ATTEST: /s/ Maureen M. Renzi
-------------------- --------------------
SUTRO & CO., INCORPORATED FREEDOM GROUP OF TAX EXEMPT
FUNDS
By: /s/ By: /s/ Darlene Rego
------------------------ ----------------
Executive Vice President Treasurer
ATTEST: /s/ M.J. Delaney ATTEST: /s/ Maureen M. Renzi
---------------- --------------------
CUSTODIAN AGREEMENT
Between
TUCKER ANTHONY GROUP OF TAX EXEMPT FUNDS
and
STATE STREET BANK AND TRUST COMPANY
TABLE OF CONTENTS
1. Employment of Custodian and Property to be
Held By It..................................................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian...........................2
2.1 Holding Securities......................................2
2.2 Delivery of Securities..................................3
2.3 Registration of Securities..............................6
2.4 Bank Accounts...........................................7
2.5 Payments for Shares.....................................8
2.6 Investment and Availability of Federal Funds............8
2.7 Collection of Income....................................8
2.8 Payment of Fund Moneys..................................9
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased........................ll
2.10 Payments for Repurchases or Redemptions
of Shares of the Fund..................................12
2.11 Appointment of Agents..................................13
2.12 Deposit of Fund Assets in Securities System............13
2.13 Ownership Certificates for Tax Purposes................17
2.14 Proxies................................................17
2.15 Communications Relating to Fund
Portfolio Securities...................................17
2.16 Proper Instructions....................................18
2.17 Actions Permitted Without Express Authority............l9
2.18 Evidence of Authority..................................l9
3. Duties of Custodian With Respect to the Books
of Account and Calculation of Net Asset Value
and Net Income..............................................20
4. Records.....................................................21
5. Opinion of Fund's Independent Accountant....................21
6. Reports to Fund by Independent Public Accountants...........22
7. Compensation of Custodian...................................22
8. Responsibility of Custodian.................................22
9. Effective Period, Termination and Amendment.................23
10. Successor Custodian.........................................25
11. Interpretive and Additional Provisions......................26
12. Additional Funds............................................26
<PAGE>
13. Massachusetts Law to Apply..................................27
14. Prior Contracts.............................................27
15. Limitation of Liability.....................................27
CUSTODIAN CONTRACT
------------------
TUCKER ANTHONY GROUP OF TAX EXEMPT FUNDS
----------------------------------------
CONTRACT made as of this 15th day of September, 1982 by and between Tucker
Anthony Group of Tax Exempt Funds, a Massachusetts business trust having a
principal place of business at Three Center Plaza, Boston, Massachusetts
(hereinafter called the "Trust") and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts banking corporation having its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110 (hereinafter called "Custodian").
WHEREAS, the Trust is authorized to issue shares of beneficial interest
("Shares") in separate series, with each such series representing interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Trust intends to initially offer shares in one series, the
Tucker Anthony Tax Exempt Money Fund (such series, together with all other
series subsequently established by the Trust and made subject to this Contract
in accordance with paragraph 12, being herein referred to as the "Fund(s)");
WITNESSETH:
That in consideration of the mutual covenants and agreements hereinafter
contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian
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of its assets of Tucker Anthony Tax Exempt Money Fund, and any other Fund which
hereafter becomes subject to the terms hereof, pursuant to the provisions of the
Agreement and Declaration of Trust dated June 1, 1982. The Trust agrees to
deliver to the Custodian all securities and cash owned by any Funds subject to
this Contract, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by such Funds
from time to time, and the cash consideration received by it for such new Shares
of any Fund as may be issued or sold from time to time. The Custodian shall not
be responsible for any property of any Fund held or received by the Trust and
not delivered to the Custodian.
The Custodian may from time to time employ one or more sub-custodians, but
only in accordance with an applicable vote by the Trustees of the Trust, and
provided that the Custodian shall have no more or less responsibility or
liability to the Trust on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian.
2. Duties of the Custodian with Respect to Property of the Trust Held By
the Custodian
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Fund of the Trust all non-cash property,
including all securities owned by the Trust, other than securities
which are maintained pursuant to Section 2.12 in a clearing agency
which acts as a securities depository or in a book-entry
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system authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System".
2.2 Delivery of Securities. The Custodian shall release and deliver
securities owned by the Trust held by the Custodian or in a Securities
System account of the Custodian only upon receipt of proper
instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of a Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Trust;
3) In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of a Fund;
5) To the Issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the Issuer thereof, or its agent, for
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transfer into the name of the Trust or into the name of any
nominee or nominees of the Custodian or into the name or
nominee name of any agent appointed pursuant to Section 2.11
or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities
are to be delivered to the Custodian;
7) To the broker selling the same for examination in accordance
with the "street delivery" custom;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar
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securities, the surrender thereof in the exercise of such
warrants, rights or similar securities or the surrender of
interim receipts or temporary securities for definitive
securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
10) For delivery in connection with any loans of securities made
by the Trust, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Trust, which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities;
11) For delivery as security in connection with any borrowings by
the Trust requiring a pledge of assets of the appropriate
Fund of the Trust, but only against receipt of amounts
borrowed;
12) Upon receipt of instructions from the transfer agent for the
Trust ("Transfer Agent"), for delivery to such Transfer Agent
or to the holders of Shares of a Fund in connection with
distributions in kind, as may be described from time to time
in that Fund's
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currently effective prospectus, in satisfaction of requests
by holders of Shares for repurchase or redemption; and
13) For any other proper corporate purpose, but only upon receipt
of, in addition to proper instructions, a certified copy of a
resolution of the Trustees or of the Executive Committee
signed by an officer of the Trust and certified by the
Secretary or an Assistant Secretary, specifying the
securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purposes to
be proper corporate purposes, and naming the person or
persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other
than bearer securities) shall be registered in the name of the Trust or
in the name of any nominee of the Trust or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Trust,
unless the Trust has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Trust, or in the name or nominee
name of any agent appointee pursuant to Section
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2.11 or in the name or nominee name of any sub-custodian appointed
pursuant to Article 1. All securities accepted by the Custodian on
behalf of the Trust under the terms of this Contract shall be in
"street" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the name of each Fund of the Trust, subject only
to draft or order by the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of
that Fund, other than cash maintained by the Trust in a bank account
established and used in accordance with Rule 17f-3 under the Investment
Company Act of 1940. Funds held by the Custodian for the Trust may be
deposited by it to its credit as Custodian in the Banking Department of
the Custodian or in such other banks or trust companies as it may in
its discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such
bank or trust company and the funds to be deposited with each such bank
or trust company shall be approved by vote of a majority of the
Trustees of the Trust. Such funds shall be deposited by the Custodian
in its capacity as Custodian and shall be withdrawable by
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the Custodian only in that capacity.
2.5 Payments for Shares. The Custodian shall receive from the distributor
for the Trust's Shares or from the Transfer Agent of the Trust and
deposit into the account of the appropriate Fund such payments as are
received for Shares of that Fund issued or sold from time to time by
the Trust. The Custodian will provide timely notification to the Trust
and the Transfer Agent of any receipt by it of payments for Shares of
the Trust.
2.6 Investment and Availability of Federal Funds. Upon mutual agreement
between the Trust and the Custodian, the Custodian shall, upon the
receipt of proper instructions,
1) invest in such instruments as may be set forth in such
instructions, on the same day as received, all federal funds
received after a time agreed upon between the Custodian and
the Trust; and
2) make federal funds available to each Fund of the Trust, as of
specified times agreed upon from time to time by the Trust
and the Custodian, in an amount equal to the amount of checks
received in payment for Shares of that Fund which are
deposited into that Fund's account.
2.7 Collection of Income. The Custodian shall collect on a timely basis
all income and other payments with respect
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to registered securities held hereunder to which the Trust shall be
entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other
payments with respect to bearer securities if, on the date of payment
by the issuer, such securities are held by the Custodian or agent
thereof for the account of a Fund of the Trust and shall credit such
income, as collected, to that Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach
and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when due on securities held hereunder.
2.8 Payment of Fund Moneys. Upon receipt of proper instructions, which may
be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out moneys of the Trust in the following cases
only:
l) Upon the purchase of securities for the account of a Fund of
the Trust but only (a) against the delivery of such
securities to the Custodian (or any bank, banking firm or
trust company doing business in the United States or abroad
which is qualified under the Investment Company Act of 1940,
as amended, to act as a custodian and has been designated by
the Custodian as its agent for this
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purpose) registered in the name of the Trust or in the name
of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in accordance
with the conditions set forth in Section 2.12 hereof or (c)
in the case of repurchase agreements entered into between the
Trust and the Custodian, or another bank, (i) against
delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Trust of
securities owned by the Custodian along with written evidence
of the agreement by the Custodian to repurchase such
securities from the Trust;
2) In connection with the conversion, exchange or surrender of
securities owned by the Trust as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by any Fund
of the Trust as set forth in Section 2.10 hereof;
4) For the payment of any expense or liability
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incurred by the Trust, including but not limited to the
following payments for the account of any Fund of the Trust:
interest, taxes, management, accounting, transfer agent and
legal fees, and operating expenses of the Trust whether or
not such expenses are to be in whole or part capitalized or
treated as deferred expenses;
5) For the payment of any dividends declared by any Fund
pursuant to the governing documents of the Trust;
6) For any other proper purpose, but only upon receipt of, in
addition to proper instructions, a certified copy of a
resolution of the Trustees or of the Executive Committee of
the Trust signed by an officer of the Trust and certified by
its Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose for which
such payment is to be made, declaring such purpose to be a
proper purpose, and naming the person or persons to whom such
payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities Purchased. In
any and every case where payment for
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purchase of securities for the account of a Fund of the Trust is made
by the Custodian in advance of receipt of the securities purchased in
the absence of specific written instructions from the Trust to so pay
in advance, the Custodian shall be absolutely liable to the Trust for
such securities to the same extent as if the securities had been
received by the Custodian, except that in the case of repurchase
agreements entered into by the Trust with a bank which is a member of
the Federal Reserve System, the Custodian may transfer funds to the
account of such bank prior to the receipt of written evidence that the
securities subject to such repurchase agreement have been transferred
by book-entry into a segregated non-proprietary account of the
Custodian maintained with the Federal Reserve Bank of Boston or of the
safe-keeping receipt, provided that such securities have in fact been
so transferred by book-entry.
2.10 Payments for Repurchases or Redemptions of Shares of the Trust. From
such funds properly allocable to that Fund as may be available for the
purpose, but subject to the limitations of the Trust's Agreement and
Declaration of Trust and any applicable votes of the Trustees of the
Trust pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment
to holders of Shares of any Fund who have delivered to the Transfer
Agent a request for
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redemption or repurchase of their Shares of that Fund. In connection
with the redemption or repurchase of Shares of the Trust, the Custodian
is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares
of a Fund, the Custodian shall honor checks drawn on the Custodian by a
holder of Shares of that Fund, which checks have been furnished by the
Trust to the holder of Shares, when presented to the Custodian in
accordance with such procedures and controls as are mutually agreed
upon from time to time between the Trust and the Custodian.
2.11 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.12 Deposit of Trust Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by the Trust in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of
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the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Trust in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of
the Trust which are maintained in a Securities System shall
identify by book-entry those securities belonging to each
Fund of the Trust;
3) The Custodian shall pay for securities purchased for the
account of the Trust upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the
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making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the appropriate
Fund of the Trust. The Custodian shall transfer securities
sold for the account of, the Trust upon (i) receipt of advice
from the Securities System that payment for such securities
has been transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to reflect such
transfer and payment for the account of the appropriate Fund
of the Trust. Copies of all advices from the Securities
System of transfers of securities for the account of any Fund
of the Trust shall identify the Fund, be maintained for the
Trust by the Custodian and be provided to the Trust at its
request. The Custodian shall furnish to the Trust a
confirmation of each transfer to or from the account of each
Fund in the form of a written advice or notice and shall
furnish to the Trust copies of daily transaction sheets
reflecting each day's transactions in the Securities System
for the account of each Fund on the next business day;
4) The Custodian shall provide the Trust with
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any report obtained by the Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 9
hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Trust for any loss or
damage to the Trust resulting from use of the Securities
System by reason of any negligence, misfeasance or misconduct
of the Custodian or any of its agents or of any of its or
their employees or from failure of the Custodian or any such
agent to enforce effectively such rights as it may have
against the Securities System; at the election of the Trust,
it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the Securities
System or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent;
that the Trust has not been made whole
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for any such loss or damage.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to securities of the Trust held by it and in
connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of the Trust or a nominee of the Trust, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Trust such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 Communications Relating to Trust Portfolio Securities. The Custodian
shall transmit promptly to the Trust all written information
(including, without limitation, pendency of calls and maturities of
securities and expirations of rights in connection therewith) received
by the Custodian from issuers of the securities being held for the
Trust. With respect to tender or exchange offers, the Custodian shall
transmit promptly to the Trust all written information received by the
Custodian from issuers of the securities whose tender or exchange
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is sought and from the party (or his agents) making the tender or
exchange offer. If the Trust desires to take action with respect to any
tender offer, exchange offer or any other similar transaction, the
Trust shall notify the Custodian at least three business days prior to
the date on which the Custodian is to take such action.
2.16 Proper Instructions. Proper Instructions as used throughout this
Article 2 means a writing signed or initialled by one or more person or
persons as the Trustees shall have from time to time authorized. Each
such writing shall set forth the specific transaction or type of
transaction involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be considered
Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with
respect to the transaction involved. The Trust shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate
of the Secretary or an Assistant Secretary as to the authorization by
the Trustees of the Trust accompanied by a detailed description of
procedures approved by the Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or
electronic devices provided that the Trustees and the Custodian are
satisfied that such procedures afford
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adequate safeguards for the Trust's assets.
2.17 Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Trust:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this contract, provided that all such payments
shall be accounted for to the Trust;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Trust, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Trust except as otherwise directed by the Trustees of
the Trust.
2.18 Evidence of Authority. The Custodian shall be protected in acting upon
any instructions, notice, request, consent, certificate or other
instrument or paper believed by it to be genuine and to have been
properly executed by or on behalf of the Trust. The Custodian may
receive and accept a certified copy of a vote of the
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Trustees of the Trust as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any
determination or of any action by the Trustees pursuant to the
Agreement and Declaration of Trust as described in such vote, and such
vote may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
3. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Trustees of the Trust to keep the
books of account of the Trust and/or compute the net asset value per share
of the outstanding shares of each Fund of the Trust or, if directed in
writing to do so by the Trust, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of each Fund as
described in that Fund's currently effective prospectus and shall advise
the Trust and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Trust to do so,
shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset
value per share and the daily income of each Fund shall be made at the time
or times described from time to time in the Fund's currently effective
prospectus.
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4. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet
the obligations or the Trust under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Trust.
All such records shall be the property of the Trust and shall at all times
during the regular business hours of the Custodian be open for inspection
by duly authorized officers, employees or agents of the Trust and employees
and agents of the Securities and Exchange Commission. The Custodian shall,
at the Trust's request, supply the Trust with a tabulation of securities
owned by the Trust and allocable to each Fund and held by the Custodian and
shall, when requested to do so by the Trust and for such compensation as
shall be agreed upon between the Trust and the Custodian, include
certificate numbers in such tabulations.
5. Opinion of Trust's Independent Accountant
The Custodian shall take all reasonable action, as the Trust may from
time to time request, to obtain from year to year favorable opinions from
the Trust's independent accountants with respect to its activities
hereunder in connection with the preparation of the Trust's Form N-1, and
Form N-1R or other annual reports to the Securities and Exchange Commission
and with respect to any other requirements of such Commission.
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6. Reports to Trust by Independent Public Accountants
The Custodian shall provide the Trust, at such times as the Trust may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for
safeguarding securities, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian
under this Contract; such reports, which shall be of sufficient scope and
in sufficient detail, as may reasonably be required by the Trust, to
provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies,
shall so state.
7 Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between the Trust and the Custodian.
8. Responsibility of Custodian
So long as and to the extent that it exercises reasonable care, the
Custodian shall not be responsible for the title, validity or genuineness
of any property or evidence of title thereto received by it or delivered by
it pursuant to this Contract and shall be held harmless in acting upon any
notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or
parties. The Custodian shall be held to the exercise of
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reasonable care in carrying out the provisions of this Contract, but shall
be kept indemnified by and shall be without liability to the Trust for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel
for the Trust) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice. Notwithstanding
the foregoing, the responsibility of the Custodian with respect to
redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Trust.
If the Trust requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may,
in the opinion of the Custodian, result in the Custodian or its nominee
assigned to the Trust being liable for the payment of money or incurring
liability of some other form, the Trust, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the Custodian in
an amount and form satisfactory to it.
9. Effective Period, Termination and Amendment
This Contract shall become effective with respect to Tucker Anthony
Tax Exempt Money Fund as of its execution and with respect to any
additional Fund(s) as provided in Section 12, shall continue in full force
and effect until terminated as hereinafter provided, may be amended at any
time by mutual agreement of the parties hereto and may be terminated by
either party with respect
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to any Fund by an instrument in writing delivered or mailed, postage
prepaid to the other party, such termination to take effect not sooner than
thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not act under Section 2.12 hereof in the
absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Trustees of the Trust have approved the
initial use of a particular Securities System and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Trustees
have reviewed the use by the Trust of such Securities System, as required
in each case by Rule 17f-4 under the Investment Company Act of 1940, as
amended; provided further, however, that the Trust shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Agreement and Declaration of Trust,
and further provided, that the Trust may at any time by action of its
Trustees (i) substitute another bank or trust company as Custodian for any
Fund by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the
Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the Custodian
such compensation as may be due as of the date of such termination and
shall likewise reimburse the Custodian for
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its costs, expenses and disbursements.
10. Successor Custodian
If a successor custodian shall be appointed by the Trustees of the
Trust, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Trustees
of the Trust, deliver at the office of the Custodian such securities, funds
and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Trustees shall have been delivered to the
Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act
of 1940, doing business in Boston, Massachusetts, of its own selection,
having an aggregate capital, surplus, and undivided profits, as shown by
its last published report, of not less than $25,000,000, all securities,
funds and other properties held by the Custodian and all instruments held
by the Custodian relative thereto and all other property held by it under
this Contract. Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract.
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In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Trust to procure the certified copy of vote referred to or
of the Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations
of the Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Trust may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Contract as may in their joint
opinion be consistent with the general tenor of this Contract. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Agreement and Declaration of Trust of
the Trust. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
12. Additional Funds
In the event that the Trust establishes one or more series of Shares in
addition to Tucker Anthony Tax Exempt Money
-- 26 --
<PAGE>
Fund with respect to which it desires to have Custodian render services as
custodian under the terms hereof, it shall so notify Custodian in writing,
and if Custodian agrees in writing to provide such services, such series of
shares shall become a Fund hereunder.
13. Massachusetts Law to Apply
This Contact shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
14. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Trust and the Custodian relating to the custody
of the Trust's assets.
15. Limitation of Liability
The Agreement and Declaration of Trust establishing the Trust, dated
June 1, 1982, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the Office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Tucker Anthony Group
of Tax Exempt Funds" refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no
Trustee, shareholder, officer, employee or agent of the Trust shall be held
to any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim otherwise in
connection with the affairs of said Trust but the Trust estate only shall
be liable.
IN WITNESS WHEREOF, each of the parties has caused this
-- 27 --
<PAGE>
instrument to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed as of the 15th day of
September, 1982.
SEAL TUCKER ANTHONY GROUP OF TAX EXEMPT FUNDS
ATTEST
/s/ Elaine A. Borghesani By /s/ Hugh A. Dunlap, Jr.
---------------------------- ----------------------------
Assistant Secretary President
SEAL STATE STREET BANK AND TRUST COMPANY
ATTEST
/s/ Illegible By /s/ Illegible
----------------------------- ----------------------------
Assistant Secretary Vice President
-- 28 --
<PAGE>
FREEDOM GROUP OF TAX EXEMPT FUNDS
One Beacon Street
Boston, MA 02108
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Re: Custodian Contract
Gentlemen:
Pursuant to Section 12 of the Custodian Contract date as of September
15, 1982, as amended, between Freedom Group of Tax Exempt Funds (formerly Tucker
Anthony Group of Tax Exempt Funds) (the "Trust") and State Street Bank and Trust
Company (the "Custodian"), please be advised that the Trust has established a
new series of its shares, namely, Freedom California Tax Exempt Money Fund (the
"Fund"), and please be further advised that the Trust desires to retain the
Custodian to render custodian services under the Custodial Contract to the Fund
in accordance with the fee schedule attached hereto as Exhibit A.
Please state below whether you are willing to render such services in
accordance with the fee schedule attached hereto as Exhibit A.
FREEDOM GROUP OF TAX EXEMPT
FUNDS
Attest: /s/ Beverly E. Banfield By: /s/ John J. Danello
---------------------------- ------------------------------
Asst. Secretary John J. Danello
Dated: August 16, 1990
We are willing to render custodial services to the Freedom California
Tax Exempt Money Fund in accordance with the fee schedule attached hereto as
Exhibit A.
STATE STREET BANK AND TRUST
COMPANY
Attest: /s/ Illegible By: /s/ Illegible
---------------------------- ------------------------------
Dated: August 20, 1990
DP-0790/C
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the 19th day of June, 1993 by and between Freedom
Group of Tax Exempt Funds, a Massachusetts business trust having its
principal office and place of business at One Beacon Street, Boston,
Massachusetts (the "Trust"), and John Hancock Fund Services, Inc., a Delaware
corporation having its principal office and place of business at 101
Huntington Avenue, Boston, Massachusetts 02199 ("JHFSI").
WITNESSETH:
-----------
WHEREAS, the Trust desires to appoint JHFSI as its transfer agent,
dividend disbursing agent and agent in connection with certain other
activities, and JHFSI desires to accept such appointment;
WHEREAS, the Trust is authorized to issue shares 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 of beneficial interest in
two (2) series, such series, together with all other series subsequently
established by the Trust and made subject to this Agreement in accordance with
Article 8, being herein referred to as the "Fund(s)";
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment: Duties of JHFSI
1.01 Subject to the terms and conditions set forth in this Agreement,
the Trust hereby, employs and appoints JHFSI to act as, and JHFSI agrees to
act as transfer agent for the Trust's authorized and issued shares of
beneficial interest ("Shares"), with any accumulation, open-account or similar
plans provided to the shareholders of the Funds ("Shareholders") and set out
in the currently effective prospectus of the Funds,
including without limitation any periodic investment plan or periodic
withdrawal program.
1.02 JHFSI agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Trust and JHFSI, JHFSI shall:
(i) Receive for acceptance orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation therefor to the Custodian of the Funds
(the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;
(iii) Receive for acceptance, redemption requests and
redemption directions and deliver the appropriate
documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any
redemption, pay over or cause to be paid over in the
appropriate manner such monies as instructed by the
redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(vii) Maintain records of account for and advise the Funds
and their Shareholders as to the foregoing; and
(viii) Record the issuance of Shares of the Funds and maintain
pursuant to SEC Rule 17Ad-l0(e) a record of the total
number of Shares of
2
<PAGE>
the Funds which are authorized, based upon data
provided to it by the Funds, and issued and
outstanding. JHFSI shall also provide the Funds on a
regular basis with the total number of Shares which are
authorized and issued and outstanding and shall have no
obligation, when recording the issuance of Shares, to
monitor the issuance of such Shares or to take
cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole
responsibility of the Funds.
(b) In addition to and not in lieu of the services set forth in the above
paragraph (a), JHFSI shall: (i) perform all of the customary services of a
transfer agent, dividend disbursing agent and, as relevant, agent in connection
with accumulation, open-account or similar plans (including without limitation
any periodic investment plan or periodic withdrawal program); including but not
limited to: maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, receiving and tabulating proxies, mailing Shareholder
reports and prospectuses to current Shareholders, withholding taxes on U.S.
resident and non-resident alien accounts, preparing and filing U.S. Treasury
Department Forms 1099 and other appropriate forms required with respect to
dividends and distributions by federal authorities for all Shareholders,
preparing and mailing confirmations forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing Shareholder account information and (ii) provide
a system which will enable the Funds to monitor the total number of Shares sold
in each State.
(c) In addition, the Funds shall (i) identify to JHFSI in writing those
transactions and assets to be treated as exempt from the blue sky reporting for
each State and (ii) verify the establishment of transactions for each State on
the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of JHFSI for the Funds' blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Funds and the reporting of
such transactions to the Funds as provided above.
(d) Additionally, JHFSI shall:
3
<PAGE>
(i) Utilize a system to identify all share transactions which
involve purchase and redemption orders that are processed at a time other
than the time of the computation of net asset value per share next
computed after receipt of such orders, and shall compute the net effect
upon the Funds of such transactions so identified on a daily and
cumulative basis.
(ii) If upon any day the cumulative net effect of such
transactions upon a Fund is negative and exceed a dollar amount
equivalent to l/2 of l cent per share, JHFSI shall promptly make a
payment to the Fund in cash or through the use of a credit, in the manner
described in paragraph (iv) below, in such amount as may be necessary to
reduce the negative cumulative net effect to less than l/2 of l cent per
share.
(iii) If on the last business day of any month the cumulative
net effect upon a Fund (adjusted by the amount of all prior payments and
credits by JHFSI and the Fund) is negative, the Fund shall be entitled to
a reduction in the fee next payable under the Agreement by an equivalent
amount, except as provided in paragraph (iv) below. If on the last
business day in any month the cumulative net effect upon a Fund (adjusted
by the amount of all prior payments and credits by JHFSI and the Fund) is
positive, JHFSI shall be entitled to recover certain past payments and
reductions in fees, and to credit against all future payments and fee
reductions that may be required under the Agreement as herein described
in paragraph (iv) below.
(iv) At the end of each month, any positive cumulative net
effect upon a Fund shall be deemed to be a credit to JHFSI which shall
first be applied to permit JHFSI to recover any prior cash payments and
fee reductions made by it to the Fund under paragraphs (ii) and (iii)
above during the calendar year, by increasing the amount of the monthly
fee under the Agreement next payable in an amount equal to prior payments
and fee reductions made by JHFSI during such calendar year, but not
exceeding the sum of that month's credit and credits arising in prior
months during such calendar year to the extent such prior credits have
not previously been utilized as contemplated by this paragraph. Any
portion of a credit to JHFSI not so used by it shall remain as a credit
to be used as payment against the amount of any future negative
cumulative net effects that would otherwise require a cash payment or fee
reduction to be made to the Fund pursuant to paragraphs (ii) or (iii)
above (regardless of whether or not the credit
4
<PAGE>
or any portion thereof arose in the same calendar year as that in which
the negative cumulative net effects or any portion thereof arose).
(v) JHFSI shall supply to the Funds from time to time, as
mutually agreed upon, reports summarizing the transactions identified
pursuant to paragraph (i) above, and the daily and cumulative net effects
of such transactions, and shall advise the Funds at the end of each month
of the net cumulative effect at such time. JHFSI shall promptly advise
the Funds if at any time the cumulative net effect exceeds a dollar
amount equivalent to 1/2 of 1 cent per share.
(vi) In the event that this Agreement is terminated for whatever
cause, the Funds shall promptly pay to JHFSI an amount in cash equal to
the amount by which the cumulative net effect upon the Funds is positive
or, if the cumulative net effect upon the Funds is negative, JHFSI shall
promptly pay to the Funds an amount in cash equal to the amount of such
cumulative net effect.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Fund and JHFSI but the failure of the
Funds to establish such procedures with respect to any service shall not in any
way diminish the duty and obligation of JHFSI to perform such services
hereunder.
Article 2 Fees and Expenses
2.01 For performance by JHFSI pursuant to this Agreement, the Funds
agree to pay JHFSI an annual maintenance fee for each Shareholder account as
set forth in the initial fee schedule attached hereto. Such fees and
out-of-pocket expenses and advances identified under Section 2.02 below may be
changed from time to time subject to mutual written agreement between the Trust
and JHFSI.
2.02 In addition to the fee paid under Section 2.01 above the Funds
agree to reimburse JHFSI for out-of-pocket expenses or advances incurred by
JHFSI for the items set out in the fee schedule attached hereto. In addition,
any other expenses incurred by JHFSI at the request or with the consent of the
Funds, will be reimbursed by the Funds.
2.03 The Funds agree to pay all fees and reimbursable expenses promptly
following the mailing of the respective billing notice. Postage for mailing of
5
<PAGE>
dividends, proxies, Fund reports and other mailings to all shareholder accounts
shall be advanced to JHFSI by the Funds at least seven (7) days prior to the
mailing date of such materials.
Article 3 Representations and Warranties of JHFSI
JHFSI represents and warrants to the Trust that:
3.01 It is a Delaware corporation duly organized and existing and in
good standing under the laws of the State of Delaware, and as a Foreign
Corporation under the Laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the Commonwealth
of Massachusetts.
3.03 It is empowered under applicable laws and by its charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Trust
The Trust represents and warrants to JHFSI that:
4.01 It is a trust duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
4.02 It is empowered under applicable laws and by its Declaration of
Trust and ByLaws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
6
<PAGE>
4.04 It is an open-end investment company registered under the
Investment Company Act of 1940.
4.05 A registration statement under the Securities Act of 1933 is
currently effective and will remain effective, and appropriate state securities
law flings have been made and will continue to be made, with respect to all
Shares of the Funds being offered for sale.
Article 5 Indemnification
5.01 JHFSI shall not be responsible for, and the Trust shall indemnify
and hold JHFSI harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liabilities arising out of or
attributable to:
(a) All actions of JHFSI or its agent or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct.
(b) The Trust's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Trust's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Trust hereunder.
(c) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or regulations
of any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state unless such
violation results from any action or omission by JHFSI or any of its agents or
subcontractors which fails to comply with written instructions of the Trust or
any officer of the Trust that no offers or sales be made in general or to the
residents of a particular state.
5.02 JHFSI shall indemnify and hold the Trust harmless from and against
any and all losses, damages, costs, charges, counsel fees, payments, expenses
and liabilities arising out of or attributed to any action or failure or
omission to act by JHFSI as a result of JHFSI's lack of good faith, negligence
or willful misconduct.
7
<PAGE>
5.03 At any time JHFSI may apply to any officer of the Trust for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by JHFSI under this
Agreement, and JHFSI and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. JHFSI, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Trust, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided JHFSI or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Trust, and shall not be held to have
notice of any change of authority of any person, until receipt of written notice
thereof from the Trust. JHFSI, its agents and subcontractors shall also be
protected and indemnified in recognizing share certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the officer of the
Trust, and the proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
8
<PAGE>
Article 6 Covenants of the Trust and JHFSI
6.01 The Trust shall promptly furnish to JHFSI the following:
(a) A certified copy of the resolution of the Board of Trustees
authorizing both the appointment of JHFSI and the execution and delivery of this
Agreement.
(b) A copy of the Master Trust Agreement and By-Laws of the Trust and
all amendments thereto.
6.02 JHFSI hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 JHFSI shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the Rules thereunder, JHFSI agrees that all such records prepared or maintained
by JHFSI relating to the services to be performed by JHFSI hereunder are the
property of the Trust and will be preserved, maintained and made available in
accordance with such Section and Rules, and will be surrendered to the Fund on
and in accordance with its request.
6.04 JHFSI and the Trust agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any other
person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Trust, JHFSI will endeavor to notify the Trust and to
secure instructions from an authorized officer of the Trust as to such
instruction. JHFSI reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its
9
<PAGE>
counsel that it may be held liable for the failure to exhibit the Shareholder
records to such person.
Article 7 Termination of Agreement
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days' written notice to the other.
7.02 Should the Trust exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Trust. Additionally, JHFSI reserves the right to charge for any other
reasonable expenses associated with such termination.
Article 8 Additional Funds
8.01 In the event that the Trust establishes one or more of series of
Shares in addition to the present series with respect to which it desires to
have JHFSI render services as a transfer agent under the terms hereof, it shall
so notify JHFSI in writing, and if JHFSI agrees in writing to provide such
services, such series of Shares shall become a Fund hereunder.
Article 9 Assignment
9.01 Except as provided in Section 9.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
9.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
9.03 JHFSI may, without further consent on the part of the Trust,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A (c)(1) of the Securities Exchange Act of
1934 ("Section 17A (c)(1)"), (ii) or any other entity JHFSI deems appropriate in
order to comply with the terms and conditions of this Agreement, provided,
however, that JHFSI shall be as
10
<PAGE>
fully responsible to the Trust for the acts and omissions of any subcontractor
as it is for its own acts and omissions.
Article 10 Amendment
10.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Trustees of the Trust.
Article 11 Massachusetts Law to Apply
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
Article 12 Merger of Agreement
12.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written.
Article 13 Limitation on Liability
13.01 The Master Trust Agreement establishing the Trust, dated June 1,
1982, a copy of which, together with all amendments thereto, is on file in the
Office of the Secretary of the Commonwealth of Massachusetts, provides all
persons extending credit to, contracting with or having any claim against the
Trust shall look only to the assets of the Trust, and neither the shareholders
nor the Trustees, nor any of the Trust's officers, employees, or agents shall be
personally liable therefore.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
ATTEST: FREEDOM GROUP OF TAX EXEMPT FUNDS
/s/ John Danello BY: /s/ Dexter A. Dodge
- -------------------- ---------------------------
Dexter A. Dodge
Chairman
ATTEST: JOHN HANCOCK FUND SERVICES, INC.
BY: /s/ David A. King
- -------------------- ---------------------------
David A. King
President
12
<PAGE>
JOHN HANCOCK FUND SERVICES, INC.
FEE INFORMATION FOR SERVICES AS
PLAN, TRANSFER AND DIVIDEND DISBURSING AGENT
FREEDOM MUTUAL FUND
FREEDOM GROUP OF TAX EXEMPT FUNDS
- --------------------------------------------------------------------------------
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of-pocket expenses. Annual maintenance charges
for various kinds of mutual funds are given below.
ANNUAL MAINTENANCE CHARGES - Fees are billable on a monthly basis at the rate
of 1/12 of the annual fee. A charge is made for an account in the month that
an account opens or closes.
Non-Direct Accounts $ 9.50
Direct Accounts $13.50
The following features will each be assessed additional charges as an add-on
to the annual per account rate.
Closed accounts per account, per month $ .10
Disaster Recovery/Emergency Backup per
account serviced, per year $ .25 each account
CHECKWRITING
Each check presented for payment $ 1.00
Set up of checkwriting function $ 5.00 per account
FREEDOM MUTUAL FUND JOHN HANCOCK FUND SERVICES, INC.
FREEDOM CROUP OF TAX EXEMPT FUNDS
By: /s/ Dexter A. Dodge By: David A. King
----------------------- -----------------------
Title: Chairman & CEO Title: President & CEO
------------------- -----------------------
Date: 06/11/93 Date: 6/4/94
------------------- -----------------------
22
GOODWIN, PROCTER & HOAR
(A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS)
COUNSELLORS AT LAW
28 STATE STREET
BOSTON, MASSACHUSETTS 02109
TELEPHONE (617) 523-5700
TELECOPIER (617) 523-1231
TELEX 94-0640
CABLE: GOODPROCT, BOSTON
November 12, 1982
Tucker Anthony Group of Tax Exempt Funds
Three Center Plaza - 5th Floor
Boston, MA 02108
Gentlemen:
We have acted as counsel to Tucker Anthony Group of Tax Exempt Funds
(the "Trust"), a trust organized under the laws of the Commonwealth of
Massachusetts, in connection with the preparation of a Registration Statement on
Form N-1 (the "Registration Statement") covering the offer and sale of an
indefinite number of shares of beneficial interest of the Trust without par
value (the "Shares").
We have examined copies of the Amended and Restated Agreement and
Declaration of Trust and By-Laws of the Fund, as amended to date, the
Registration Statement, and such other records and documents, including the
minutes of the meetings and consents of the Trustees of the Trust, as we have
deemed necessary for the purpose of this opinion. We have also examined such
other documents, papers, statutes and authorities as we have deemed necessary to
form a basis for the opinion hereinafter expressed. In our examinations of such
material we have assumed the genuineness of all signatures and the conformity to
original documents of all copies submitted to us. As to various questions of
fact material to such opinion, we have relied upon statements and certificates
of officers and representatives of the Trust and others.
Based upon the foregoing, we are of the opinion that:
The Shares, when issued for authorized consideration will be legally
and validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus included in
the Registration Statement, and to
<PAGE>
GOODWIN, PROCTER & HOAR
Tucker Anthony Group of Tax Exempt Funds
November 12, 1982
Page 2
the filing of this opinion as an exhibit to any application made by or on behalf
of the Fund or any distributor or dealer in connection with the registration or
qualification of the Fund or its shares of beneficial interest under the
securities laws of any state or other jurisdiction.
Very truly yours,
/s/ Goodwin, Procter & Hoar
GOODWIN, PROCTER & HOAR
<PAGE>
GOODWIN, PROCTER & HOAR
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
TELEX 94-0640
CABLE: GOODPROCT, BOSTON
June 19, 1990
Freedom Group of Tax Exempt Funds
One Beacon Street
Boston, Massachusetts 02108
Gentlemen:
As counsel to Freedom Group of Tax Exempt Funds (the "Trusts), a
Massachusetts business trust, we have been asked to render our opinion with
respect to the issuance of an indefinite number of shares of beneficial
interest, no par value, of the Trust (the "Shares") representing interests in
the Freedom California Tax Exempt Money Fund (the "Fund"), as more fully
described in the Prospectus and Statement of Additional Information contained in
Post-Effective Amendment No. 12 (the "Amendment") to the Trust's Registration
Statement on Form N-1A (Registration No. 2-78609) filed with the Securities and
Exchange Commission.
We have examined the Amended and Restated Agreement and Declaration of
the Trust dated September 27, 1982, as amended, the By-laws of the Trust, the
records of certain meetings of the Trustees of the Trust, the Prospectus and the
Statement of Additional Information contained in the Amendment, and such other
documents, records and certificates as we have deemed necessary for the purposes
of this opinion.
Based upon the foregoing, we are of the opinion that the Trust has been
duly organized and is validly existing pursuant to the laws of The Commonwealth
of Massachusetts, with authority to issue the Shares, and that the Shares, when
sold in accordance with the terms of the Prospectus and Statement of Additional
Information in effect at the time of sale, will be legally issued, fully paid
and non-assessable by the Trust.
We hereby consent to being named in the Prospectus and Statement of
Additional Information and to the filing of this opinion as an exhibit to the
Amendment.
Very truly yours,
/s/ Goodwin, Procter & Hoar
GOODWIN, PROCTER & HOAR
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectuses constituting parts of this
Post- Effective Amendment No. 21 to the registration statement of Form N-1A (the
"Registration Statement") of our reports dated January 31, 1997, relating to the
financial statements and financial highlights of Freedom California Tax Exempt
Money Fund and Freedom Tax Exempt Money Fund (each a series of Freedom Group of
Tax Exempt Funds), which appear in such prospectuses, and to the incorporation
by reference of our reports into the Statements of Additional Information which
also constitute parts of this Registration Statement. We also consent to the
references to us under the headings "Our Financial Highlights" and "Independent
Accountants and Financial Statements" in such prospectuses and to the reference
to us under the headings "Financial Statements and Independent Accountants" in
such Statements of Additional Information.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Boston, Massachusetts
February 28, 1997
TUCKER ANTHONY MANAGEMENT CORPORATION
Three Center Plaza - Fifth Floor
Boston, Massachusetts 02108
November 12, 1982
Tucker Anthony Group of Tax Exempt Funds
Three Center Plaza - 5th Floor
Boston, Massachusetts 02108
Gentlemen:
The undersigned hereby attests that it is purchasing and has purchased
100,000 shares of Tucker Anthony Tax Exempt Money Fund for investment purposes
and that it does not have any present intention of redeeming or reselling such
shares.
Tucker Anthony Management Corporation
By: /s/ Thomas J. Brown, VP
----------------------------------
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704348
<NAME> FREEDOM GROUP OF TAX EXEMPT FUNDS
<SERIES>
<NUMBER> 2
<NAME> FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 113,095,310
<INVESTMENTS-AT-VALUE> 113,127,023
<RECEIVABLES> 2,071,455
<ASSETS-OTHER> 662,569
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115,829,334
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 492,689
<TOTAL-LIABILITIES> 492,689
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 115,334,437
<SHARES-COMMON-STOCK> 115,334,437
<SHARES-COMMON-PRIOR> 85,204,484
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,208
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 115,336,645
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,507,030
<OTHER-INCOME> 0
<EXPENSES-NET> 482,187
<NET-INVESTMENT-INCOME> 3,024,843
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,024,843
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,024,843)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 385,547,845
<NUMBER-OF-SHARES-REDEEMED> (358,384,518)
<SHARES-REINVESTED> 2,968,834
<NET-CHANGE-IN-ASSETS> 30,132,161
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2,208
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 528,064
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 482,187
<AVERAGE-NET-ASSETS> 105,612,752
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .029
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .000
<PER-SHARE-DISTRIBUTIONS> (.029)
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .005
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704348
<NAME> FREEDOM GROUP OF TAX EXEMPT FUNDS
<SERIES>
<NUMBER> 1
<NAME> FREEDOM TAX EXEMPT MONEY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 254,017,436
<INVESTMENTS-AT-VALUE> 253,956,091
<RECEIVABLES> 5,600,354
<ASSETS-OTHER> 4,004,278
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 263,622,068
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 532,969
<TOTAL-LIABILITIES> 532,969
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263,081,339
<SHARES-COMMON-STOCK> 263,081,339
<SHARES-COMMON-PRIOR> 274,076,452
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,760
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 263,089,099
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,912,850
<OTHER-INCOME> 0
<EXPENSES-NET> 1,818,954
<NET-INVESTMENT-INCOME> 8,093,896
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,093,896
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,093,896)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,066,733,465
<NUMBER-OF-SHARES-REDEEMED> (1,085,210,380)
<SHARES-REINVESTED> 7,489,562
<NET-CHANGE-IN-ASSETS> (10,987,353)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,760
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,434,813
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,818,954
<AVERAGE-NET-ASSETS> 286,962,573
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .028
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> (.028)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .006
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
POWER OF ATTORNEY
I, the undersigned Trustee of Freedom Group of Tax Exempt Funds (the
"Trust"), do hereby severally constitute and appoint Dexter A. Dodge and
Lawrence G. Kirshbaum, and each of them acting singly, as my true and lawful
attorneys, with full powers to them and each of them to sign for me, in my name
in the capacities indicated below, any and all Registration Statements of the
Trust on Form N-1A or N-14 and any and all amendments thereto filed with the
Securities and Exchange Commission to enable the Trust to comply with the
provisions of the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange Commission,
hereby ratifying and confirming my signature as it may be signed by my said
attorneys to any and all said amendments to the Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on the date indicated
below.
/s/ Ernest T. Kendall
- --------------------------------- -----------------------------------
Ernest T. Kendall Date: February 1, 1995
Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Freedom Group of Tax Exempt Funds (the
"Trust"), do hereby severally constitute and appoint Dexter A. Dodge and
Lawrence G. Kirshbaum, and each of them acting singly, as my true and lawful
attorneys, with full powers to them and each of them to sign for me, in my name
in the capacities indicated below, any and all Registration Statements of the
Trust on Form N-1A or N-14 and any and all amendments thereto filed with the
Securities and Exchange Commission to enable the Trust to comply with the
provisions of the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange Commission,
hereby ratifying and confirming my signature as it may be signed by my said
attorneys to any and all said amendments to the Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on the date indicated
below.
/s/ Richard B. Osterberg
- --------------------------------- -----------------------------------
Richard B. Osterberg Date: February 1, 1995
Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Freedom Mutual Fund (the "Trust"), do
hereby constitute and appoint Dexter A. Dodge as my true and lawful attorney,
with full powers to sign for me, in my name in the capacities indicated below,
any and all Registration Statements of the Trust on Form N-1A or N-14 and any
and all amendments thereto filed with the Securities and Exchange Commission to
enable the Trust to comply with the provisions of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, and the Investment
Company Act of 1940, as amended, and all requirements and regulations of the
Securities and Exchange Commission, hereby ratifying and confirming my signature
as it may be signed by my said attorney to any and all said amendments to the
Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on the date indicated
below.
/s/ Lawrence G. Kirshbaum
- --------------------------------- -----------------------------------
Lawrence G. Kirshbaum Date: February 1, 1995
Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Freedom Group of Tax Exempt Funds (the
"Trust"), do hereby severally constitute and appoint Dexter A. Dodge and
Lawrence G. Kirshbaum, and each of them acting singly, as my true and lawful
attorneys, with full powers to them and each of them to sign for me, in my name
in the capacities indicated below, any and all Registration Statements of the
Trust on Form N-1A or N-14 and any and all amendments thereto filed with the
Securities and Exchange Commission to enable the Trust to comply with the
provisions of the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange Commission,
hereby ratifying and confirming my signature as it may be signed by my said
attorneys to any and all said amendments to the Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on the date indicated
below.
/s/ Richard A. Farrell
- --------------------------------- -----------------------------------
Richard A. Farrell Date: February 1, 1995
Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Freedom Group of Tax Exempt Funds (the
"Trust"), do hereby constitute and appoint Lawrence G. Kirshbaum as my true and
lawful attorney, with full powers to sign for me, in my name in the capacities
indicated below, any and all Registration Statements of the Trust on Form N-1A
or N-14 and any and all amendments thereto filed with the Securities and
Exchange Commission to enable the Trust to comply with the provisions of the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission, hereby
ratifying and confirming my signature as it may be signed by my said attorney to
any and all said amendments to the Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on the date indicated
below.
/s/ Dexter A. Dodge
- --------------------------------- -----------------------------------
Dexter A. Dodge Date: February 1, 1995
Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Freedom Group of Tax Exempt Funds (the
"Trust"), do hereby severally constitute and appoint Dexter A. Dodge and
Lawrence G. Kirshbaum, and each of them acting singly, as my true and lawful
attorneys, with full powers to them and each of them to sign for me, in my name
in the capacities indicated below, any and all Registration Statements of the
Trust on Form N1-A or N-14 and any and all amendments thereto filed with the
Securities and Exchange Commission to enable the Trust to comply with the
provisions of the Securities Act of 1933, as amended, the Securities Act of
1934, as amended, and the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission, hereby
ratifying and confirming my signature as it may be signed by my said attorneys
to any and all said amendments to the Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on the date indicated
below.
/s/ John R. Haack
- --------------------------------- ------------------------------------
John R. Haack Date: January 27, 1997
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Freedom Group of Tax Exempt Funds (the
"Trust"), do hereby severally constitute and appoint Dexter A. Dodge and
Lawrence G. Kirshbaum, and each of them acting singly, as my true and lawful
attorneys, with full powers to them and each of them to sign for me, in my name
in the capacities indicated below, any and all Registration Statements of the
Trust on Form N1-A or N-14 and any and all amendments thereto filed with the
Securities and Exchange Commission to enable the Trust to comply with the
provisions of the Securities Act of 1933, as amended, the Securities Act of
1934, as amended, and the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission, hereby
ratifying and confirming my signature as it may be signed by my said attorneys
to any and all said amendments to the Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on the date indicated
below.
/s/ William H. Darling
- -------------------------------- ------------------------------------
William H. Darling Date: January 28, 1997
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Freedom Group of Tax Exempt Funds (the
"Trust"), do hereby severally constitute and appoint Dexter A. Dodge and
Lawrence G. Kirshbaum, and each of them acting singly, as my true and lawful
attorneys, with full powers to them and each of them to sign for me, in my name
in the capacities indicated below, any and all Registration Statements of the
Trust on Form N1-A or N-14 and any and all amendments thereto filed with the
Securities and Exchange Commission to enable the Trust to comply with the
provisions of the Securities Act of 1933, as amended, the Securities Act of
1934, as amended, and the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission, hereby
ratifying and confirming my signature as it may be signed by my said attorneys
to any and all said amendments to the Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on the date indicated
below.
/s/ Laurence R. Veator, Jr.
- -------------------------------- -------------------------
Laurence R. Veator, Jr. Date: January 27, 1997
