<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
FILED BY THE REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /
- --------------------------------------------------------------------------------
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
FREEDOM GROUP OF TAX EXEMPT FUNDS
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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<PAGE> 2
FREEDOM GROUP OF MONEY FUNDS
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
April 8, 1998
Dear Shareholder:
I urge you to vote on the important proposals described in the enclosed
proxy material, which is being distributed to shareholders of Freedom Cash
Management Fund, Freedom Government Securities Fund, Freedom Tax Exempt Money
Fund and Freedom California Tax Exempt Money Fund (the "Funds"), in connection
with the solicitation of proxies by your Board of Trustees for Special Meetings
of Shareholders to be held on Wednesday, May 20, 1998 at 2:00 p.m., Boston time.
At the Special Meetings, shareholders will be asked to consider and vote on
the following proposals: (1) the approval of an Advisory Agreement between each
of Freedom Mutual Fund and Freedom Group of Tax Exempt Funds (the "Trusts"), on
behalf of each Fund, and Freedom Capital Management Corporation (Proposal One);
and (2) the ratification of the selection of Price Waterhouse LLP as the
independent accountants of each Trust (Proposal Two).
The independent non-management Trustees of the Trusts have unanimously
approved the proposals described in the enclosed proxy material and recommend
that the shareholders approve them as well. The proposals do not involve any
increase in advisory fees paid by any of the Funds, nor do they affect the
investment objectives or policies of any of the Funds.
TO VOTE ON THESE PROPOSALS, WE ASK THAT YOU ACT PROMPTLY BY SIGNING AND
RETURNING THE ENCLOSED PROXY CARD TO US AS SOON AS POSSIBLE IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE. IT IS VERY IMPORTANT THAT WE RECEIVE YOUR CARD SOON, SO
THAT THE NECESSARY QUORUM OF SHAREHOLDERS IS REPRESENTED AT THE MAY 20, 1998
MEETINGS.
This is your opportunity to voice your opinion on matters that affect your
Fund. Your prompt vote will also help to save time and money. If we do not
receive enough votes, we must increase participation with additional mailings.
That's a costly and time consuming process.
If you have any questions before you vote, please contact your Tucker
Anthony or Sutro investment executive or call D.F. King, Inc., a proxy
solicitation firm assisting in the proxy process, at 1-800- . We will
be glad to help you get your vote in quickly.
<PAGE> 3
We appreciate your continued support and look forward to receiving your
votes of approval.
Sincerely,
DEXTER A. DODGE
Chairman of the Board
<PAGE> 4
FREEDOM CASH MANAGEMENT FUND
FREEDOM GOVERNMENT SECURITIES FUND
EACH A SERIES OF
FREEDOM MUTUAL FUND
FREEDOM TAX EXEMPT MONEY FUND
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
EACH A SERIES OF
FREEDOM GROUP OF TAX EXEMPT FUNDS
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
(800) 257-3336
------------------------
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD MAY 20, 1998
NOTICE IS HEREBY GIVEN that Special Meetings of Shareholders (the
"Meetings") of Freedom Cash Management Fund ("Cash Management Fund") and Freedom
Government Securities Fund ("Government Securities Fund"), each a series of
Freedom Mutual Fund ("Mutual Fund"), and Freedom Tax Exempt Money Fund ("Tax
Exempt Fund") and Freedom California Tax Exempt Money Fund ("California Fund"),
each a series of Freedom Group of Tax Exempt Funds ("Tax Exempt Trust"), will be
held at the principal offices of the Trusts, sixth floor, One Beacon Street,
Boston, Massachusetts 02108 on Wednesday, May 20, 1998 at 2:00 p.m., Boston
time, and at any adjournment or postponement thereof, for the purposes listed
below. The Mutual Fund and the Tax Exempt Trust, each a Massachusetts business
trust, are collectively referred to within this document as the "Trusts" and
individually as a "Trust." The portfolio series of funds within the Trusts are
collectively referred to as the "Funds" and individually as a "Fund." The
matters to be voted on by the shareholders of the respective Funds are as
follows:
1. All Funds -- To consider and vote on approval of an Advisory Agreement
between each of the Trusts, on behalf of each Fund, and Freedom Capital
Management Corporation (Proposal One).
2. All Funds -- To ratify the selection of Price Waterhouse LLP as the
independent accountants of each Trust (Proposal Two).
3. To consider and vote upon such other matters as may properly come
before the Meetings or any adjournment or postponement thereof.
<PAGE> 5
These items are discussed in greater detail in the accompanying Proxy
Statement.
The Boards of Trustees have fixed the close of business on March 31, 1998,
as the record date for determination of shareholders who are entitled to notice
of and to vote at the Meetings and any adjournment or postponement thereof.
By order of the Trustees,
JOHN J. DANELLO
Secretary
Boston, Massachusetts
April 8, 1998
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. WHETHER OR NOT YOU
EXPECT TO BE PRESENT AT THE MEETING, PLEASE COMPLETE AND SIGN THE ENCLOSED PROXY
CARD(S) AND RETURN IT (THEM) PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO
POSTAGE IF MAILED IN THE CONTINENTAL UNITED STATES. IF YOU DESIRE TO VOTE IN
PERSON AT THE MEETING, YOUR PROXY MAY BE REVOKED. THIS PROXY IS BEING SOLICITED
BY THE TRUSTEES OF EACH TRUST.
<PAGE> 6
FREEDOM CASH MANAGEMENT FUND
FREEDOM GOVERNMENT SECURITIES FUND
EACH A SERIES OF
FREEDOM MUTUAL FUND
FREEDOM TAX EXEMPT MONEY FUND
FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
EACH A SERIES OF
FREEDOM GROUP OF TAX EXEMPT FUNDS
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
(800) 257-3336
------------------------
PROXY STATEMENT
FOR SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD MAY 20, 1998
SPECIAL MEETING
This Proxy Statement is being furnished to the shareholders of Freedom Cash
Management Fund ("Cash Management Fund") and Freedom Government Securities Fund,
("Government Securities Fund"), each a series of Freedom Mutual Fund ("Mutual
Fund"), and Freedom Tax Exempt Money Fund ("Tax Exempt Fund"), and Freedom
California Tax Exempt Money Fund ("California Fund"), each a series of Freedom
Group of Tax Exempt Funds ("Tax Exempt Trust"). The Mutual Fund and the Tax
Exempt Trust, each a Massachusetts business trust, are collectively referred to
in this Proxy Statement as the "Trusts" and individually as a "Trust." The
portfolio series of funds within the Trusts are collectively referred to herein
as the "Funds" and individually as a "Fund." This Proxy Statement is furnished
in connection with the solicitation of proxies by and on behalf of each Trust's
Trustees for use at the Special Meetings of Shareholders (the "Meetings") to be
held at the principal offices of the Trusts, sixth floor, One Beacon Street,
Boston, Massachusetts 02108 on Wednesday, May 20, 1998 at 2:00 p.m., Boston
time, and at any adjournment or postponement thereof. This Proxy Statement and
the forms of proxy will be mailed to shareholders of each of the Funds on or
about April 8, 1998.
As more fully described in this Proxy Statement, the Meetings have been
called for the purposes set forth in the table below. This table identifies each
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proposal set forth in the Notice of Special Meeting of Shareholders and the
checkmark (X) indicates which Fund's shareholders are being solicited to approve
which proposal:
<TABLE>
<CAPTION>
FREEDOM FREEDOM
FREEDOM CASH GOVERNMENT FREEDOM TAX CALIFORNIA
MANAGEMENT SECURITIES EXEMPT TAX EXEMPT
PROPOSAL FUND FUND MONEY FUND MONEY FUND
-------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
1. Approval of Advisory
Agreement (All Funds) X X X X
2. Ratification of Independent
Auditors (All Funds) X X X X
</TABLE>
The most recent annual reports for the Funds have previously been sent to
shareholders and are available upon request, without charge, by writing to John
Hancock Signature Services, Incorporated, Freedom Group of Money Funds,
Attention: Dealer Services, P.O. Box 9102, Boston, Massachusetts 02205-9102 or
calling 1-800-257-3336.
SOLICITATION, REVOCATION AND USE OF PROXIES
HOLDERS OF SHARES OF THE FUNDS ARE REQUESTED TO COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. If the enclosed
proxy is properly executed and returned in time to be voted at the Meetings, the
shares represented thereby will, unless the proxy has previously been revoked,
be voted in accordance with the instructions marked on the proxy. Unless
instructions to the contrary are marked on the proxy, the proxy will be voted
FOR each Proposal, as described in this Proxy Statement and as set forth in the
accompanying Notice of Special Meetings, and in the discretion of the persons
named as proxies in connection with any other matters as may properly come
before the Meetings or any adjournment or postponement of the Meetings. The
Trustees do not know of any matter to be considered at the Meetings other than
the matters referred to in the Notice of Special Meetings.
Proxy solicitations will be made primarily by mail, but proxy solicitations
also may be made by telephone, telegraph or personal interviews conducted by
Trustees and officers of the Trusts, by personnel of the Adviser, by personnel
of Tucker Anthony Incorporated, Sutro & Co., Incorporated and Freedom
Distributors Corporation, the Funds' distributors, and John Hancock Investors
Services Corporation, the Funds' transfer agent, in person or by telephone, and
by D.F. King, Inc., a proxy solicitation firm that has been engaged to assist in
proxy solicitation.
A shareholder executing and returning a proxy has the power to revoke it at
any time before it is exercised by filing with the Trusts a written notice of
revocation at the following address: One Beacon Street, Boston, Massachusetts
02108, Attention: John J. Danello, Secretary, or returning a duly executed
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<PAGE> 8
proxy bearing a later date prior to the time of the Meetings. Any shareholder
who has executed a proxy but is present at the Meetings and who wishes to vote
in person may revoke his or her proxy by notifying the Secretary of the Trusts
(without complying with any formalities) at any time before it is voted.
Presence at the Meetings alone will not serve to revoke a previously executed
and returned proxy.
A majority of the shares of a Fund entitled to vote at the Meetings shall
be a quorum for the transaction of business by that Fund. In the event a quorum
is not present in person or by proxy at the time any session of the Meetings is
called to order, the persons named as proxies may vote those proxies which have
been received to adjourn the Meetings to a later date. In the event that a
quorum is present but sufficient votes in favor of any of the Proposals have not
been received, the persons named as proxies may propose one or more adjournments
of the Meetings to permit further solicitation of proxies with respect to any of
the Proposals. Any such adjournment will require the affirmative vote of a
majority of those shares present in person or by proxy at the session of the
Meetings to be adjourned. A shareholder vote may be taken on one or more of the
Proposals in the Proxy Statement prior to an adjournment if sufficient votes for
its approval have been received and it is otherwise appropriate.
For purposes of determining the presence or absence of a quorum and for
determining whether sufficient votes have been received for approval of any
matter to be acted upon at the Meetings, abstentions and broker non-votes will
be treated as shares that are present at the Meetings but which have not been
voted. For this reason, abstentions and broker non-votes will assist a Fund in
obtaining a quorum but will have the practical effect of a "no" vote for
purposes of obtaining the requisite vote for approval of Proposals One and Two.
RECORD DATE AND OUTSTANDING SHARES
Only shareholders of the Funds of record as of the close of business on
March 31, 1998 (the "Record Date") are entitled to receive notice of, and to
vote at, the Meetings and any adjournment or postponement of the Meetings. As of
the close of business on the Record Date, the following number of shares of each
Fund were outstanding and entitled to vote:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
FUND OUTSTANDING
---- -----------
<S> <C>
Cash Management Fund.......................
Government Securities Fund.................
Tax Exempt Fund............................
California Fund............................
</TABLE>
3
<PAGE> 9
The holder of each full share outstanding as of the close of business on
the Record Date is entitled to one vote for each share held of record upon each
matter properly submitted to the Meetings or any adjournment or postponement
thereof, with a proportionate vote for each fractional share.
PROXY SOLICITATION EXPENSES
The cost of soliciting proxies, including the fees of D.F. King, Inc.,
which are estimated to cost $ , and all expenses incurred by the Funds
in connection with the Transaction described in Proposal One, including, without
limitation, the expenses relating to the Meetings and to the meetings of the
Trustees at which the proposed Transaction was considered, and the fees and
expenses of counsel to the Funds and counsel to the Trustees of the Trusts who
are not "interested persons" (the "Independent Trustees") (as defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act")) of
the Adviser, will be borne by the Adviser and/or by its parent, Freedom
Securities Corporation ("Freedom Securities"), and not by the Trusts. The
Adviser and/or Freedom Securities will also reimburse brokerage firms and others
for their expenses in forwarding proxy materials to the beneficial owners and
soliciting them to execute the proxies.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The only voting securities of each Fund are its shares of beneficial
interest. As of the close of business on February 28, 1998, no person owns
beneficially or of record 5% or more of the shares of Freedom Cash Management
Fund, Freedom Government Securities Fund or Freedom California Tax Exempt Money
Fund. As of the close of business on the February 28, 1998, the following
persons owned beneficially or of record 5% or more of Freedom Tax Exempt Money
Fund's shares (percentage is percentage of outstanding shares of a Fund owned by
the shareholders):
FREEDOM TAX EXEMPT MONEY FUND
<TABLE>
<CAPTION>
NAME AND AMOUNT AND PERCENT
ADDRESS OF NATURE OF OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP FUND
---------------- -------------------- -------
<S> <C> <C>
Frank C. Gill............................... 17,352,217.92 5.20%
Mary K. Gill -- Trustees Gill
Family Trust
UA DTO 08/24/90
01740 SW Military Road
Portland, OR 97219-8384
</TABLE>
4
<PAGE> 10
SECURITY OWNERSHIP OF TRUSTEES AND OFFICERS
As of the close of business February 28, 1998, the following Trustees and
executive officers of each Trust owned beneficially or of record the number of
shares of each Fund set forth below:
<TABLE>
<CAPTION>
TRUSTEE OR OFFICER AND SHARES OF EACH FUND
OFFICE WITH EACH TRUST BENEFICIARY OWNED(1)
---------------------- ---------------------
<S> <C>
DEXTER A. DODGE*: Chairman of the Board and Cash Management Fund
Trustee 283,625.88
RICHARD A. FARRELL: Trustee Cash Management Fund
1,792,074.00(2)
ERNEST T. KENDALL: Trustee Cash Management Fund
2,125.21
RICHARD B. OSTERBERG: Trustee Cash Management Fund
94,184.26(3)(4)
LAWRENCE G. KIRSHBAUM*: Trustee; Chief Cash Management Fund
Financial Officer of the Trusts 56,503.60(5)
WILLIAM H. DARLING: Trustee Cash Management Fund
6,299.75
JOHN R. HAACK: Trustee Cash Management Fund
775.48
LAURENCE R. VEATOR, JR.: Trustee Cash Management Fund
103,073.71
Trustees and executive officers of Mutual Cash Management Fund
Fund and Tax Exempt Fund as a group (14 2,338,661.89
persons)
</TABLE>
- ------------
* These Trustees and/or officers are deemed to be "interested persons" of the
Trusts, as defined in the Investment Company Act, inasmuch as they are
affiliated with the Adviser or Freedom Securities.
(1) None of the persons listed or the Trustees and executive officers as a group
beneficially owns in excess of 1% of the outstanding shares of any Fund.
Except as otherwise indicated, the individual indicated as being the
beneficial owner of such shares has sole voting and investment power with
respect to such shares.
(2) These shares are owned by The Venture Capital Fund of New England, the
Venture Capital Fund of New England II or The Venture Capital Fund of New
England III, of which Mr. Farrell is either a managing general partner or
general partner. The remaining 23,759 shares are held by the Farrell, Healer
& Co. PS Plan and the Farrell, Healer & Co. MPP Plan for which Mr. Farrell
acts as Trustee. Mr. Farrell disclaims beneficial ownership of such shares.
(3) Includes 81,963.44 shares held by various trusts of which Mr. Osterberg
serves as a trustee but is not a beneficiary, 214,319.89 shares held by
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<PAGE> 11
Mr. Osterberg as a joint tenant, 723,114.3 shares held by various trusts of
which Mr. Osterberg serves as agent and 99,161.91 shares owned by an estate of
which Mr. Osterberg is the executor.
(4) Includes 10,630.35 shares held by three trusts for his minor children of
which trusts Mr. Osterberg is custodian, as to which shares Mr. Osterberg
disclaims beneficial ownership.
(5) Includes 799 shares held by one trust for his minor child of which trust Mr.
Kirshbaum is custodian, as to which shares Mr. Kirshbaum disclaims
beneficial ownership.
PROPOSAL ONE
CONSIDERATION AND APPROVAL OF A
NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE
TRUSTS, ON BEHALF OF EACH FUND, AND THE ADVISER
The investment adviser for each of the Trusts is Freedom Capital Management
Corporation, a Massachusetts corporation with offices at One Beacon Street,
Boston, Massachusetts 02108. The Adviser is a registered investment advisory
firm which maintains a securities research department, the efforts of which are
made available to the Funds. The Adviser is a wholly-owned subsidiary of Freedom
Securities Corporation, which is a publicly-owned company. The head offices of
Freedom Securities are at One Beacon Street, Boston, Massachusetts 02108.
Freedom Distributors Corporation ("Freedom Distributors"), Tucker Anthony
Incorporated ("Tucker Anthony") and Sutro & Co., Incorporated ("Sutro"),
affiliates of the Adviser, serve as distributors and principal underwriters for
the Funds pursuant to a distribution agreement with each Trust. Tucker Anthony
and Sutro are brokerage firms which are members of the New York Stock Exchange.
Freedom Distributors, Tucker Anthony and Sutro are all subsidiaries of Freedom
Securities.
THE TRANSACTION
Freedom Securities, the parent of the Adviser, is currently involved in a
series of transactions pursuant to which it has issued, or will in the future
issue, significant numbers of additional shares of its common stock, thereby
diluting the stock ownership of its current shareholders, including the Thomas
Lee Entities (as defined below under "Information about the Adviser"), and
pursuant to which the Thomas Lee Entities have sold shares of Freedom
Securities's stock to the public. Upon the issuance of additional shares of
Freedom Securities's common stock pursuant to one or more of these transactions,
the Thomas Lee Entities will own less than 25% of the outstanding voting
securities of Freedom Securities. In addition, the Stockholder's Agreement by
and among the Thomas
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<PAGE> 12
Lee Entities and certain other shareholders of Freedom Securities with respect
to the exercise of certain voting rights held by such shareholders is expected
to terminate forty-five days following the closing of Freedom Securities's
public offering of shares described below. As a result of the occurrence of
these events, the Thomas Lee Entities may no longer be deemed to control Freedom
Securities.
As described below, the "Transaction" is the event which causes the
ownership of the Thomas Lee Entities in the voting securities of Freedom
Securities to fall below 25% or, if earlier, the termination of the
Stockholder's Agreement.
These underlying transactions include: (i) an initial public offering of up
to 6,700,000 shares of Freedom Securities's common stock (plus an additional
1,005,000 shares to cover the underwriters' over-allotments, if any) (the
"Offering"), (ii) the acquisition of Cleary Gull Reiland & McDevitt Inc.
("Cleary Gull"), a regional midwestern investment banking firm, for a
combination of stock and cash (the "Acquisition"), (iii) the granting of options
to Cleary Gull employees to purchase up 272,700 shares of Freedom Securities's
common stock, and (iv) the implementation of Freedom Securities's 1998 Long-Term
Incentive Plan and 1998 Employee Stock Purchase Plan, pursuant to which options
to purchase up to 2,288,911 shares and 500,000 shares, respectively, of Freedom
Securities's common stock will be granted to participating employees, in
addition to the issuance of shares pursuant to options to purchase a maximum of
2,147,523 shares of Freedom Securities's common stock which have been granted to
participating employees pursuant to the 1996 Stock Option Plan. The terms and
timing of these transactions were determined in response to a number of factors
beyond the scope of the Investment Company Act and substantially unrelated to
the Funds or the Adviser. The order in which these transactions will be
consummated after the Offering is uncertain and it is, therefore, unclear which
of the various events may give rise to a deemed "assignment."
On March 11, 1998, Freedom Securities distributed a preliminary prospectus
in connection with an initial public offering of up to 6,700,000 shares of
Freedom Securities's common stock (plus an additional 1,005,000 shares to cover
underwriters' over-allotments, if any). Included in the Offering of shares to
the public will be 1,847,500 shares of common stock to be sold by the Thomas Lee
Entities as selling shareholders. Upon completion of the Offering (but before
giving effect to the underwriters' over-allotment option), Freedom Securities is
expected to have outstanding 19,074,260 shares of its common stock, assuming no
exercise of options after December 31, 1997. The Offering is expected to be
completed on or about April 6, 1998.
On March 9, 1998, Freedom Securities entered into an Agreement and Plan of
Merger to acquire Cleary Gull, headquartered in Milwaukee, Wisconsin, as
7
<PAGE> 13
part of its strategy of acquiring firms with complementary businesses to
strengthen or expand Freedom Securities's geographic or product offering base.
The consideration to be paid in the Acquisition will be a combination of shares
of Freedom Securities's common stock valued at $17.6 million and $4.4 million in
cash, subject to adjustment under certain circumstances. In addition, stock
options to purchase shares of Cleary Gull capital stock with a value of
approximately $3.5 million will be converted into options to purchase Freedom
Securities common stock, and Freedom Securities has agreed to grant new options
to Cleary Gull employees to purchase up to an additional 272,700 shares of
Freedom Securities's common stock at the initial offering price of the shares to
the public. The Acquisition is presently expected to be completed on or about
April 7, 1998.
Also in 1998, Freedom Securities implemented a new 1998 Long-Term Incentive
Plan and 1998 Employee Stock Purchase Plan, which authorizes the issuance of a
maximum of 2,288,911 shares and 500,000 shares, respectively, of Freedom
Securities's common stock pursuant to the exercise of nontransferable options
granted to participating employees. The 1998 Plans are in addition to the 1996
Stock Option Plan, pursuant to which Freedom Securities has granted options to
purchase a maximum of 2,147,523 shares of its common stock.
After giving effect to the Offering (but before giving effect to the
underwriters' over-allotment option), the Thomas Lee Entities are expected to
own approximately 5,411,992 shares of Freedom Securities's common stock, or
28.5% of the outstanding voting shares of Freedom Securities and indirectly the
Adviser. As a result, the Thomas Lee Entities may be deemed to control the
Adviser under Section 2(a)(9). Upon the issuance of additional shares of Freedom
Securities's common stock pursuant to one or more of the underlying transactions
described above, the Thomas Lee Entities will own less than 25% of the
outstanding voting securities of Freedom Securities and, as a result of this
Transaction, may no longer be deemed to control Freedom Securities.
In addition, the Thomas Lee Entities may no longer be deemed to control
Freedom Securities upon the termination of the voting provisions of the
Stockholder's Agreement. The Thomas Lee Entities are parties to a Stockholder's
Agreement with certain other shareholders of Freedom Securities, with respect to
the exercise of certain voting rights held by such shareholders, including,
among other things, an agreement of such parties to vote their shares in favor
of fixing the number of directors of Freedom Securities at nine and electing the
four individuals designated by the Thomas Lee Entities as directors of Freedom
Securities. The voting agreement contained in the Stockholder's Agreement will
terminate on the forty-fifth day following the closing of the Offering.
The Transaction is expected to take place, assuming the conditions to the
closing of the Offering and the Acquisition are satisfied or waived, some time
in
8
<PAGE> 14
May 1998. If the Transaction occurs and if shareholders of the Funds approve the
proposed New Advisory Agreement with the Adviser, the Adviser will continue the
investment advisory functions it currently performs. If the Transaction does not
occur for any reason, the Funds' Existing Advisory Agreement with the Adviser
will remain in place.
Change of Control and Exemptive Order Application. Section 15(a) of the
Investment Company Act provides, in pertinent part, that it shall be unlawful
for any person to serve or act as investment adviser of a registered investment
company, except pursuant to a written contract that has been approved by the
vote of a majority of the outstanding voting securities of such registered
investment company. Section 15(a) further requires that such written contract
provide for automatic termination in the event of its assignment. As required by
the Investment Company Act, the Existing Advisory Agreement pursuant to which
the Adviser provides investment advisory services to the Funds provides for its
automatic termination upon its "assignment."
Section 2(a)(4) of the Investment Company Act defines "assignment" to
include any direct or indirect transfer of a contract by the assignor, or of a
controlling block of the assignor's outstanding voting securities by a security
holder of the assignor. Section 2(a)(9) of the Investment Company Act defines
"control" to mean the power to exercise a controlling influence over the
management or policies of a company and establishes a presumption that the
beneficial owner of more than 25% of the voting securities of a company controls
that company.
Rule 15a-4 provides, among other things, that if an investment advisory
contract with an investment company is terminated by assignment, the adviser may
continue to act as such for 120 days under a written contract that has not been
approved by the investment company's shareholders, if the new contract is
approved by the board of directors (or trustees) of the investment company
(including a majority of trustees that are not "interested persons" of the
investment company), the compensation to be paid under the new contract does not
exceed the compensation which would have been paid under the contract most
recently approved by shareholders of the investment company, and neither the
investment adviser nor any controlling person of the investment adviser
"directly or indirectly receives money or other benefit" in connection with the
assignment.
As discussed above, upon the occurrence of the Transaction, the Thomas Lee
Entities may no longer be deemed to "control" Freedom Securities, and an
indirect change in control of the Adviser may be deemed to have occurred. The
Transaction thus may be deemed to result in an indirect "assignment" of the
Existing Agreements within the meaning of Section 2(a)(4) and a termination of
the Existing Agreements according to their terms. In addition, the Applicants
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<PAGE> 15
may not conclusively rely on Rule 15a-4 because Freedom Securities or the Thomas
Lee Entities may be deemed to receive a benefit in connection with the
Transaction. As a consequence of the termination of the Existing Advisory
Agreement, shareholder approval of a new master investment advisory agreement
will be required.
In addition, upon the occurrence of the Transaction, Freedom Distributors,
Tucker Anthony and Sutro, which are also subsidiaries of Freedom Securities and
affiliates of the Adviser, would also undergo an indirect change of control
similar to the Adviser, giving rise to the "assignment" of the Funds' current
distribution agreements with these distributors within the meaning of the
Investment Company Act, necessitating Trustee approval of new distribution
agreements. The Trustees of the Trusts approved new distribution agreements with
the Funds' distributors on March 30, 1998 in anticipation of the Transaction.
With respect to the Existing Advisory Agreements, the Trusts on behalf of
the Funds and the Adviser (together with the Trusts, the "Applicants"), applied
pursuant to Section 6(c) of the Investment Company Act, for an order of the
Securities and Exchange Commission (the "SEC") to provide the Applicants an
exemption from Section 15(a) of the Investment Company Act (the "Exemptive
Order"). Section 15(a) of the Investment Company Act generally requires the
shareholders to approve a new investment advisory agreement.
The requested exemption would permit the implementation, prior to formal
shareholder approval, of the New Advisory Agreements described below, which are
substantially identical to the existing advisory agreements, between the Trusts
and the Adviser with respect to each Fund. The requested exemption would cover
an interim period of not more than 150 days (the "Interim Period") beginning on
the date of the Transaction and continuing through the date the New Advisory
Agreements are approved or disapproved by the shareholders of the respective
Funds pursuant to this proxy, but in no event later than October 31, 1998. For
each Fund, the aggregate contractual rate chargeable for investment advisory
services will remain the same. During the Interim Period, fees payable by the
Funds for such investment advisory services will be paid into escrow.
Under the Exemptive Order, the Applicants proposed to enter into an escrow
arrangement with an unaffiliated financial institution that will serve as escrow
agent. The arrangement, in substance, will provide that the fees payable to the
Adviser during the Interim Period under the New Advisory Agreements, will be
paid into an interest-bearing escrow account maintained by the escrow agent and
that the amounts in the escrow account with respect to each Fund (including
interest earned on such paid fees) will be paid to the Adviser only if
shareholders of the Fund approve the New Advisory Agreement. If shareholders
10
<PAGE> 16
of a Fund fail to approve the applicable New Advisory Agreement, the escrow
agent will pay that Fund its respective share of the escrow amounts (including
any interest earned).
Compliance with Section 15(f) of the Investment Company Act. Section 15(f)
of the Investment Company Act provides that when a change in control of an
investment adviser occurs, the investment adviser or any of its affiliated
persons may receive any amount or benefit in connection therewith as long as two
conditions are satisfied.
First, no unfair burden may be imposed on the investment company as a
result of the Transaction relating to the change of control or any express or
implied terms, conditions or understandings, applicable thereto. The term
"unfair burden," as defined in the Investment Company Act, includes any
arrangement during the two-year period after the change in control whereby the
investment adviser (or predecessor or successor adviser), or any interested
person of any such adviser, receive or is entitled to receive any compensation,
directly or indirectly from the investment company or its security holders
(other than fees for bona fide investment advisory or other services) or from
any person in connection with the purchase or sale of securities or other
property to, from, or on behalf of the investment company (other than fees for
bona fide principal underwriting services). No such compensation arrangements
are contemplated in the Transaction. The Adviser, Freedom Securities and the
Thomas Lee Entities have each represented to the Board of Trustees of the Trust
that they will use their best efforts to ensure that the Transaction will not
cause the imposition of an unfair burden on any of the Funds.
The second condition is that during the three-year period immediately
following consummation of the Transaction, at least 75% of the investment
company's board of trustees must not be "interested persons" of the investment
adviser or predecessor investment adviser within the meaning of the Investment
Company Act. The Adviser, Freedom Securities and the Thomas Lee Entities have
each represented to the Trustees of each Trust that they will use their best
efforts to ensure that the second condition is met. The current composition of
the Trustees of each Trust meets this condition of Section 15(f).
EXISTING ADVISORY AGREEMENTS
Pursuant to investment advisory agreements dated as of November 29, 1996
(the "Existing 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 has: (a) furnished
continuously an investment program for the Funds and determined, subject to the
overall supervision and review of the Trustees, which investments should be
purchased, held, sold or exchanged; (b) provided supervision over all aspects of
11
<PAGE> 17
the Funds' operations except those which are delegated to a custodian, transfer
agent or other agent; and (c) provided the Trusts with such executive,
administrative and clerical personnel, offices and equipment as are deemed
necessary for the conduct of the business of the Funds.
Each 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 home by the Funds), 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 or the Adviser or any of their affiliates; expenses of Trustees' and
shareholders' meetings; trade association memberships; insurance premiums; and
any extraordinary expenses.
The continuation of the Existing Advisory Agreement for the Mutual Fund was
last approved on May 20, 1997 by all of the Trustees, including all of the
Trustees who are not parties to that Existing Advisory Agreement or "interested
persons" (as defined in the Investment Company Act) of any such party, and was
approved on December 16, 1996 by the then outstanding shareholders of each of
the Cash Management Fund and the Government Securities Fund. Such shareholder
approval was sought to approve a new investment advisory agreement following an
indirect change of control of the Adviser. The continuation of the Existing
Advisory Agreement for the Tax Exempt Trust was last approved on May 20, 1997 by
all of the Trustees, including all of the Trustees who are not parties to that
Existing Advisory Agreement or "interested persons" (as defined in the
Investment Company Act) of any such party and was approved on December 16, 1996
by the then outstanding shareholders of the Tax Exempt Fund and the California
Fund. Such shareholder approval was sought to approve a new investment advisory
agreement following an indirect change of control of the Adviser. The Existing
Advisory Agreements will continue in effect with respect to the Mutual Fund and
the Tax Exempt Trust from year to year, provided that their continuance is
approved annually both (i) by the holders of a majority of the outstanding
voting securities of each Fund or by the Trustees, and (ii) by a majority of the
Trustees who are not parties to the Existing Advisory Agreements or "interested
persons" of any such party. The Existing Advisory Agreements may be terminated
on 60 days' written notice by either party and will terminate automatically if
they are assigned.
12
<PAGE> 18
Each of the Cash Management Fund, Government Securities Fund, Tax Exempt
Fund and California Fund pays the Adviser a monthly advisory fee in an amount
equal, on an annual basis, to .50% of each Fund's average daily net assets up to
and including $500,000,000 and .45% of each Fund's average daily net assets in
excess of $500,000,000.
For the fiscal year ended December 31, 1997, the Cash Management Fund, the
Government Securities Fund, the Tax Exempt Fund and the California Fund paid the
Adviser investment advisory fees of $7,749,372, $1,603,441, $1,416,138 and
$556,289, respectively. With respect to the California Fund, during the fiscal
year ended December 31, 1997, the Adviser waived $116,330 of the fees
attributable to that Fund.
NEW ADVISORY AGREEMENTS
If the proposed New Advisory Agreements are approved by the shareholders of
the Funds to which the respective agreements relate, the Adviser will continue
to serve as investment adviser to each Fund. The terms and conditions of the
proposed New Advisory Agreements are substantially identical to those of the
Existing Advisory Agreements.
The proposed New Advisory Agreements, if approved, will continue in effect
for a two year period following the later to occur of (i) such approval by the
relevant Fund's shareholders, or (ii) the consummation of the Transaction;
provided, that, if exemptive relief is granted by the SEC, the New Advisory
Agreements will become effective upon the consummation of the Transaction, even
if that is prior to the approval of the New Advisory Agreements by the
shareholders of the Funds. Subsequently the New Advisory Agreements will be
subject to annual approval by the Trustees and by the Independent Trustees, or
to approval by the relevant Fund's shareholders. The New Advisory Agreements may
be terminated as to any Fund, without penalty, by the Trustees or by the
shareholders of the relevant Fund upon 60 days' written notice to the Adviser or
by the Adviser upon 60 days' written notice to the Fund. The New Advisory
Agreements will terminate automatically in the event of their "assignment" as
defined in the Investment Company Act.
If the proposed New Advisory Agreements are approved, 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 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, offices and equipment as are deemed necessary for the conduct of the
business of the Funds.
13
<PAGE> 19
If the proposed New Advisory Agreements are approved, each Fund will bear
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 Funds), 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.
If the proposed New Advisory Agreements are approved, each of the Cash
Management Fund, Government Securities Fund, Tax Exempt Fund and California Fund
will pay the Adviser a monthly advisory fee in an amount equal, on an annual
basis, to .50% of each Fund's average daily net assets up to and including
$500,000,000 and .45% of each Fund's average daily net assets in excess of
$500,000,000, which is identical to the fee paid under the Existing Advisory
Agreement.
INFORMATION ABOUT THE ADVISER
Information Concerning Parent of the Adviser. The adviser is a
wholly-owned subsidiary of Freedom Securities, a publicly-owned Delaware
corporation. The Thomas Lee Entities (Thomas H. Lee Equity Fund III, L.P.,
Thomas H. Lee Foreign Fund III, L.P. and THL-CCI, L.P.) currently own 28.5% of
the outstanding shares of common stock of Freedom Securities. Thomas H. Lee
Equity Fund III, L.P. and Thomas H. Lee Foreign Fund III, L.P. are each Delaware
limited partnerships. The general partner of each of Thomas H. Lee Equity Fund
III, L.P. and Thomas H. Lee Foreign 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. THL-CCI Limited Partnership is a Massachusetts limited
partnership. Its general partner, THL Investment Management Corp., is a
Massachusetts corporation. The address of Thomas H. Lee Equity Fund III, L.P.,
Thomas H. Lee Foreign Fund III, L.P., THL Equity Advisors III Limited
Partnership, THL Equity Trust III, THL-CCI, L.P. and THL Investment Management
Corp. is 75 State Street, Boston, Massachusetts 02109.
14
<PAGE> 20
Information Concerning Directors, Executive Officers and Certain Employees
of the Adviser. The names, principal occupations and position with each of the
Trusts of the directors, executive officers and certain employees of the Adviser
are set forth below. The business address of each person listed below, is One
Beacon Street, Boston, Massachusetts 02108.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND POSITION
POSITION OTHER BUSINESS EXPERIENCE WITH THE
NAME WITH ADVISER WITHIN LAST TWO YEAR TRUST
---- ------------ ------------------------- --------
<S> <C> <C> <C>
Dexter A. Dodge Chairman of the Board Director of the Adviser; Chairman and
and Director Director of Freedom Trustee
Distributors
Henry M. Greenleaf President, Chief President, Chief Executive --
Executive Officer and Officer and Director of
Director the Adviser since 1997;
Vice President and Senior
Portfolio Manager of The
Glenmede Trust Company
from 1995 to 1997
John J. Danello Executive Vice President President and Director of President
General Counsel, Freedom Distributors and
Director and Clerk Secretary
John H. Goldsmith Director Chairman and CEO, Freedom --
Securities; Chairman and
CEO, TuckerAnthony
William C. Dennis Director Director of the Adviser
Michael M. Spencer Director Director of the Adviser; --
Chief Executive Officer,
Chief Investment Officer,
and Director of Fixed
Income for Freedom
Partners Management
Division of the Adviser.
Mary Jeanne Currie Senior Vice President Senior Vice President of Vice
the Adviser President
Paul F. Marandett Senior Vice President Senior Vice President of Vice
the Adviser President
Darlene F. Rego Vice President Vice President of the Treasurer
Adviser
Maureen M. Renzi Vice President Vice President of the Assistant
Adviser Secretary
</TABLE>
Contracts with Companies Affiliated with the Adviser. Freedom Services
Corporation has a Service Agreement with both the Mutual Fund and the Tax Exempt
Trust to maintain and service certain shareholder accounts of the Funds held by
shareholders with brokerage accounts with Tucker Anthony or Sutro. Freedom
Services Corporation is an affiliate of the Adviser, Tucker Anthony, and Sutro.
For the year ended December 31, 1997, Freedom Services Corporation received
reimbursements from the Mutual Fund and the Tax Exempt Trust of $1,579,960 and
$116,245 respectively.
Transactions with Affiliated Brokers. The Adviser generally will purchase
portfolio securities for the Funds either directly from the issuer or from
dealers who specialize in "money market" instruments. Usually no brokerage
commis-
15
<PAGE> 21
sion 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 fiscal year ended December 31, 1997, the
Funds paid no brokerage commissions to any broker that is (i) an "affiliated"
person of the applicable Trust, as defined in the 1940 Act; (ii) an affiliated
person of such person; or (iii) an affiliated person of which is an affiliated
person of the applicable Trust, its principal underwriter, its investment
adviser, or its administrator.
CONSIDERATION BY THE TRUSTEES
The Trustees, including the Independent Trustees, of each Trust have
approved the New Advisory Agreements on behalf of each Fund, and recommend that
the New Advisory Agreements, be approved by shareholders of the Funds.
The Contracts Committee, which is comprised of the Independent Trustees,
met separately and together with the full Board two times on March 17 and March
30, 1998, to discuss the proposals contained herein. Messrs. Farrell, Kendall
and Osterberg have served and continue to serve on this Committee. In the course
of their review, the Trustees, including the Independent Trustees, requested
information of the Adviser, Freedom Securities and the Thomas Lee Entities and
reviewed the information provided by them. The Independent Trustees also
retained special counsel to assist them in their review of the Transaction and
its anticipated effects upon the Funds and their shareholders.
The Trustees of each Trust, including the Independent Trustees, considered,
among other things, the structure of the Transaction and the representations of
the Adviser, Freedom Securities and the Thomas Lee Entities with respect to the
Funds. In particular, the Trustees noted the parties' agreements to use their
best efforts to assure that (x) no unfair burden would be imposed on the Funds
as a result of the Transaction and (y) during the three-year period following
consummation of the Transaction, at least 75% of each Trust's Board of Trustees
will not be "interested persons" of the Adviser (prior to or after the
Transaction) within the meaning of the Investment Company Act. The Trustees also
relied upon representations of the Adviser, Freedom Securities and the Thomas
Lee Entities that (i) no changes in the operation of the Trusts are contemplated
as a result of the Transaction, (ii) there is no present intention on the part
of the Adviser, Freedom Securities and the Thomas Lee Entities to propose any
increase in the rate of fees paid by the Funds to the Adviser, and (iii) no
changes in the management of the Adviser are presently contemplated as a result
of the Transaction.
16
<PAGE> 22
The Trustees of each Trust, including the Independent Trustees, further
considered whether the Transaction could enhance the investment advisory
operations of the Adviser and the level and quality of services provided to the
Funds and their shareholders, as well as the commitments provided by the
Adviser, Freedom Securities and the Thomas Lee Entities that substantially the
same personnel at the Adviser who now provide advisory services to the Funds
would continue to do so after the Transaction.
The Trustees of each Trust, including the Independent Trustees, also
considered the fact that the advisory fees would remain the same under the New
Advisory Agreements as under the Existing Advisory Agreements and the fact that
the terms of the New Advisory Agreements do not substantially differ from those
of the Existing Advisory Agreements. The Trustees also relied on the
representations of the Adviser, Freedom Securities and the Thomas Lee Entities
that the Funds and their shareholders would not bear any fees or expenses in
connection with the Transaction. In addition, the Trustees considered, based on
the data available to them, the Adviser's historical profitability with respect
to its management of the Funds as well as its reasonably anticipated
profitability after the Transaction. The Trustees also considered that the New
Advisory Agreements provided that they may be terminated by the shareholders of
the relevant Fund and by the Trustees without the payment of any penalty by such
Fund.
In addition, the Trustees considered during the course of their due
diligence process (i) the history, reputation, qualifications and background of
the Adviser, as well as the qualifications of its personnel, (ii) the Adviser's
investment performance record with respect to the Funds, and (iii) the benefits,
if any, expected to be realized as a result of the Transaction.
After considering these and other factors, the Trustees of the Trusts,
including the Independent Trustees at meetings held in person on March 30, 1998,
unanimously approved the proposed New Advisory Agreements with the Adviser and
recommended their approval to the shareholders of the Funds.
THE TRUSTEES OF EACH OF THE TRUSTS, INCLUDING THE INDEPENDENT TRUSTEES,
RECOMMEND THAT THE SHAREHOLDERS OF EACH FUND VOTE FOR PROPOSAL ONE, THE APPROVAL
OF THE NEW ADVISORY AGREEMENT FOR THEIR RESPECTIVE FUND.
REQUIRED VOTE
Approval of the New Advisory Agreements between the Trusts, on behalf of a
Fund, and the Adviser requires the affirmative vote of a majority of the
outstanding shares of each Fund, voting separately as a Fund. Under the
Investment Company Act, this means that, to be approved by a Fund, this Proposal
must receive the affirmative vote of holders of the lesser of either (a) 67% or
more of the outstanding shares of the applicable Fund, voting as a
17
<PAGE> 23
single class, present at the Meetings, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (b) more
than 50% of the outstanding shares of the applicable Fund, voting as a single
class.
PROPOSAL TWO
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Trustees of the Trusts, including the Independent Trustees, have
selected Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
as the independent accountants for the fiscal year ended December 31, 1997 with
respect to each of the Trusts. At the Meetings, shareholders of each Trust are
being asked to ratify the selection of Price Waterhouse LLP to perform audit
services for the Trusts.
Price Waterhouse LLP, which has no direct or indirect material financial
interest in the Trusts, has served as each Trust's independent accountants since
the Trust's inception. The services provided by Price Waterhouse LLP consist of
(1) examination of each Trust's annual financial statements, (2) assistance and
consultation in connection with Securities and Exchange Commission filings, and
(3) review of the annual income tax returns filed on behalf of the Trusts.
If either Trust receives a written request from any shareholder at least
five days prior to the Meetings stating the shareholder will be present in
person at the Meetings and desires to ask questions of the independent
accountants, that Trust will arrange to have a representative of Price
Waterhouse LLP present at the Meetings to respond to such questions.
CONSIDERATION BY THE TRUSTEES
THE TRUSTEES OF EACH OF THE TRUSTS, INCLUDING THE INDEPENDENT TRUSTEES,
RECOMMEND THAT SHAREHOLDERS OF EACH TRUST VOTE FOR PROPOSAL TWO, THE
RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS
OF THE RESPECTIVE TRUSTS.
REQUIRED VOTE
Ratification of the selection of Price Waterhouse LLP as the independent
accountants of a Trust requires the affirmative vote of a majority of the
outstanding shares of that Trust, voting separately as a Trust. Under the
Investment Company Act, this means that, to be approved by a Trust, this
Proposal must receive the affirmative vote of the lesser of (1) more than 50% of
the outstanding shares of the Trust, voting as a single class, or (2) 67% or
more of the outstanding shares of the Trust, voting as a single class, present
at the
18
<PAGE> 24
Meetings, if the holders of more than 50% of the outstanding shares of the Trust
are present or represented by proxy.
OTHER MATTERS
The Trustees do not know of any other matters that will be presented for
action at the Meetings. If other matters are presented, proxies will be voted in
accordance with the best judgment of the proxy holders.
SHAREHOLDER PROPOSALS
Under each Trust's Agreement and Declaration of Trust, no annual or special
meetings of shareholders are required. Any shareholder desiring to present a
proposal for consideration at the next meeting of shareholders of one or more of
the Funds should submit the proposal in writing so that it is received by the
Secretary of the Funds at One Beacon Street, Boston, Massachusetts 02108 within
a reasonable time before the meeting.
ADDITIONAL INFORMATION
The principal distributors and underwriters for all of the Funds are Tucker
Anthony Incorporated, which is located at One World Financial Center, New York,
NY 10281, Freedom Distributors Corporation, which is located at One Beacon
Street, Boston, Massachusetts 02108, and Sutro & Co., Incorporated, located at
201 California Street, San Francisco, California 94111. The Transfer and
Shareholder Services Agent for all of the Funds is John Hancock Signature
Services Corporation, P.O. Box 9102, Boston, Massachusetts 02205.
The information contained in this Proxy Statement regarding Freedom
Securities and the Thomas Lee Entities and the terms of the Transaction was
provided by Freedom Securities and the Thomas Lee Entities.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO FILL IN,
DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY.
19
<PAGE> 25
EXHIBIT A
ADVISORY AGREEMENT
AGREEMENT made as of the day of , 1998 between FREEDOM
CAPITAL MANAGEMENT CORPORATION, a corporation organized under the laws of the
Commonwealth of Massachusetts and having its principal place of business in
Boston, Massachusetts (the "Manager"), and FREEDOM MUTUAL FUND, a Massachusetts
business trust having its principal place of business in Boston, Massachusetts
(the "Trust").
WHEREAS, the Trust engages in business as an open-end management investment
company and is so registered under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Manager is engaged principally in the business of rendering
investment management services and is so registered under the Investment
Advisers Act of 1940; and
WHEREAS, the Trust is authorized to issue shares of beneficial interest in
separate series, with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust presently offers shares in two series, the Freedom Cash
Management Fund and the Freedom Government Securities Fund (such series (the
"Initial Funds"), together with all other series subsequently established by the
Trust with respect to which the Trust desires to retain the Manager to render
investment advisory services hereunder and the manager is willing so to do,
being herein collectively referred to as the "Funds");
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
1. APPOINTMENT OF MANAGER.
(a) Initial Funds. The Trust hereby appoints the Manager to act as manager
and investment adviser to the Initial Funds for the period and on the terms
herein set forth. The Manager accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
(b) Additional Funds. In the event that the Trust establishes one or more
series of shares other than the Initial Funds with respect to which it desires
to retain the Manger to render management and investment advisory services
hereunder, it shall so notify the Manager in writing. If the Manager is willing
to render such services on the terms provided for herein, it shall notify the
Trust in writing, whereupon such series of shares shall become a Fund hereunder.
A-1
<PAGE> 26
2. DUTIES OF MANAGER.
The Manager, at its own expense, shall furnish the following services and
facilities to the Trust:
(a) Investment Program. The Manager will (i) furnish continuously an
investment program for each Fund, (ii) determine (subject to the overall
supervision and review of the Board of Trustees of the Trust) what investments
shall be purchased, held, sold or exchanged by each Fund and what portion, if
any, of the assets of each Fund shall be held uninvested, and (iii) make changes
on behalf of the Trust in the investments of each Fund. The Manager will also
manage, supervise and conduct the other affairs and business of the Trust and
each Fund thereof and all matters incidental thereto, subject always to the
control of the Board of Trustees of the Trust and to the provisions of the
Trust's Agreement and Declaration of Trust and By-laws and the 1940 Act.
(b) Regulatory Reports. The Manager shall furnish to the Trust necessary
assistance in (i) the preparation of all reports now or hereafter required by
Federal or other laws, and (ii) the preparation of prospectuses, registration
statements, and amendments thereto that may be required by Federal or other laws
or by the rules or regulations of any duly authorized commission or
administrative body.
(c) Office Space and Facilities. The Manager shall furnish to the Trust
office space in the offices of the Manager or in such other place or places as
may be agreed upon from time to time, and all necessary office facilities,
simple business equipment, supplies, utilities, and telephone service.
(d) Services of Personnel. The Manager shall furnish to the Trust all
necessary executive and administrative personnel for managing the affairs and
investments of the Trust, including personnel to perform clerical, bookkeeping,
accounting and other office functions. These services are exclusive of the
necessary records or services of any dividend disbursing agent, transfer agent,
registrar or custodian. The Manager shall compensate all personnel, officers,
and directors of the Trust if such persons are also employees of the Manager or
its affiliates.
(e) Fidelity Bond. The Manager shall arrange for providing and maintaining
a bond issued by a reputable insurance company authorized to do business in the
place where the bond is issued, against larceny and embezzlement covering each
officer and employee of the Trust who may singly or jointly with others have
access to funds or securities of the Trust, with direct or indirect authority to
draw upon such funds or to direct generally the disposition of such funds. The
bond shall be in such reasonable amount as a majority of the Trustees who are
not "interested persons" of the Trust as defined in the 1940 Act, shall
determine, with due consideration to the aggregate assets of the Trust to which
any such
A-2
<PAGE> 27
officer or employee may have access. The premium for the bond shall be payable
by the Trust in accordance with paragraph 3(17).
3. ALLOCATION OF EXPENSES.
Except for the services and facilities to be provided by the Manager set
forth in Paragraph 2 above, the Trust assumes and shall pay all expenses for all
other Trust operations and activities and shall reimburse the Manager for any
such expenses incurred by the Manager. The expenses to be borne by the Trust
shall include, without limitation:
(1) all expenses of organizing the Trust or a Fund thereof;
(2) all expenses (including information, materials and services other
than services of the Manager) of preparing, printing and mailing all
annual, semiannual and periodic reports, proxy materials and other
communications (including registration statements, prospectuses and
amendments and revisions thereto) furnished to existing shareholders of the
Trust and/or regulatory authorities;
(3) fees involved in registering and maintaining registration of the
Trust and its shares with the Securities and Exchange Commission and state
regulatory authorities;
(4) any other registration, filing or other fees in connection with
requirements of regulatory authorities;
(5) expenses, including printing of certificates, relating to issuance
of shares of the Trust;
(6) the expenses of maintaining a shareholder account and furnishing,
or causing to be furnished, to each shareholder a statement of his account
(which in the case of a shareholder whose statement of account is included
on a brokerage account statement of an affiliated distributor, may be a
reasonable portion of such expense), including the expense of mailing;
(7) taxes and fees payable by the Trust to Federal, state or other
governmental agencies;
(8) expenses related to the redemption of its shares, including
expenses attributable to any program of periodic redemption;
(9) all issue and transfer taxes, brokers' commissions and other costs
chargeable to the Trust in connection with securities transactions to which
the Trust is a party, including any portion of such commissions
attributable to research and brokerage services as defined by Section 28(e)
of the Securities Exchange Act of 1934, as amended form time to time;
A-3
<PAGE> 28
(10) the charges and expenses of the custodian appointed by the Trust,
or any depository utilized by such custodian, for the safekeeping of its
property;
(11) charges and expenses of any shareholder servicing agents,
transfer agents and registrars appointed by he Trust, including costs of
serving shareholder investment accounts;
(12) charges and expenses of independent accounts retained by the
Trust;
(13) legal fees and expenses in connection with the affairs of the
Trust, including legal fees and expenses in connection with registering and
qualifying its shares with Federal and state regulatory authorities;
(14) compensation and expenses of Trustees of the Trust who are not
"interested persons" of the Trust (as defined in the 1940 Act);
(15) expenses of shareholders' and Trustees' meetings;
(16) membership dues in the Investment Company Institute or similar
organizations;
(17) insurance premiums on fidelity, errors and omissions and other
coverages; and
(18) such other non-recurring expenses of the Trust as may arise,
including expenses of actions, suits, or proceedings to which the Trust is
a party and the legal obligation which the Trust may have to indemnify its
Trustees with respect thereto.
4. ADVISORY FEE.
For the services and facilities to be provided by the Manager as provided
in Paragraph 2 hereof, the Trust shall pay to the Manager a monthly fee with
respect to each Fund as soon as practical after the last day of each calendar
month, which fee shall be paid at a rate equal to (i) one-half of one percent
(.50%) on an annual basis of the Monthly Average Net Assets of each such Fund
for such calendar month up to $500 million, and (ii) forty-five hundredths of
one percent (.45%) on an annual basis of the Monthly Average Net Assets of each
Fund for such calendar month in excess of $500 million.
The "Monthly Average Net Assets" of any Fund of the Trust for any calendar
month shall be equal to the quotient produced by dividing (i) the sum of the net
assets of such Fund, determining in accordance with procedures established from
time to time by or under the direction of the Board of Trustees of the Trust in
accordance with the Agreement and Declaration of Trust of the Trust, as of the
time of day on which net asset value per share is determined on
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<PAGE> 29
each day during such month on which such net asset value is determined, by (ii)
the number of such days.
In the case of termination of this Agreement with respect to any Fund
during any calendar month, the fee with respect to such Fund for that month
shall be reduced proportionately based upon the number of calendar days during
which it is in effect and the fee shall be computed upon the average net assets
of such Fund for the days during which it is so in effect.
5. EXPENSE LIMITATION.
The Manager agrees that if the total expenses of any Fund (exclusive of
interest, taxes, brokerage expenses and extraordinary items) for any fiscal year
of the Trust exceed the lowest expense limitation imposed in any jurisdiction in
which that Fund is making sales of its shares or has qualified its shares for
sale, the Manager will pay or reimburse such Fund for that excess up to the
amount of its advisory fee payable with respect to that Fund during that fiscal
year. The amount of the monthly advisory fee payable under Paragraph 4 hereof
shall be reduced to the extent that the annualized expenses of any Fund for that
month exceed the foregoing limitation. At the end of each fiscal year of the
Trust, if the aggregate annual expenses chargeable to any Fund for that year
exceed the foregoing limitation based upon the average of the Monthly Average
Net Assets of that Fund for the year, the Manager will promptly reimburse that
Fund for the amount of such excess, but if such expenses are within the
foregoing limitation, any excess amount previously withheld from the advisory
fee during that fiscal year will be promptly paid over to the Manager.
In the event that this Agreement is terminated with respect to any one or
more Funds as of a date other than the last day of the fiscal year of the Trust,
the Manager shall pay to, or receive from, the Trust a pro rata portion of the
amount that the Manager would have been required to pay or would have received,
if any, had this Agreement remained in effect for the full fiscal year.
6. TRUST PORTFOLIO.
(a) In connection with the management of the investment and reinvestment of
the assets of the Trust, the Manager acting by its own officers, directors, or
employees or by a duly authorized subcontractor is authorized to select the
brokers or dealers that will execute purchase and sale transactions for the
Trust. In executing portfolio transactions and selecting brokers of dealers, if
any, the manager will use its best efforts to seek on behalf of a Fund the best
overall terms available. In assessing the best overall terms available for any
transaction, the Manager shall consider all factors it deems relevant, including
the breadth of the market in and the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if
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any (for the specific transaction and on a continuing basis). In evaluating the
best overall terms available, and in selecting the broker or dealer, if any, to
execute a particular transaction, the Manager may also consider the brokerage
and research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Fund and/or other accounts over
which the Manager or an affiliate of the Manager exercises investment
discretion. With the prior approval of the Trustees, the Manager may pay to a
broker or dealer who provides such brokerage and research services a commission
for executing a Fund portfolio transaction which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if, but only if, the Manger determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided.
(b) The Manager agrees that neither it nor any of its officers or directors
will take any long or short term position in the shares of the Trust; provided,
however, that such prohibitions: (i) shall not prevent any affiliate of the
Manager which acts as a distributor of Trust shares pursuant to a written
contract from purchasing shares of the Trust in such capacity; and (ii) shall
not prevent the purchase of shares of the Trust by any of the persons above
described for their own account and for investment at the price at which such
shares are available to the public at the time of purchase or as part of the
initial capitalization of the Trust.
7. RELATIONS WITH TRUST.
Subject to and in accordance with the Agreement and Declaration of Trust
and By-laws of the Trust and the Articles of Incorporation and By-laws of the
Manager, it is understood that trustees, officers, agents and shareholders of
the Trust are or may be interested in the Manager (or any successor thereof) as
directors, officers, or otherwise, that directors, officers, agents and
shareholders of the Manager are or may be interested in the Trust as trustees,
officers, shareholders or otherwise, that the Manager (or any such successor) is
or maybe interested in the Trust as a shareholder or otherwise and that the
effect of any such adverse interests shall be governed by said Agreement and
Declaration of Trust, Articles of Incorporation and By-laws.
8. LIABILITY OF MANAGER.
The Manager shall not be liable to the Trust for any error of judgment or
mistake of law or for any loss suffered by the Trust in connection with the
matters to which this Advisory Agreement relates; provided that no provision of
this Agreement shall be deemed to protect the Manager against any liability to
the Trust or its shareholders to which it might otherwise be subject by reason
of
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any willful misfeasance, bad faith or gross negligence in the performance of its
duties or the reckless disregard of its obligations and duties under this
Agreement. Nor shall any provision hereof be deemed to protect any Trustee or
Officer of the Trust against any such liability to which he might otherwise be
subject by reason of any willful misfeasance, bad faith or gross negligence in
the performance of his duties or the reckless disregard of his obligations and
duties. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
9. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective with respect to the
Initial Funds on the date hereof and, with respect to any additional Fund, on
the date of receipt by the Trust of notice from the Manager in accordance with
Paragraph 1(b) hereof that the Manager is willing to serve as Manager with
respect to such Fund. Unless terminated as herein provided, this Agreement shall
remain in full force and effect (a) with respect to the Initial Funds, until the
second anniversary of its effectiveness, and (b) with respect to each Additional
Fund, until the second anniversary of the date on which such Fund becomes a Fund
hereunder. Unless terminated as herein provided, this Agreement shall continue
in full force and effect for periods of one year thereafter with respect to each
Fund so long as such continuance with respect to any such Fund is approved at
least annually (a) by either the Trustees of the Trust or by vote of a majority
of the outstanding voting securities (as defined in the 1940 Act) of such Fund,
and (b) in either event by the vote of a majority of the Trustees of the Trust
who are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of any such party, cast in person at a meeting called for the purpose
of voting on such approval; provided, however, that the continuance of this
Agreement with respect to any Additional Fund is subject to the approval of this
Agreement by a majority of the outstanding voting securities of that Fund at the
first annual or special meeting of shareholders after this Agreement becomes
effective with respect to that Fund.
(b) Amendment. Any amendment to this Agreement shall become effective with
respect to any Fund upon approval of a majority of the outstanding voting
securities (as defined in the 1940 Act) of that Fund.
(c) Termination. This Agreement may be terminated with respect to any Fund
at any time, without payment of any penalty, by vote of the Trustees or by vote
of a majority of the outstanding voting securities (as defined in the 1940 Act)
of that Fund, or by the Manager, on sixty (60) days' written notice to the other
party.
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(d) Automatic Termination. This Agreement shall automatically and
immediately terminate in the event of its assignment.
(e) Approval, Amendment or Termination by Individual Fund. Any approval,
amendment or termination of this Agreement by the holders of a majority of the
outstanding voting securities (as defined in the 1940 Act) of any Fund shall be
effective to continue, amend or terminate this Agreement with respect to any
such Fund notwithstanding (A) that such action has not been approved by the
holders of a majority of the outstanding voting securities of any other Fund
affected thereby, and (B) that such action has not been approved by the vote of
a majority of the outstanding voting securities of the Trust, unless such action
shall be required by any applicable law or otherwise.
10. NAME OF TRUST.
It is understood that the name "Freedom", and any logo associated with that
name, is the valuable property of Freedom Capital Management Corporation, and
that the Trust has the right to include "Freedom" as a part of its name only so
long as an affiliate of Freedom Capital Management Corporation or its successor
or assign is the investment adviser to the Trust. Upon termination of this
Agreement, the Trust shall forthwith cease to use the Freedom name and logos.
11. SERVICES NOT EXCLUSIVE.
The services of the Manager to the Trust hereunder are not to be deemed
exclusive, and the Manager shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.
12. LIMITATION OF LIABILITY.
The term "Freedom Mutual Fund" means and refers to the Trustees from time
to time serving under the Agreement and Declaration of Trust of the Fund dated
December 22, 1980 as the same may subsequently thereto have been, or
subsequently hereto be, amended. It is expressly agreed that the obligations of
the Trust hereunder shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents or employees of the Trust personally, but shall bind
only the trust property of the Trust, as provided in the Agreement and
Declaration of Trust of the Trust. The execution and delivery of this Agreement
have been authorized by the Trustees and the initial shareholder of the Trust
and signed by the President of the Trust, acting as such, and neither such
authorization by such Trustees and shareholder nor such execution and delivery
by such officer shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in its Agreement and Declaration of Trust.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
<TABLE>
<S> <C>
FREEDOM MUTUAL FUND FREEDOM CAPITAL MANAGEMENT
CORPORATION
By: By:
- -------------------------------- --------------------------------
President President
ATTEST: ATTEST:
- -------------------------------- --------------------------------
Assistant Secretary Clerk
</TABLE>
A-9
<PAGE> 34
EXHIBIT B
ADVISORY AGREEMENT
AGREEMENT made as of the day of , 1998 between FREEDOM
CAPITAL MANAGEMENT CORPORATION, a corporation organized under the laws of the
Commonwealth of Massachusetts and having its principal place of business in
Boston, Massachusetts (the "Manager"), and FREEDOM GROUP OF TAX EXEMPT FUNDS, a
Massachusetts business trust having its principal place of business in Boston,
Massachusetts (the "Trust").
WHEREAS, the Trust proposes to engage in business as an open-end management
investment company and is so registered under the Investment Company Act of 1940
(the "1940 Act"); and
WHEREAS, the Manager is engaged principally in the business of rendering
investment management services and is so registered under the Investment
Advisers Act of 1940; and
WHEREAS, the Trust is authorized to issue shares of beneficial interest in
separate series, with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust presently offers shares in two series, the Freedom Tax
Exempt Money Fund and the Freedom California Tax Exempt Money Fund (such series
(the "Initial Funds"), together with all other series subsequently established
by the Trust with respect to which the Trust desires to retain the Manager to
render investment advisory services hereunder and with respect to which the
Manager is willing so to do, being herein collectively referred to as the
"Funds");
NOW THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
1. APPOINTMENT OF MANAGER.
(a) Initial Funds. The Trust hereby appoints the Manager to act as manager
and investment adviser to the Initial Funds for the period and on the terms
herein set forth. The Manager accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
(b) Additional Funds. In the event that the Trust establishes one or more
series of shares other than the Initial Funds with respect to which it desires
to retain the Manager to render management and investment advisory services
hereunder, it shall so notify the Manager in writing. If the Manager is willing
to
B-1
<PAGE> 35
render such services on the terms provided for herein, it shall notify the Trust
in writing, whereupon such series of shares shall become a Fund hereunder.
2. DUTIES OF MANAGER.
The Manager, at its own expense, shall furnish the following services and
facilities to the Trust:
(a) Investment Program. The Manager will (i) furnish continuously an
investment program for each Fund, (ii) determine (subject to the overall
supervision and review of the Board of Trustees of the Trust) what investments
shall be purchased, held, sold or exchanged by each Fund and what portion if
any, of the assets of each Fund shall be held uninvested, and (iii) make changes
on behalf of the Trust in the investments of each Fund. The Manager will also
manage, supervise and conduct the other affairs and business of the Trust and
each Fund thereof and all matters incidental thereto, subject always to the
control of the Board of Trustees of the Trust and to the provisions of the
Trust's Agreement and Declaration of Trust and By-laws and the 1940 Act.
(b) Regulatory Reports. The Manager shall furnish to the Trust necessary
assistance in (i) the preparation of all reports now or hereafter required by
Federal or other laws, and (ii) the preparation of prospectuses, registration
statements and amendments thereto that may be required by Federal or other laws
or by the rules or regulations of any duly authorized commission or
administrative body.
(c) Office Space and Facilities. The Manager shall furnish to the Trust
office space in the offices of the Manager or in such other place or places as
may be agreed upon from time to time, and all necessary office facilities,
simple business equipment, supplies, utilities and telephone service.
(d) Services of Personnel. The Manager shall furnish to the Trust all
necessary executive and administrative personnel for managing the affairs and
investments of the Trust, including personnel to perform clerical, bookkeeping,
accounting and other office functions. These services are exclusive of the
necessary records or services of any dividend disbursing agent, transfer agent,
registrar or custodian. The Manager shall compensate all personnel, officers,
and directors of the Trust if such persons are also employees of the Manager or
its affiliates.
(e) Fidelity Bond. The Manager shall arrange for providing and maintaining
a bond issued by a reputable insurance company authorized to do business in the
place where the bond is issued against larceny and embezzlement covering each
officer and employee of the Trust who may singly or jointly with others have
access to funds or securities of the Trust, with direct or indirect authority to
draw upon such funds or to direct generally the disposition of such funds. The
bond
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shall be in such reasonable amount as a majority of the Trustees who are not
"interested persons" of the Trust, as defined in the 1940 Act, shall determine,
with due consideration to the aggregate assets of the Trust to which any such
officer or employee may have access. The premium for the bond shall be payable
by the Trust in accordance with paragraph 3(17).
3. ALLOCATION OF EXPENSES.
Except for the services and facilities to be provided by the Manager set
forth in Paragraph 2 above, the Trust assumes and shall pay all expenses for all
other Trust operations and activities and shall reimburse the Manager for any
such expense incurred by the Manager. The expenses to be borne by the Trust
shall include, without limitation:
(1) all expenses of organizing the Trust or forming any series
thereof;
(2) all expenses (including information, materials and services other
than services of the Manager) of preparing, printing and mailingall annual,
semiannual and periodic reports, proxy materials and other communications
(including registration statements, prospectuses and amendments and
revisions thereto) furnished to existing shareholders of the Trust and/or
regulatory authorities;
(3) fees involved in registering and maintaining registration of the
Trust and its shares with the Securities and Exchange Commission and state
regulatory authorities;
(4) any other registration, filing or other fees in connection with
requirements of regulatory authorities;
(5) expenses, including printing of certificates, relating to issuance
of shares of the Trust;
(6) the expenses of maintaining a shareholder account and furnishing,
or causing to be furnished, to each shareholder a statement of his account
(which in the case of a shareholder whose statement of account is included
on a brokerage account statement of an affiliated distributor, may be a
reasonable portion of such expense), including the expense of mailing;
(7) taxes and fees payable by the Trust to Federal, state or other
governmental agencies;
(8) expenses related to the redemption of its shares, including
expenses attributable to any program of periodic redemption;
(9) all issue and transfer taxes, brokers' commissions and other costs
chargeable to the Trust in connection with securities transactions to which
the Trust is a party, including any portion of such commissions
attributable
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<PAGE> 37
to research and brokerage services as defined by Section 28(e) of the
Securities Exchange Act of 1934, as amended from time to time;
(10) the charges and expenses of the custodian appointed by the Trust,
or any depository utilized by such custodian, for the safekeeping of its
property;
(11) charges and expenses of any shareholder servicing agents,
transfer agents and [registrars] appointed by the Trust, including costs of
servicing shareholder investment accounts;
(12) charges and expenses of independent accountants retained by the
Trust;
(13) legal fees and expenses in connection with the affairs of the
Trust, including legal fees and expenses in connection with registering and
qualifying its shares with Federal and state regulatory authorities;
(14) compensation and expenses of Trustees of the Trust who are not
"interested persons" of the Trust (as defined in the 1940 Act);
(15) expenses of shareholders' and Trustees' meetings;
(16) membership dues in, and assessments of, the Investment Company
Institute or similar organizations;
(17) insurance premiums on fidelity, errors and omissions and other
coverages; and
(18) such other non-recurring expenses of the Trust as may arise,
including expenses of actions, suits, or proceedings to which the Trust is
a party and the legal obligation which the Trust may have to indemnify its
Trustees or shareholders with respect thereto.
4. ADVISORY FEE.
For the services and facilities to be provided by the Manager as set forth
in Paragraph 2 hereof, the Trust shall pay to the Manager a monthly fee with
respect to each Fund as soon as practical after the last day of each calendar
month, which fee shall be paid at a rate equal to (i) one-half of one percent
(.50%) on an annual basis of the Monthly Average Net Assets of each such Fund
for such calendar month up to $500 million, and (ii) forty-five hundredths of
one percent (.45%) on an annual basis of the Monthly Average Net Assets of each
Fund for such calendar month in excess of $500 million.
The "Monthly Average Net Assets" of any Fund of the Trust for any calendar
month shall be equal to the quotient produced by dividing (i) the sum of the net
assets of such Fund, determined in accordance with procedures
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<PAGE> 38
established from time to time by or under the direction of the Board of Trustees
of the Trust in accordance with the Agreement and Declaration of Trust, as of
the time of day on which net asset value per share is determined on each day
during such month on which such net asset value is determined, by (ii) the
number of such days.
In the case of commencement or termination of this Agreement with respect
to any Fund during any calendar month, the fee with respect to such Fund for
that month shall be reduced proportionately based upon the number of calendar
days during which it is in effect and the fee shall be computed upon the average
net assets of such Fund for the days during which it is in effect.
5. EXPENSE LIMITATION.
The Manager agrees that if the total expenses of any Fund (exclusive of
interest, taxes, brokerage expenses and extraordinary items) for any fiscal year
of the Trust exceed the lowest expense limitation imposed in any jurisdiction in
which that Fund is then making sales of its shares or in which its shares are
then qualified for sale, the Manager will pay or reimburse such Fund for that
excess up to the amount of its advisory fee payable with respect to that Fund
during that fiscal year. The amount of the monthly advisory fee payable under
Paragraph 4 hereof shall be reduced to the extent that the annualized expenses
of any Fund for that month exceed the foregoing limitation. At the end of each
fiscal year of the Trust, if the aggregate a annual expenses chargeable to any
Fund for that year exceed the foregoing limitation based upon the average of the
Monthly Average Net Assets of that Fund for the year, the Manager will promptly
reimburse that Fund for the amount of such excess, but if such expenses are
within the foregoing limitation, any excess amount previously withheld from the
advisory fee during that fiscal year will be promptly paid over to the Manager.
In the event that this Agreement is terminated with respect to any one or
more Funds as of a date other than the last day of the fiscal year of the Trust,
then the expenses shall be annualized and the Manager shall pay to, or receive
from, the Trust a pro rata portion of the amount that the Manager would have
been required to pay or would have received, if any, had this Agreement remained
in effect for the full fiscal year.
6. PORTFOLIO TRANSACTIONS.
In connection with the management of the investment and reinvestment of the
assets of the Trust, the Manager, acting by its own officers, directors or
employees or by a duly authorized subcontractor, is authorized to select the
brokers or dealers that will execute purchase and sale transactions for the
Trust. In executing portfolio transactions and selecting brokers or dealers, if
any, the Manager will use its best efforts to seek on behalf of a Fund the best
overall
B-5
<PAGE> 39
terms available. In assessing the best overall terms available for any
transaction, the Manager shall consider all factors it deems relevant, including
the breadth of the market in and the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any (for the specific transaction and on a
continuing basis). In evaluating the best overall terms available, and in
selecting the broker or dealer, if any, to execute a particular transaction, the
Manager may also consider the brokerage and research services (as those terms
are defined in Section 28(e) of the Securities Exchange Act of 1934) provided to
any Fund of the Trust and/or other accounts over which the Manager or an
affiliate of the Manager exercises investment discretion. With the prior
approval of the Trustees, the Manager may pay to a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if, but only if, the
Manager determines in good faith that such commission was reasonable in relation
to the value of the brokerage and research services provided.
7. RELATIONS WITH TRUST.
Subject to and in accordance with the Agreement and Declaration of Trust
and By-laws of the Trust and the Articles of Incorporation and By-laws of the
Manager, it is understood that Trustees, officers, agents and shareholders of
the Trust are or may be interested in the Manager (or any successor thereof) as
directors, officers, or otherwise, that directors, officers, agents and
shareholders of the Manager (or any successor) are or may be interested in the
Trust as Trustees, officers, shareholders or otherwise, that the Manager (or any
such successor) is or may be interested in the Trust as a shareholder or
otherwise and that the effect of any such adverse interests shall be governed by
said Agreement and Declaration of Trust, Articles of Incorporation and By-laws.
The Manager agrees that neither it nor any of its officers or directors
will take any long or short term position in the shares of the Trust; provided,
however, that such prohibition: (i) shall not prevent any affiliate of the
Manager which acts as a distributor of the Trust shares pursuant to a written
contract from purchasing shares of the Trust in such capacity; and (ii) shall
not prevent the purchase of shares of the Trust by any of the persons above
described for their own account and for investment at the price at which such
shares are available to the public at the time of purchase or as part of the
initial capitalization of the Trust.
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<PAGE> 40
8. LIABILITY OF MANAGER.
The Manager shall not be liable to the Trust for any error of judgment or
mistake of law or for any loss suffered by the Trust in connection with the
matters to which this Advisory Agreement relates; provided that no provision of
this Agreement shall be deemed to protect the Manager against any liability to
the Trust or its shareholders to which it might otherwise be subject by reason
of any willful misfeasance, bad faith or gross negligence in the performance of
its duties or the reckless disregard of its obligations and duties under this
Agreement. Nor shall any provision hereof be deemed to protect any Trustee or
Officer of the Trust against any such liability to which he might otherwise be
subject by reason of any willful misfeasance, bad faith or gross negligence in
the performance of his duties or the reckless disregard of his obligations and
duties. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
9. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective with respect to the
Initial Funds on the date on the date first above written and, with respect to
any additional Fund, on the date of receipt by the Trust of notice from the
Manager in accordance with Paragraph l(b) hereof that the Manager is willing to
serve as Manager with respect to such Fund. Unless terminated as herein
provided, this Agreement shall remain in full force and effect (a) with respect
to the Initial Funds, until the second anniversary of its effectiveness, and (b)
with respect to each additional Fund, until the second anniversary of the date
on which such Fund becomes a Fund hereunder. Unless terminated as herein
provided, this Agreement shall continue in full force and effect for periods of
one year thereafter with respect to each Fund so long as such continuance with
respect to any such Fund is approved at least annually (a) by either the
Trustees of the Trust or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of such Fund, and (b) in either event by
the vote of a majority of the Trustees of the Trust who are not parties to this
Agreement of "interested persons" (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that thecontinuance of this Agreement with respect
to any additional Fund is subject to the approval of this Agreement by a
majority of the outstanding voting securities of that Fund at the first annual
or special meeting of shareholders after this Agreement becomes effective with
respect to that Fund.
(b) Amendment. Any amendment to this Agreement shall become effective with
respect to any Fund upon approval of a majority of the outstanding voting
securities (as defined in the 1940 Act) of that Fund.
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(c) Termination. This Agreement may be terminated with respect to any Fund
at any time, without payment of any penalty, by vote of the Trustees or by vote
of a majority of the outstanding voting securities (as defined in the 1940 Act)
of that Fund, or by the Manager, on sixty (60) days' written notice to the other
party.
(d) Automatic Termination. This Agreement shall automatically and
immediately terminate in the event of its assignment.
(e) Approval, Amendment or Termination by Individual Fund. Any approval,
amendment or termination of this Agreement by the holders of a majority of the
outstanding voting securities (as defined in the 1940 Act) of any Fund shall be
effective to continue, amend or terminate this Agreement with respect to any
such Fund notwithstanding (i) that such action has not been approved by the
holders of a majority of the outstanding voting securities of any other Fund
affected thereby, and (ii) that such action has not been approved by the vote of
a majority of the outstanding voting securities of the Trust, unless such action
shall be required by any applicable law or otherwise.
10. NAME OF TRUST.
It is understood that the name "Freedom", and any logo associated with that
name, is the valuable property of Freedom Capital Management Corporation, and
that the Trust has the right to include "Freedom" as a part of its name only so
long as an affiliate of Freedom Capital Management Corporation or its successor
or assign is the investment adviser to the Trust. Upon termination of this
Agreement, the Trust shall forthwith cease to use the Freedom name and logos.
11. SERVICES NOT EXCLUSIVE.
The services of the Manager to the Trust hereunder are not to be deemed
exclusive, and the Manager shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.
12. LIMITATION OF LIABILITY.
The term "Freedom Group of Tax Exempt Funds" means and refers to the
Trustees from time to time serving under the Agreement and Declaration of Trust
of the Fund dated June 1, 1982 as the same may subsequently thereto have been,
or subsequently hereto may be, amended. It is expressly agreed that the
obligations of the Trust hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents or employees of the Trust
personally, but shall bind only the trust property of the Trust, as provided in
the Agreement and Declaration of Trust of the Trust. The execution and delivery
of this Agreement
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have been authorized by the Trustees and the initial shareholder of the Trust
and signed by the President of the Trust, acting as such, and neither such
authorization by such Trustees and shareholder nor such execution and delivery
by such officer shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in its Agreement and Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
<TABLE>
<S> <C>
FREEDOM GROUP OF FREEDOM CAPITAL MANAGEMENT
TAX EXEMPT FUNDS CORPORATION
By: By:
- -------------------------------- --------------------------------
President President
ATTEST: ATTEST:
- -------------------------------- --------------------------------
Assistant Secretary Clerk
</TABLE>
B-9
<PAGE> 43
VOTE THIS PROXY CARD TODAY!
(Please detach at perforation before mailing)
FUND NAME WILL PRINT HERE PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking all previous proxies, hereby appoint(s)
Dexter A. Dodge and John J. Danello and each of them, attorneys with full power
of substitution in each, to vote all the shares of beneficial interest of
above-referenced Fund (the "Fund"), a portfolio series of Freedom Group of Tax
Exempt Funds (the "Trust"), which the undersigned is (are) entitled to vote at
the Special Meeting of Shareholders (the "Meeting") of the Fund to be held at
the offices of the Trust, sixth floor, One Beacon Street, Boston, Massachusetts
02108, on Wednesday, May 20, 1998 at 2 p.m., Boston time, and at any adjournment
or postponement thereof. All powers may be exercised by a majority of said proxy
holders or substitutes voting or acting, or, if only one votes and acts, then by
that one. Receipt of the Proxy Statement is hereby acknowledged. If not revoked
in the manner described in the Proxy Statement, this proxy shall be voted as
specified on the reverse side.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date:_______________, 1998
NOTE: Signature(s) should agree
with name(s) printed herein.
Executors, Administrators,
Trustees, etc. should so indicate.
__________________________________
Signatures
<PAGE> 44
VOTE THIS PROXY CARD TODAY!
(Please detach at perforation before mailing)
THIS PROXY SHALL BE VOTED IN FAVOR OF (FOR) PROPOSALS (1) AND (2) IF NO
SPECIFICATION IS MADE BELOW. AS TO ANY OTHER MATTER, SAID PROXY OR PROXIES SHALL
VOTE IN ACCORDANCE WITH THEIR BEST JUDGMENT. (The following proposals are
numbered to correspond to the numbering of proposals contained in the Proxy
Statement) Please vote by filing in the appropriate boxes below, as shown, using
blue or black ink or dark pencil. Do not use red ink.
1. To consider and vote on approval of a new Advisory Agreement between the
Trust, on behalf of the Fund, and Freedom Capital Management Corporation.
FOR / / AGAINST / / ABSTAIN / /
2. To ratify the selection of Price Waterhouse LLP as the independent
auditors of the Trust.
FOR / / AGAINST / / ABSTAIN / /
In the discretion of said proxy or proxies, to act upon such other matters
as may properly come before the Meeting or any adjournment or postponement
thereof.
