FREEDOM GROUP OF TAX EXEMPT FUNDS, 485APOS, 1998-12-31

FREEDOM GROUP OF TAX EXEMPT FUNDS
485APOS, 1998-12-31

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<PAGE> 1

As Filed with the Securities and Exchange
Commission on December 31, 1998

1933 Act File No. 2-78609
1940 Act File No. 811-3519

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
-----
Pre-Effective Amendment No. / /
-----
Post-Effective Amendment No. 23 / X /
-- -----

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
-----
Amendment No. 25 / X /
-- -----
(Check appropriate box or boxes.)

FREEDOM GROUP OF TAX EXEMPT FUNDS
(Exact Name of Registrant)

One Beacon Street, Boston, MA 02108
(Address of Principal Executive Offices)

(617) 523-3170
(Registrant's Telephone Number)

Regina M. Pisa, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place, Boston, MA 02109
(Name and Address of Agent for Service of Process)

Approximate date of proposed public offering:

It is proposed that this filing will become effective under Rule 485 (check
appropriate box):

/ / Immediately upon filing pursuant to paragraph (b) / / On _____
pursuant to paragraph (b) / X / 60 days after filing pursuant to
paragraph (a)(1) / / On _____ pursuant to paragraph (a)(1) / / 75 days
after filing pursuant to paragraph (a)(2) / / On _____ pursuant to
paragraph (a)(2).

If appropriate check the following box:

/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

<PAGE> 2
PART A

To the Registration Statement of Freedom Group of
Tax Exempt Funds including Freedom Tax Exempt Money
Fund (the "Tax Exempt Fund") and Freedom California
Tax Exempt Money Fund (the "California Fund")

<PAGE> 3
[Front Cover] [LOGO]

FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND

A money market fund investing in a portfolio of high quality,
short-term securities that generate income generally exempt from federal and
California personal income taxes.

The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.

PROSPECTUS
March 1, 1999

ANNUAL REPORT
for the year ended December 31, 1998
begins on page 20.

<PAGE> 4
TABLE OF CONTENTS

Page

FUND INVESTMENT OBJECTIVES AND STRATEGIES......................................1

VOLATILITY AND PERFORMANCE.....................................................3

INVESTOR FEES AND FUND EXPENSES................................................6

INVESTMENT MANAGEMENT..........................................................7

BUYING, SELLING, EXCHANGING FUND SHARES........................................7

DISTRIBUTIONS AND TAXES.......................................................15

ADDITIONAL INFORMATION ON FUND INVESTMENTS....................................16

FINANCIAL HIGHLIGHTS..........................................................18

ADDITIONAL INFORMATION ABOUT THE FUNDS........................................19

(i)
<PAGE> 5
FUND INVESTMENT OBJECTIVES AND STRATEGIES

Fundamental Objective

The Fund seeks to achieve as high a rate of current income exempt from
federal and California personal income taxes as is consistent with the
maintenance of liquidity and preservation of capital.

Principal Investment Strategies

The Fund invests at least 80% of its total assets in California
municipal securities, which include fixed and variable rate debt obligations
issued by the State of California, its counties, towns and public authorities.
Those securities tend to be:

- - general obligation bonds - where principal and interest are paid from
the general tax revenues received by the issuer

- - revenue bonds - where principal and interest are paid only from the
revenues received from one or more public projects or special excise
taxes. These bonds tend to be issued in connection with the financing
of infrastructure projects, such as toll roads and housing projects.
They are not general obligations of the issuer

- - industrial development bonds - where principal and interest are paid
only from revenues received from privately-operated facilities.
Generally, these bonds are issued in the name of a public finance
authority to finance infrastructure used by a private entity. However
they are the general obligations of the private entity, not the issuer

The income generated by those securities generally is exempt from federal income
tax and California personal income tax.

The Fund has the right to invest up to [20%] of its [total] assets in
short-term, high-quality municipal securities issued outside of California and
certain high-quality, taxable fixed-income securities.

The Fund manages its portfolio subject to strict guidelines established
by the Securities and Exchange Commission. These guidelines are designed so that
the Fund may maintain a stable $1.00 share price, although there is no guarantee
that it will do so. Among other things, the guidelines require the Fund to
maintain a dollar-weighted average portfolio maturity of not more than 90 days.

In addition, all of the Fund's investments must be high-quality
securities. At least 95% of total assets must be "first tier" securities, which
must be rated by such firms as Standard & Poor's and Moody's in their highest
short-term major rating category, or must be unrated securities that are
considered equivalent by the investment manager. The remaining amount, up to 5%
of total assets, must be invested in "second tier" securities, which, at the
time of purchase, must be rated

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1
<PAGE> 6
by Standard & Poor's or Moody's in their second highest short-term major rating
category, or must be unrated securities but considered equivalent by the
investment manager.

The Fund may adjust the composition of its portfolio as market
conditions and economic outlooks change.

For more information about the Fund's investments and practices, see
page 16.

Principal Risks

The Fund's principal risks are those risks that could affect the
overall yield of the Fund and thus, the return on your investment. They include
factors that would cause short-term interest rates to decline, such as a weak
economy, strong equity markets and changes by the Federal Reserve in its
monetary policies.

Because the Fund's securities are issued by California, its cities,
towns and public authorities, the Fund's performance also may be affected by
political and economic conditions at the state or local level. They may include
state or city budgetary problems, declines in the tax base and generally, any
factor that may cause rating agencies to downgrade the credit ratings on state
or municipal securities. Actual or proposed changes in tax rates, regulations or
government-sponsored programs also could affect the yield on your investment.

As a nondiversified fund, the Fund may invest more than 5% of its
assets in a specific issuer. To the extent the Fund makes significant
investments in a particular issuer, its exposure to the credit and market risks
associated with that issuer is increased.

The Fund's ability to meet redemption obligations could be burdened by
its investments in securities restricted as to resale. Restricted securities
generally trade among institutions in markets that are not as developed or which
do not function as efficiently as more established markets.

An investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the Fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund.

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2
<PAGE> 7
VOLATILITY AND PERFORMANCE

The information provided in the chart and table on the opposite page
gives some indication of the risks of investing in the Fund by showing two
aspects of the Fund's performance:

Year-by-Year Total Return

Year-by-year total return illustrates the Fund's performance from year
to year beginning with the Fund's first full calendar year. It indicates risk by
showing how much returns can differ from one year to the next. Generally, funds
with higher average annual total returns will also have higher volatility. The
Fund can also experience swings in short-term performance, as depicted below by
the best and worst calendar quarter returns. The graph includes the effects of
Fund expenses. No sales charges apply to purchases, exchanges or redemptions of
fund shares.

Average Annual Total Return

Average annual total return is a measure of the Fund's performance over
time. It is calculated by taking the performance of the Fund over a given period
and expressing it as an average annual rate. Average annual total return
includes the effects of Fund expenses and maximum management fees for each
class. It also assumes that you sold your shares at the end of the period.

[Two] independent measures of performance are listed with the Fund's
average annual returns. [Describe indexes] These indexes can be used as a rough
guide when gauging the return of this and other investments. [Keep in mind that
none/both of the indices includes the effects of sales charges.]

Of course the Fund's performance in the past is not necessarily an
indication of how the Fund will perform in the future.

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3
<PAGE> 8

Year-by-Year Total Returns
- --------------------------

[BAR GRAPH]

10% --

8% --

6% --

4% --
3.94
3.29
3.02
2.90
2.45 2.32
2% -- 1.96

0% ----------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998

<TABLE>
<CAPTION>
<S> <C> <C>
Quarter Ended Total Return

Best Quarter
Worst Quarter
</TABLE>

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4
<PAGE> 9
Average Annual Total Returns

<TABLE>
<CAPTION>
As of December 31, 1998

Since Inception
1 Year 5 Years (August 27, 1990)
------ ------- -----------------
<S> <C> <C> <C>
Fund
Consumer Price Index
IBC California Tax Free Funds Average
</TABLE>

To obtain current yield information, please contact (800) 453-8206.

Prospectus

5
<PAGE> 10
INVESTOR FEES AND FUND EXPENSES

UNDERSTANDING INVESTOR EXPENSES

The information below gives you an idea of certain fees that you should
expect to pay as an investor in the Fund and certain expenses may be deducted
from Fund assets.

SHAREHOLDER FEES

Sales Charge (Load) Imposed on Purchases..............................None
Sales Charge (Load) Imposed on Reinvested Dividends...................None
Redemption Fees.......................................................None
Exchange Fees.........................................................None
Account Fees..........................................................None

ANNUAL FUND OPERATING EXPENSES*

Management Fees (net of reimbursement or waiver)................._________
12b-1 Fees.......................................................None
[Other Expenses]................................................._________

Total Fund Operating Expenses............................._________

- --------------

* Based on fund operating expenses for the fiscal year ended December 31,
1998.

EXAMPLE

This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It illustrates the
effect of the Fund's expenses on the value of a hypothetical $10,000 investment
in the Fund at the end of one-, three-, five- and ten-year periods, assuming a
5% annual return and that Fund operating expenses remain constant.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
$-- $-- $-- $--
</TABLE>

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6
<PAGE> 11
The example should not be considered a representation of past or future
expenses or investment returns. Actual expenses and investment returns may be
greater or less than those shown.

INVESTMENT MANAGEMENT

The Fund's investment manager is Freedom Capital Management Corporation,
One Beacon Street, Boston, Massachusetts 02108. The investment manager first
began managing assets in 19__, and as of December 31, 1998, had approximately
$__ billion of assets under management.

The investment manager provides the Fund with overall investment
advisory and administrative services, as well as general office facilities, as
provided in its advisory agreement with the Funds. The investment manager
receives a fee computed and paid monthly based upon the average daily net asset
value of the Fund, payable at the annual rate of 0.50% on the first $500 million
of net assets and 0.45% on net assets in excess of that amount.

BUYING, SELLING, EXCHANGING FUND SHARES

OPENING AN ACCOUNT AND BUYING FUND SHARES

Opening an Account

You may open an account with the Fund through Sutro & Co., Incorporated
("Sutro") utilizing a securities brokerage account, or by yourself directly
through Freedom Services Corporation. If you are using a Sutro brokerage account
to invest in the Fund, your Sutro account executive can assist you through all
phases of your investment, including initial and additional purchases, exchange
and redemption. To open an account on your own, in addition to sending payment
for your investment, you must submit a signed and completed application.
See below "--Purchases By Other Investors."

Freedom Asset Account.

You may also open an account in the Fund with available cash in your
Freedom Asset Account. A Freedom Asset Account is available through [Sutro], and
is composed of:

- - a Sutro securities margin account

- - an account with the Fund or any of the other Freedom money market funds

- - a check writing account through Banc One

- - a Visa Gold(R) Debit Card with ATM access from Banc One

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7
<PAGE> 12
Once you have opened a Freedom Asset Account, your [Sutro] account
executive can assist you through all phases of your investment, including
initial and additional purchases, exchange and redemption. For further
information on a Freedom Asset Account, please contact your [Sutro] account
executive and review carefully the Freedom Asset Account agreement.

Minimum Investments in the Fund

<TABLE>
<CAPTION>
Initial Investment Additional Investments
<S> <C> <C>
$1,000 $100 or more
</TABLE>

Exceptions

There is no minimum amount for initial or subsequent investment in
connection with purchases through the automatic "sweep" program sponsored by
Sutro. See below "--Purchases By Clients of Sutro."

Where a bank, investment manager or similar institution has a large
number of accounts and is willing to receive a monthly summary of accounts in
lieu of the regular statement for each account under its control, the minimum
amount for initial investments by individual accounts covered by the summary of
accounts is reduced to $100. All payments will be invested in full and
fractional shares.

General Timing of Requests

The processing of your order will depend upon the method of payment you
choose, as well as the time your order is received. Shares of the Fund are
offered on a continuing basis without a sales charge at a public offering price
equal to the net asset value next determined after a purchase order is received
in proper form.

Purchases by Clients of Sutro

Generally If a properly completed order to purchase Fund shares is
received at any Sutro office before 12:00 noon New York time and paid utilizing
a free credit balance available on a Sutro brokerage account, your order will be
executed on the same business day [and you will receive dividends on such shares
beginning on that day]. If a properly completed order to purchase Fund shares is
received at any Sutro office after 12:00 noon New York time and paid utilizing a
free credit balance available on a brokerage account, your order will be
executed on the next business day and dividends on such shares will begin on
that day. Any purchase utilizing funds other than a free credit balance
available on your brokerage account will be effected the same as a purchase by
any other investor. (See below.) You should note that Sutro may benefit from the
use of free credit balances in your account prior to their transfer to the Fund.

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8
<PAGE> 13
Sutro "Sweep" Program Under the terms of the Sutro "sweep" program, you
may have your free credit balance invested in shares of the Fund or any Freedom
money market fund although at any one time your free credit balance may be
invested automatically in only one fund. Free credit cash balances in available
funds of $2,000 or more will be invested automatically on the next business day
in shares of the fund you designate. Automatic purchases using free credit
balances of less than $2,000 will be made weekly, generally on Monday, based
upon the free credit balance in your account at the close of business on the
preceding Friday.

Purchases by Other Investors

By Check When you pay by check, your order for additional shares of the
Fund will be executed at the price next determined after payment has been
credited to the Fund at the account of Freedom Services Corporation. If the Fund
receives credit before 12:00 noon New York time, your order will be executed at
12:00 noon New York time on that day. If the Fund receives credit after 12:00
noon New York time, your order will be executed at 12:00 New York time on the
next business day. You should note that when payment is made by check, it
normally is not credited to a Fund for at least two business days after the
check is deposited. Checks drawn on banks which are not members of the Federal
Reserve System may take longer. When you purchase shares by check, the Fund may
withhold any payment on a redemption until it reasonably is satisfied that the
investment has been collected.

By Wire If you transfer payment by wire, the transfer may be subject to
a service charge by your bank. If notice from your bank of the wire transfer is
received by Freedom Services Corporation before 12:00 noon New York time, your
order will be executed at 12:00 noon New York time on that day. If notice from
you bank of the wire transfer is received by Freedom Services Corporation after
12:00 noon New York time, your order will be executed at 12:00 noon New York
time on the next business day.

Prospectus

9
<PAGE> 14
<TABLE>
<CAPTION>
To Open An Account To Purchase Additional Shares
------------------ -----------------------------
<S> <C> <C>
By Mail - Complete and sign the - Fill out the detachable stub from
Purchase Application your account statement or send a
included in this Prospectus, letter containing your name,
indicating that you intend to account number(s), the Fund
invest in the Fund and each and the amount you want to
of the services you wish to invest in each Fund.
use.
- Make your check payable to
- Mail your signed Purchase Freedom California Tax Exempt
Application, together with a Money Fund and mail to:
check written on a U.S. bank
account, payable to Freedom Services Corporation
Freedom California Tax One World Financial Center
Exempt Money Fund, to: 200 Liberty Street
New York, New York 10281

Freedom Services Corporation
One World Financial Center
200 Liberty Street
New York, New York 10281
</TABLE>

Prospectus

10
<PAGE> 15
<TABLE>
<CAPTION>
To Open An Account To Purchase Additional Shares
------------------ -----------------------------
<S> <C> <C>
By Wire [Not Available.] Please call Freedom Services
Corporation at (800) 453-8206 for
wire instructions. You should then
give instructions to your wiring bank
to transmit the specified amount in
Federal Funds to:

Bank of New York
ABA-021000018
A/C 890032661
Wexford Clearing Services

Further Credit to:
Shareholder Account
No.____________________
Shareholder
Name:__________________

Neither the Fund nor its agents are
responsible for the consequences of
delays resulting from the banking
or Federal Reserve wire system or
from incomplete instructions.

</TABLE>

SELLING FUND SHARES

Redemption Through Your Sutro Brokerage Account

In order to redeem shares purchased through a Sutro brokerage account,
you should advise your account executive, by telephone or mail, to execute the
redemption. [If a properly completed order to redeem Fund shares is received by
a Sutro office prior to 12:00 noon New York time, your order will be forwarded
to the Fund and will be executed that day.] If a properly completed order to
redeem Fund shares is received by a Sutro office after 12:00 noon New York time,
your order will be forwarded to the Fund and will be executed on the following
business day. Redemption proceeds will be held in your brokerage account unless
you give instructions to your account executive to reinvest or remit the
proceeds to you. Generally, redemption proceeds will not be invested for your
benefit without specific instruction, and Sutro may benefit from the use of
temporarily uninvested funds. Shares purchased through a Sutro brokerage account
may also be redeemed by check redemption as described below.

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11
<PAGE> 16
Redemptions will be effected automatically to satisfy any debit
balances in your brokerage account. Each brokerage account will be scanned
automatically for debits as of the close of business on each business day and,
after application of any free credit cash balances in the account to such
debits, a sufficient number of shares of the Fund owned by you will be redeemed
at 12:00 noon the following business day to satisfy any remaining debits. You
should be aware that Sutro may benefit from the use of free credit balances in
you account prior to their transfer to a Fund.

Direct Redemption

Redemptions by mail and expedited redemptions are not available for
Fund shares purchased through a Sutro brokerage account. Any such redemption
requests received by Freedom Securities Corporation will be forwarded to the
appropriate Sutro account executive who will process them as described above.

Redemption by Mail.

You may redeem shares you own by sending written instructions to:

Freedom Services Corporation
Freedom California Tax Exempt Money Fund
One World Financial Center
200 Liberty Street
New York, New York 10281

Your instructions should identify the Fund and either the number of
shares or amount of investment to be redeemed. Your instructions must be signed
by all registered owners of the shares in the exact names in which they were
registered. Proceeds will be mailed to your address of record.

Expedited Redemptions

If you have elected the expedited redemption option on the purchase
application on file with Freedom Securities Corporation and wish to redeem
$5,000 or more from the Fund, you may request that proceeds be sent by federal
fund wire. A fee of $ ________ will be deducted from all proceeds sent by wire,
and your bank may charge an additional fee to receive wired funds.

Signature Guarantees

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12
<PAGE> 17
redemptions if the proceeds are sent by wire or to a bank or trust company
account that you previously have designated in writing.

A signature guarantee may only be provided by a commercial bank that is
a member of the Federal Deposit Insurance Corporation, a trust company or a
member of a recognized stock exchange. A savings bank or a notary public may not
provide a signature guarantee.

Check Redemptions

You may redeem Fund shares by writing checks drawn on State Street Bank
and Trust Company. In order to redeem shares with this check writing feature,
you must complete a purchase application electing the feature and return the
application to your Sutro account executive or, if you do not have a Sutro
brokerage account, directly to Freedom Securities Corporation.

If you redeem shares by using the check writing feature, and you
recently have purchased Fund shares with a check, the amount redeemed by check
may be delayed for up to 10 days after the purchase in order to allow the check
you used for your purchase to clear. There is no delay for Fund shares purchased
by wire.

The Fund reserves the right to terminate or alter the check writing
service at any time after giving shareholders 30 days' written notice. Your Fund
account will be charged $20.00 for each stop payment order or check returned for
"insufficient funds."

Timing of Redemptions

Redemption orders accepted by Freedom Services Corporation prior to
12:00 noon New York time will be priced at 12:00 noon New York time that day.
Redemption orders accepted by Freedom Services Corporation subsequent to 12:00
noon New York time will be priced at 12:00 noon New York time the next day that
net asset value is computed.

EXCHANGE PRIVILEGES

You may exchange you Fund shares without charge for shares of the
following Freedom money market funds:

Freedom Cash Management Fund -- A money market fund investing in a
diversified portfolio of high-grade money market instruments.

Freedom Government Securities Fund -- A money market fund investing
exclusively in U.S. Government securities.

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<PAGE> 18
Freedom Tax Exempt Money Fund -- A money market fund investing in a
diversified portfolio of high quality short-term municipal securities,
the income of which generally is exempt from federal income tax.

Before exchanging your Fund shares for the shares of any of those
funds, you should ask for a prospectus from your Sutro account executive or by
calling Freedom Services Corporation at (800) 453-8206.

If you have a brokerage account with Sutro, you must place exchange
orders through your account executive. Otherwise, you may make an exchange in
writing or by telephone. [Your exchange will be made on the basis of the net
asset value per share of each Fund on the date [at the time] Freedom Services
Corporation receives you exchange request.] [Exchange orders accepted by Freedom
Services Corporation prior to 12:00 noon New York time will be exchanged on the
basis of the net asset value per share of each Fund at 12:00 noon New York time
that day. Exchange orders accepted by Freedom Services Corporation subsequent to
12:00 noon New York time will be exchanged on the basis of the net asset value
per share of each Fund at 12:00 noon New York time the at least next day that
net asset value is computed.] If your exchange into the Fund is an initial
investment in the Fund, you must make an exchange of at least $1,000. After your
initial investment, you may make subsequent exchanges in amounts of at least
$100.

Timing of Exchanges

Exchanges accepted by Freedom Services Corporation prior to 12:00 noon
New York time will be priced at 12:00 noon New York time that day. Exchanges
accepted by Freedom Services Corporation subsequent to 12:00 noon New York time
will be priced at 12:00 noon New York time the next day that the Fund's net
asset value is computed.

GENERAL ACCOUNT POLICIES

Business Hours

The Fund is open on the same days as the New York Stock Exchange is
open for regular trading (generally, Monday through Friday). Fund
representatives are available from ___ a.m. to ___ p.m., New York time. Please
call Freedom Services Corporation toll free at (800) 453-8206.

Net Asset Value

Net asset value per share is computed by taking the value of all assets
of the Fund, less liabilities, and dividing by the number of shares of the Fund
outstanding. To determine the value of the assets of the Fund for the purpose of
obtaining the net asset value, portfolio securities are valued at amortized
cost, and interest is accrued daily. The net asset value per share of the Fund
is determined daily as of 12:00 noon New York time on each day that the New
York Stock Exchange is open for regular trading.

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<PAGE> 19
Minimum Account Balance

If the value of your account falls below $500, the Fund may mail you a
notice requesting that your bring you account back up to $500. If you do not
bring your account up to $500 within 30 days, the Fund may sell your shares and
mail the proceeds to you at the address of record. The Fund will not redeem
accounts which fall below $500 as a result of reduction in net asset value per
share.

Additional Policies

The Fund maintains additional policies and reserves certain rights,
including:

- The Fund may vary its requirements for initial or additional
investments, exchanges, reinvestments, periodic investment
plans, retirement and employee benefit plans, sponsored
arrangements and similar programs.

- All orders to purchase shares are subject to acceptance by the
Fund.

- The Fund may change or discontinue its sales charge waivers
and orders acceptable practices and it may suspend sale of its
shares.

- The Fund may delay sending you redemption proceeds for up to
seven days, or longer if permitted by the Securities and
Exchange Commission.

- The Fund holds investment professionals responsible for
transmission of all orders to the Fund.

DISTRIBUTIONS AND TAXES

Dividends and Distributions

The Fund distributes its net income to shareholders; it declares
dividends daily and pays them monthly. The Fund does not anticipate paying any
capital gains distributions.

You may have your distributions reinvested in the Fund, mailed out by
check or deposited in a bank account. If you do not give Freedom Services
Corporation other instructions, your distributions will be reinvested in the
Fund.

Tax Effects of Distributions and Transactions

The Fund's dividends generally are exempt from federal and California
personal income taxes. However, you may have federal or state tax liability to
the extent that the Fund realizes net capital gains or earns income from taxable
securities. In addition, tax-exempt

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<PAGE> 20
income may be subject to the federal alternative minimum tax or certain state or
local taxes, including California corporate income and franchise taxes. Under
unusual circumstances, the Fund may invest in securities other than California
state and municipal securities. In such cases, a portion of the Fund's income
may be subject to California personal income taxes, federal income taxes, or
both.

The Fund will inform you of the amount and nature of its distributions
annually. The information will detail the amount of federal and California state
tax-exempt income, and the taxable ordinary income and capital gains distributed
to you during the previous year.

The sale of your Fund shares is a taxable event and may produce a gain
or loss. An exchange is the same as a sale for tax purposes.

Your investment in the Fund could have additional tax consequences,
particularly for corporate investors. We recommend that you consult your tax
professional for advice regarding the tax implications of investing in the Fund.

Federal Alternative Minimum Tax

Backup Withholding

The Fund is required by federal law to withhold 31% of your
distributions and proceeds if you do not provide complete and correct taxpayer
information, including your social security or taxpayer identification number.

ADDITIONAL INFORMATION ON FUND INVESTMENTS

The Fund's principal investment strategies and risk factors are outlined
beginning on page 1. Below are brief descriptions of other securities and
practices, along with their associated risks.

Securities Ratings

When securities are rated by one or more independent rating agencies,
the Fund uses these ratings to determine credit quality. In cases where a
security has received a rating from only one independent rating agency, it may
rely on that rating. If a security has received ratings from two or more rating
agencies and at least two of the ratings are equivalent, the

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<PAGE> 21
Fund may rely on the two equivalent ratings even if the other ratings are lower.
In cases where a security's two highest ratings are in conflicting categories,
the Fund must follow the lower rating. If a security is unrated, the Fund may
assign it to a given category based on its own research.

Repurchase Agreements

The Fund may enter into repurchase agreements with a bank, financial
institution or broker-dealer as a means of earning income for periods as short
as overnight. These transactions must be fully collateralized at all times, but
involve some credit risk to the Fund if the other party should default on its
obligation and the Fund is delayed or prevented from recovering the collateral.

When-Issued Securities

The Fund may invest in "when-issued" securities. When-issued securities
involve commitments to buy a new issue with settlement up to 45 days later.
During the time between the commitment and settlement, the Fund does not accrue
interest but the market value may fluctuate. If the Fund invests in securities
of this type, it will maintain a segregated account with its custodian to pay
for them and mark it to market daily.

Borrowing

The Fund may borrow up to 10% of the value of its net assets from banks
for temporary purposes (not for leveraging or investment) but will not make any
new investments so long as such borrowings exceed 5% of the value of its net
assets.

Illiquid Securities

Illiquid securities are those securities that cannot be disposed of in
the ordinary course of business, seven days or less, at approximately the value
at which the Fund has valued the securities. They may be thinly traded or traded
in markets that do not function as efficiently as established markets, which may
make them difficult to sell if the Fund must raise cash to meet redemptions.
Because they generally are traded in inefficient markets, their value may have a
subjective element. The Fund may not invest more than 10% of its net assets in
securities for which no readily available market exists or which are otherwise
illiquid.

Year 2000

The investment manager does not currently anticipate that computer
problems related to the year 2000 will have a material effect on the Fund.
However, there can be no assurances in this area, including the possibility that
year 2000 computer problems could negatively affect communication systems,
investment markets or the economy in general.

Prospectus

17
<PAGE> 22
FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund assuming reinvestment of all dividends and distributions.
This information has been audited by PricewaterhouseCoopers LLP whose report,
along with the Fund's financial statements, are included in the Annual Report,
which begins on page 20.

<TABLE>
<CAPTION>
Net Ratio of Ratio of Net
Net Asset Dividends Net Asset Assets Expenses Investment
Value Net from Net Value End of to Average Income to
Year Beginning Investment Investment End of Total Year Daily Average Daily
Ended of Year Income(a) Income Year Return* (Thousands) Net Assets(a) Net Assets
----- ----------- --------- ---------- ---------- ------ ----------- ------------- -------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998 _____ _____ _____ _____ _____ _____ _____(b) _____(c)

December 31, 1997.......... $1.00 $0.0297 $(0.0297) $1.00 3.02% $114,729 0.52% 2.97%

December 31, 1996.......... 1.00 0.0286 (0.0286) 1.00 2.90 115,337 0.46 2.86

December 31, 1995.......... 1.00 0.0325 (0.0325) 1.00 3.29 85,204 0.47 3.25

December 31, 1994.......... 1.00 0.0228 (0.0228) 1.00 2.32 72,659 0.46 2.28
</TABLE>

- ---------------

+ Annualized.

(a) Net of fees waived by the investment manager which amounted to $.0011,
$.0018, $.0020, $.0028, $.0033, $.0042 and $.0010 per share,
respectively.

(b) Ratio of expenses to average daily net assets prior to expense credits
was 0.55% for 1997.

* Total return would have been lower had the investment manager not
waived fees and without credits allowed by custodian. Periods
less than a year are not annualized.

Prospectus

18
<PAGE> 23
[Back Cover]

ADDITIONAL INFORMATION ABOUT THE FUNDS

A Statement of Additional Information (SAI), which is incorporated by reference
into this Prospectus, contains additional information about the Fund. The Fund's
most recent annual and semi-annual reports contain information about the Fund's
investments.

You may request free of charge the current SAI or the most recent annual and
semi-annual reports, or other information about the Fund, by calling (800)
453-8206 or writing to:

Freedom Services Corporation
One World Financial Center
200 Liberty Street
New York, New York 10281

The SEC also makes available to the public reports and information about the
Fund. Certain reports and information, including the SAI, are available on the
SEC's website (http://www.sec.gov) or at the SEC's Public Reference Room in
Washington, D.C. You may call (800) SEC-0330 to get information on the
operations of the Public Reference Room or you may write to Public Reference
Section, Washington, D.C. 20549-6009 to get information from the Public
Reference Section. The Public Reference Section will charge a duplicating fee
for copying and sending any information you request.

Investment Company Act File No. 811-3519.

Prospectus

19
<PAGE> 24
[Front Cover] [LOGO]

FREEDOM CASH MANAGEMENT FUND

A money market fund investing in a diversified portfolio of high-grade
money market instruments.

FREEDOM GOVERNMENT SECURITIES FUND

A money market fund investing exclusively in U.S. Government securities.

FREEDOM TAX EXEMPT MONEY FUND

A money market fund investing in a diversified portfolio of high quality
short-term municipal securities, the income of which generally is exempt from
federal income tax.

The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.

PROSPECTUS
March 1, 1999

ANNUAL REPORTS
for the year ended December 31, 1998
begin on page 21.
<PAGE> 25
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
FUND INVESTMENT OBJECTIVES AND STRATEGIES.............................. 1

VOLATILITY AND PERFORMANCE............................................. 3

INVESTOR FEES AND FUND EXPENSES........................................ 6

INVESTMENT MANAGEMENT.................................................. 7

BUYING, SELLING, EXCHANGING FUND SHARES................................ 7

DISTRIBUTIONS AND TAXES................................................ 15

ADDITIONAL INFORMATION ON FUND INVESTMENTS............................. 16

FINANCIAL HIGHLIGHTS................................................... 18

ADDITIONAL INFORMATION ABOUT THE FUNDS................................. 20
</TABLE>

(i)
<PAGE> 26
FUND INVESTMENT OBJECTIVES AND STRATEGIES

Fundamental Objectives

Cash Management Fund seeks to achieve as high a rate of current income as
is consistent with the maintenance of liquidity and preservation of capital.

Government Securities Fund seeks to achieve as high a rate of current
income as is consistent with the maintenance of liquidity and preservation of
capital.

Tax Exempt Money Fund seeks to achieve as high a rate of current income
exempt from federal income taxes as is consistent with the maintenance of
liquidity and preservation of capital.

Principal Investments

Cash Management Fund invests in a diversified portfolio of high quality,
short-term money market instruments. These instruments may include: short-term
corporate debt, such as, commercial paper; U.S. and foreign bank certificates of
deposit and bankers' acceptances; securities issued or guaranteed as to
principal and interest by the U.S. or foreign governments, their agencies or
instrumentalities; asset and mortgage backed securities; and repurchase
agreements.

Government Securities Fund invests exclusively in short-term U.S.
government securities. These securities are issued or guaranteed as to principal
and interest by the U.S. government, its agencies and instrumentalities, and may
include certain mortgage backed securities.

Tax Exempt Money Fund invests at least [80%] of its total assets in a
diversified portfolio of municipal securities, which include fixed and variable
rate debt obligations issued by various states, their counties, towns and public
authorities. Those securities tend to be:

- - general obligation bonds - where principal and interest are paid from
the general tax revenues received by the issuer

- - revenue bonds - where principal and interest are paid only from the
revenues received from one or more public projects or special excise taxes.
These bonds tend to be issued in connection with the financing of
infrastructure projects, such as toll roads and housing projects. They are
not general obligations of the issuer

- - industrial development bonds - where principal and interest are paid
only from revenues received from privately-operated facilities. Generally,
these bonds are issued in the name of a public finance authority to finance
infrastructure used by a private entity. However, they are the general
obligations of the private entity, not the issuer

The income generated by municipal securities generally is exempt from
federal income tax.

The Tax Exempt Money Fund has the right to invest up to [20%] of its
[total] assets in short-term, high-quality taxable fixed-income securities.

Prospectus
<PAGE> 27
Principal Investment Strategies

Each Fund manages its portfolio subject to strict guidelines established by
the Securities and Exchange Commission. These guidelines are designed so that
the Fund may maintain a stable $1.00 share price, although there is no guarantee
that it will do so.

Among other things, the guidelines require each Fund to maintain a
dollar-weighted average portfolio maturity of not more than 90 days. In
addition, all securities are denominated in U.S. dollars.

Moreover, all of a Fund's investments must be high-quality securities. At
least 95% of total assets must be "first tier" securities, which must be rated
by such firms as Standard & Poor's and Moody's in their highest short-term major
rating category, or must be unrated securities that are considered equivalent by
the investment manager. The remaining amount, up to 5% of total assets, must be
invested in "second tier" securities, which, at the time of purchase, must be
rated by Standard & Poor's or Moody's in their second highest short-term major
rating category, or must be unrated securities but considered equivalent by the
investment manager.

Each Fund may adjust the composition of its portfolio as market conditions
and economic outlooks change.

For more information about the Funds' investments and practices, see page
16.

Principal Risks

Each Fund's principal risks are those risks that could affect the overall
yield of the Fund and thus, the return on your investment. They include factors
that would cause short-term interest rates to decline, such as a weak economy,
strong equity markets and changes by the Federal Reserve in its monetary
policies.

Because the Tax Exempt Money Fund's securities are issued by states, their
cities, towns and public authorities, the Fund's performance also may be
affected by political and economic conditions at the state or local level. They
may include state or city budgetary problems, declines in the tax base and
generally, any factor that may cause rating agencies to downgrade the credit
ratings on state or municipal securities. Actual or proposed changes in tax
rates, regulations or government-sponsored programs also could affect the yield
on your investment.

Each Fund's ability to meet redemption obligations could be burdened by its
investments in securities restricted as to resale. Restricted securities
generally trade among institutions in markets that are not as developed or
function as efficiently as more established markets.

An investment in any of the Funds is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
the Fund seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in any Fund.

Prospectus
2
<PAGE> 28
VOLATILITY AND PERFORMANCE

The information provided in the charts and tables below and on the opposite
page gives some indication of the risks of investing in each Fund by showing two
aspects of a Fund's performance:

Year-by-Year Total Return

Year-by-year total return illustrates a Fund's performance for each of the
last 10 calendar years. It indicates risk by showing how much returns can differ
from one year to the next. Generally, funds with higher average annual total
returns will also have higher volatility. Each Fund can also experience swings
in short-term performance, as depicted below by the best and worst calendar
quarter returns. The graphs include the effects of each Fund's expenses. No
sales charges apply to purchases, exchanges or redemptions of Fund shares.

Average Annual Total Return

Average annual total return is a measure of a Fund's performance over time.
It is calculated by taking the performance of a Fund over a given period and
expressing it as an average annual rate. Average annual total return includes
the effects of each Fund's expenses and maximum management fees for each class.
It also assumes that you sold your shares at the end of the period.

[Two] independent measures of performance are listed with each Fund's
average annual returns. [Describe indexes] These indexes can be used as a rough
guide when gauging the return of these and other investments. [Keep in mind that
none/both of the indices includes the effects of sales charges.]

Of course, a Fund's performance in the past is not necessarily an
indication of how the Fund will perform in the future.

Cash Management Fund

<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year-by-Year Return

Best Quarter
Worst Quarter
</TABLE>

Prospectus
3
<PAGE> 29
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Average Annual Total Return

*Consumer Price Index
+IBC First Tier Money Funds Average
</TABLE>

- ---------------

*[Index description]
+[Index description]

Government Securities Fund

Best Quarter
Worst Quarter
</TABLE>

<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Average Annual Total Return

*Consumer Price Index
+IBC US Government & Agencies Taxable Funds Average
</TABLE>

- ---------------

*[Index description]
+[Index description]

Prospectus
4
<PAGE> 30
Tax Exempt Money Fund

Best Quarter
Worst Quarter
</TABLE>

<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Average Annual Total Return

*Consumer Price Index
+IBC Stockbroker & General Purpose Tax Free Funds Average
</TABLE>

- ---------------

*[Index description]
+[Index description]

To obtain current yield information for any of the Funds, please contact
1-800-453-8206

Prospectus

5
<PAGE> 31
INVESTOR FEES AND FUND EXPENSES

UNDERSTANDING INVESTOR EXPENSES

The information below gives you an idea of certain fees that you should
expect to pay as an investor in each Fund and certain expenses may be deducted
from a Fund's assets.

SHAREHOLDER FEES

<TABLE>
<CAPTION>
CASH GOVERNMENT TAX
MANAGEMENT SECURITIES EXEMPT
FUND FUND MONEY FUND
<S> <C> <C> <C>
Sales Charge (Load) Imposed
on Purchases............................ None None None
Sales Charge (Load) Imposed
on Reinvested Dividends................. None None None
Redemption Fees........................... None None None
Exchange Fees............................. None None None
Account Fees.............................. None None None

ANNUAL FUND OPERATING EXPENSES*

Management Fees..........................
---- ---- ----
12b-1 Fees...............................
---- ---- ----
Other Expenses...........................
---- ---- ----
[Total Fund Operating Expenses]
---- ---- ----
</TABLE>

- ----------------

* Based on Fund operating expenses for the fiscal year ended December 31,
1998.

Prospectus

6
<PAGE> 32
EXAMPLE

This example is intended to help you compare the cost of investing in each
Fund with the cost of investing in other mutual funds. It illustrates the effect
of expenses on the value of a hypothetical $10,000 investment in a Fund at the
end of one-, three-, five- and ten-year periods, assuming a 5% annual return and
that a Fund's operating expenses remain constant:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cash Management Fund $ _____ $ _____ $ _____ $_____
Government Securities Fund _____ _____ _____ _____
Tax Exempt Money Fund _____ _____ _____ _____
</TABLE>

This example should not be considered a representation of past or future
expenses or investment returns. Actual expenses and investment returns may be
greater or less than those shown.

INVESTMENT MANAGEMENT

Freedom Capital Management Corporation, One Beacon Street, Boston,
Massachusetts 02108, is the investment manager for each of the Funds. The
investment manager first began managing assets in 19__, and as of December 31,
1998, had approximately $__ billion of assets under management.

The investment manager provides each Fund with overall investment advisory
and administrative services, as well as general office facilities, as provided
in its advisory agreement with the Funds. The investment manager receives a fee
computed and paid monthly based upon the average daily net asset value of each
Fund, payable at the annual rate of 0.50% on the first $500 million of net
assets of such Fund and 0.45% on net assets in excess of that amount.

BUYING, SELLING, EXCHANGING FUND SHARES

OPENING AN ACCOUNT AND BUYING FUND SHARES

Opening an Account

You may open an account with a Fund through Tucker Anthony Incorporated
("Tucker Anthony") or Sutro & Co., Incorporated ("Sutro") utilizing a securities
brokerage account, or by yourself directly through Freedom Services Corporation.
If you are using a Tucker Anthony or Sutro brokerage account to invest in a
Fund, your Tucker Anthony or Sutro account executive can assist you through all
phases of your investment, including initial and additional purchases, exchange
and redemption. To open an account on your own, in addition to sending payment
for your investment, you must submit a signed and completed application.
See below "--Purchases By Other Investors."

Prospectus

7
<PAGE> 33
Freedom Asset Account.

You may also open an account in a Fund with available cash in your Freedom
Asset Account. A Freedom Asset Account is available through [Tucker Anthony or
Sutro], and is composed of:

- - a Tucker Anthony or Sutro securities margin account

- - an account with one of the Funds

- - a check writing account through Banc One

- - a Visa Gold(R) Debit Card with ATM access from Banc One

Once you have opened a Freedom Asset Account, your [Tucker Anthony or
Sutro] account executive can assist you through all phases of your investment,
including initial and additional purchases, exchange and redemption. For further
information on a Freedom Asset Account, please contact your [Tucker Anthony or
Sutro] account executive and review carefully the Freedom Asset Account
agreement.

Minimum Investments in the Funds

<TABLE>
<CAPTION>
Initial Investment Additional Investments
------------------ ----------------------
<S> <C>
$1,000 $100 or more
</TABLE>

Exceptions

There is no minimum amount for initial or subsequent investment in
connection with purchases through the automatic "sweep" program sponsored by
Tucker Anthony and Sutro. See below "--Purchases By Clients of Tucker Anthony
and Sutro."

Where a bank, investment manager or similar institution has a large number
of accounts and is willing to receive a monthly summary of accounts in lieu of
the regular statement for each account under its control, the minimum amount for
initial investments by individual accounts covered by the summary of accounts is
reduced to $100. All payments will be invested in full and fractional shares.

General Timing of Requests

The processing of your order will depend upon the method of payment you
choose, as well as the time your order is received. Shares of each Fund are
offered on a continuing basis without a sales charge at a public offering price
equal to the net asset value next determined after a purchase order is received
in proper form.

Purchases by Clients of Tucker Anthony or Sutro

Generally If a properly completed order to purchase Fund shares is received
at any Tucker Anthony or Sutro office before 12:00 noon New York time and paid
utilizing a free credit balance available on a brokerage account, your order
will be executed on the same

Prospectus

8
<PAGE> 34
business day [and you will receive dividends on such shares beginning on that
day]. If a properly completed order to purchase Fund shares is received at any
Tucker Anthony or Sutro office after 12:00 noon New York time and paid utilizing
a free credit balance available on a brokerage account, your order will be
executed on the next business day and dividends on such shares will begin on
that day. Any purchase utilizing funds other than a free credit balance
available or your brokerage account will be effected the same as a purchase by
any other investor. (See below). You should note that Tucker Anthony or Sutro
may benefit from the use of free credit balances in your account prior to their
transfer to a Fund.

Tucker Anthony or Sutro Sweep Program Under the terms of the "sweep"
program, you may have your free credit balance invested in shares of any Fund or
any Freedom money market fund although at any one time your free credit balance
may be invested automatically in only one fund. Free credit cash balances in
available funds of $2,000 or more will be invested automatically on the next
business day in shares of the fund you designate. Automatic purchases using free
credit balances of less than $2,000 will be made weekly, generally on Monday,
based upon the free credit balance in the account at the close of business on
the preceding Friday.

Purchases by Other Investors

By Check When you pay by check, your order for additional shares of a Fund
will be executed at the price next determined after payment has been credited to
the Fund at the account of Freedom Services Corporation. If a Fund receives
credit before 12:00 noon New York time, your order will be executed at 12:00
noon New York time on that day. If a Fund receives credit after 12:00 noon New
York time, your order will be executed at 12:00 New York time on the next
business day. You should note that when payment is made by check, it normally is
not credited to a Fund for at least two business days after the check is
deposited. Checks drawn on banks which are not members of the Federal Reserve
System may take longer. When you purchase shares by check, a Fund may withhold
any payment on a redemption until it is reasonably satisfied that the investment
has been collected.

By Wire If you transfer payment by wire, the transfer may be subject to a
service charge by your bank. If notice from your bank of the wire transfer is
received by Freedom Services Corporation before 12:00 noon New York time, your
order will be executed at 12:00 noon New York time on that day. If notice from
you bank of the wire transfer is received by Freedom Services Corporation after
12:00 noon New York time, your order will be executed at 12:00 noon New York
time on the next business day.

Prospectus

9
<PAGE> 35
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
To Open An Account To Purchase Additional Shares

By Mail - Complete and sign the - Fill out the detachable stub
Purchase Application included from your account statement or
in this Prospectus, indicating send a letter containing your
which of the Funds you wish name, account number(s), the
to invest in and each of the Fund in which you wish to
services you wish to use. invest and the amount you want
to invest in each Fund.

- Mail your signed Purchase - Make your check payable to the
Application, together with a Fund you select, i.e., Freedom
check written on a U.S. Cash Management Fund,
bank account payable to Freedom Freedom Government
Cash Management Fund, Securities Fund or Freedom
Freedom Government Tax Exempt Money Fund, and
Securities Fund or Freedom mail to:
Tax Exempt Money Fund, to:

Freedom Services Corporation
Freedom Services Corporation One World Financial Center
One World Financial Center 200 Liberty Street
200 Liberty Street New York, New York 10281
New York, New York 10281
- --------------------------------------------------------------------------------------------------------------
</TABLE>

Prospectus

10
<PAGE> 36
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
To Open An Account To Purchase Additional Shares
- --------------------------------------------------------------------------------------
<S> <C> <C>
By Wire [Not Available.] Please call Freedom Services
Corporation at (800) 453-8206 for
wire instructions. You should then
give instructions to your wiring bank
to transmit the specified amount in
Federal Funds to:

Bank of New York
ABA-021000018
A/C 890032661
Wexford Clearing Services

Further Credit to:

Shareholder Account
No.____________________
Shareholder
Name:__________________

Neither the Funds nor their
agents are responsible for the
consequences of delays resulting
from the banking or Federal
Reserve wire system or from
incomplete instructions.
- --------------------------------------------------------------------------------------
</TABLE>

SELLING FUND SHARES

Redemption Through Your Tucker Anthony or Sutro Brokerage Account

In order to redeem shares purchased through a Tucker Anthony or Sutro
brokerage account, you should advise your account executive, by telephone or
mail, to execute the redemption. [If a properly completed order to redeem Fund
shares is received by a Tucker Anthony or Sutro office prior to 12:00 noon New
York time, your order will be forwarded to the Fund and will be executed that
day.] If a properly completed order to redeem Fund shares is received by a
Tucker Anthony or Sutro office after 12:00 noon New York time, your order will
be forwarded to the Fund and will be executed on the following business day.
Redemption proceeds will be held in your brokerage account unless you give
instructions to your account executive to reinvest or remit the proceeds to you.
Generally, redemption proceeds will not be invested for your benefit without
specific instruction, and Tucker Anthony or Sutro may benefit from the use of
temporarily uninvested funds. Shares purchased through a Tucker Anthony or Sutro
brokerage account may also be redeemed by check redemption as described below.

Redemptions will be effected automatically to satisfy any debit balances in
your brokerage account. Each brokerage account will be scanned automatically for

Prospectus

11
<PAGE> 37
debits as of the close of business on each business day and, after application
of any free credit cash balances in the account to such debits, a sufficient
number of shares of the Fund owned by you will be redeemed at 12:00 noon the
following business day to satisfy any remaining debits. You should be aware that
Tucker Anthony or Sutro may benefit from the use of free credit balances in you
account prior to their transfer to a Fund.

Direct Redemption

Redemptions by mail and expedited redemptions are not available for Fund
shares purchased through a Tucker Anthony or Sutro brokerage account. Any such
redemption requests received by Freedom Securities Corporation will be forwarded
to the appropriate Tucker Anthony or Sutro account executive who will process
them as described above.

Redemption by Mail.

You may redeem shares you own by sending written instructions to:

Freedom Services Corporation
[Name of Fund(s)]
One World Financial Center
200 Liberty Street
New York, New York 10281

Your instructions should identify the Fund and either the number of shares
or amount of investment to be redeemed. Your instructions must be signed by all
registered owners of the shares in the exact names in which they were
registered. Proceeds will be mailed to your address of record.

Expedited Redemptions

If you have elected the expedited redemption option on the purchase
application on file with Freedom Securities Corporation and wish to redeem
$5,000 or more from a Fund, you may request that proceeds be sent by federal
fund wire. A fee of $ ________ will be deducted from all proceeds sent by wire,
and your bank may charge an additional fee to receive wired funds.

Signature Guarantees

For each redemption over $25,000, or for any amount if the proceeds are to
be sent elsewhere than the address of record, generally, you must provide a
guarantee of the signature of each registered owner of Fund shares. No signature
guarantee is required for expedited redemptions if the proceeds are sent by wire
or to a bank or trust company account that you previously have designated in
writing.

Prospectus

12
<PAGE> 38
A signature guarantee may only be provided by a commercial bank that is a
member of the Federal Deposit Insurance Corporation, a trust company or a member
of a recognized stock exchange. A savings bank or a notary public may not
provide a signature guarantee.

Check Redemptions

You may redeem Fund shares by writing checks drawn on State Street Bank and
Trust Company. In order to redeem shares with this check writing feature, you
must complete a purchase application electing the feature and return the
application to your Tucker Anthony or Sutro account executive or, if you do not
have a Tucker Anthony or Sutro brokerage account, directly to Freedom Securities
Corporation.

If you redeem shares by using the check writing feature, and you recently
have purchased Fund shares with a check, the amount redeemed by check may be
delayed for up to 10 days after the purchase in order to allow the check you
used for your purchase to clear. There is no delay for Fund shares purchased by
wire.

The Funds reserve the right to terminate or alter the check writing service
at any time after giving shareholders 30 days' written notice. Your Fund account
will be charged $20.00 for each stop payment order or check returned for
"insufficient funds."

Timing of Redemptions

Redemption orders accepted by Freedom Services Corporation prior to 12:00
noon New York time will be priced at 12:00 noon New York time that day.
Redemption orders accepted by Freedom Services Corporation subsequent to 12:00
noon New York time will be priced at 12:00 noon New York time the next day that
net asset value is computed.

EXCHANGE PRIVILEGES

Shares of each Fund may be exchanged for shares of the other Funds
described in this Prospectus. In addition, if you are a resident of the State of
California, shares of the Funds may be exchanged for shares of the Freedom
California Tax Exempt Money Fund, a no-load money market fund investing in high
quality short-term California municipal securities the income of which is exempt
from federal income tax and California personal income tax.

Before exchanging your Fund shares for the shares of the Freedom California
Tax Exempt Money Market Fund, you should ask for a prospectus from your Tucker
Anthony or Sutro account executive or by calling Freedom Services Corporation at
(800) 453-8206.

If you have a brokerage account with Tucker Anthony or Sutro, you must
place exchange orders through your account executive. Otherwise, you may make an
exchange in writing or by telephone. [Your exchange will be made on the basis of
the net asset value per share of each Fund on the date [at the time] Freedom
Services Corporation receives you exchange request.] [Exchange orders accepted
by Freedom Services Corporation prior to 12:00 noon New York time will be
exchanged on the basis of the net asset value per share of each Fund at 12:00
noon New York time that day. Exchange orders accepted by Freedom Services

Prospectus

13
<PAGE> 39
Corporation subsequent to 12:00 noon New York time will be exchanged on the
basis of the net asset value per share of each Fund at 12:00 noon New York time
the next day that net asset value is computed.] If your exchange into a Fund is
an initial investment in that Fund, you must make an exchange of at least
$1,000. After your initial investment, you may make subsequent exchanges in
amounts of at least $100.

Timing of Exchanges

Exchanges accepted by Freedom Services Corporation prior to 12:00 noon New
York time will be priced at 12:00 noon New York time that day. Exchanges
accepted by Freedom Services Corporation subsequent to 12:00 noon New York time
will be priced at 12:00 noon New York time the next day that any Fund's net
asset value is computed.

GENERAL ACCOUNT POLICIES

Business Hours

The Funds are open on the same days as the New York Stock Exchange is open
for general trading (generally, Monday through Friday). Fund representatives are
available from ___ a.m. to ___ p.m., New York time. Please call Freedom Services
Corporation toll free at (800) 453-8206.

Net Asset Value

Net asset value per share for each Fund is computed by taking the value of
all assets of a Fund, less liabilities, and dividing by the number of shares of
the Fund outstanding. To determine the value of the assets of the Fund for the
purpose of obtaining the net asset value, portfolio securities are valued at
amortized cost, and interest is accrued daily. The net asset value per share of
each Fund is determined daily as of 12:00 noon New York time on each day that
the New York Stock Exchange is open for regular trading.

Minimum Account Balance

If the value of your account falls below $500, a Fund may mail you a notice
requesting that your bring you account back up to $500. If you do not bring your
account up to $500 within 30 days, the Fund may sell your shares and mail the
proceeds to you at the address of record. The Funds will not redeem accounts
which fall below $500 as a result of reductions in net asset value per share.

Additional Policies

The Funds maintain additional policies and reserve certain rights,
including:

- Each Fund may vary its requirements for initial or additional
investments, exchanges, reinvestments, periodic investment plans,
retirement and employee benefit plans, sponsored arrangements and
similar programs.

- All orders to purchase shares of a Fund are subject to acceptance by
that Fund.

Prospectus

14
<PAGE> 40
- Each Fund may change or discontinue its sales charge waivers and order
acceptable practices and they may suspend sales of their shares.

- Each Fund may delay sending you redemption proceeds for up to seven
days, or longer if permitted by the Securities and Exchange
Commission.

- Each Fund holds investment professionals responsible for transmission
of all orders to that Fund.

DISTRIBUTIONS AND TAXES

Dividends and Distributions

Each Fund distributes net income to shareholders; the Funds declare
dividends daily and pay monthly. The Funds do not anticipate paying any capital
gains distributions.

You may have your distributions reinvested in your Fund, mailed out by
check or deposited in a bank account. If you do not give Freedom Services
Corporation other instructions, your distributions will be reinvested in your
Fund.

Tax Effects of Distributions and Transactions

In general, any dividends and short-term capital gains distributions you
receive from a Fund are taxable as ordinary income. Distributions of other
capital gains, on the other hand, generally are taxable as capital gains.
Ordinary income and capital gains are taxed at different rates. The rates that
you will pay on capital gains distributions will depend on how long your Fund
holds its portfolio securities. This is the case no matter how long you have
owned your shares in a Fund and regardless of whether your distributions are
reinvested or paid out in cash.

The sale of shares in your account is a taxable event and may produce a
gain or loss. An exchange is the same as a sale for tax purposes.

Each Fund will inform you of the amount and nature of its distributions
annually. Your investment in each Fund could have additional tax consequences,
particularly for corporate investors. We recommend that you consult your tax
professional for advice regarding the tax implications of investing in the
Funds.

Back-up Withholding

Backup Withholding By law, the Funds must withhold 31% of your
distributions and proceeds if you have not provided complete and correct
taxpayer information including your social security or taxpayer identification
number.

Government Securities Fund

For mutual funds organized as business trusts (such as the Fund) most
states laws provide for a pass-through of the state and local income tax
exemption afforded to direct

Prospectus

15
<PAGE> 41
owners of U.S. Government securities. Thus, for residents of most states, the
portion of distributions derived from the Fund's income from investment in U.S.
Government securities should be free from state and local income taxes. You may
wish to consult your own tax adviser regrading the tax laws in your state.

Tax Exempt Money Fund

The Tax Exempt Money Fund may pass on to you dividends which are exempt
from federal and state personal income taxes. However, you may have federal or
state tax liability to the extent that the Tax Exempt Money Fund realizes net
capital gains or earns income from taxable securities. In addition, tax-exempt
income may be subject to the federal alternative minimum tax or certain state or
local taxes. Under unusual circumstances, the Fund may invest [more than 20% of
its portfolio] in securities which are not exempt from federal and state
personal income taxes. In such cases, a portion of the Tax Exempt Money Fund's
income may be subject to federal and state personal income taxes.

The Tax Exempt Money Fund will inform you of the amount and nature of its
distributions annually. The information will detail the amount of federal [and
state] tax-exempt income, and the taxable ordinary income and capital gains
distributed to you during the previous year.

Federal Alternative Minimum Tax

The alternative minimum tax is a federal tax that could affect you if you
have high income but pay relatively little tax under the ordinary tax schedules.
This may be the case if you have substantial deductions or certain types of
tax-free income. Interest from so-called private activity bonds such as
industrial revenue bonds is generally subject to the alternative minimum tax.
[Consequently, the Tax Exempt Money Fund does not invest more than 20% of its
total assets in taxable securities including those subject to the alternative
minimum tax.]

ADDITIONAL INFORMATION ON FUND INVESTMENTS

Each Fund's principal investment strategies and risk factors are outlined
beginning on page 1. Below are brief descriptions of other securities and
practices, along with their associated risks.

Securities Ratings

When securities are rated by one or more independent rating agencies, each
Fund uses these ratings to determine credit quality. In cases where a security
has received a rating from only one independent rating agency, it may rely on
that rating. If a security has received ratings from two or more rating agencies
and at least two of the ratings are equivalent, a Fund may rely on the two
equivalent ratings even if the other ratings are lower. In cases where a
security's two highest ratings are in conflicting categories, a Fund must follow
the lower rating. If a security is unrated, a Fund may assign it to a given
category based on its own research.

Prospectus

16
<PAGE> 42
Repurchase Agreements

Each Fund may enter into repurchase agreements with a bank, financial
institution or broker-dealer as a means of earning income for periods as short
as overnight. These transactions must be fully collateralized at all times, but
involve some credit risk to the Fund if the other party should default on its
obligation and the Fund is delayed or prevented from recovering the collateral.

When-Issued Securities

Each Fund may invest in "when-issued" securities. When-issued securities
involve commitments to buy a new issue with settlement up to 45 days later.
During the time between the commitment and settlement, the Fund does not accrue
interest but the market value may fluctuate. If a Fund invests in securities of
this type, it will maintain a segregated account with its custodian to pay for
them and mark it to market daily.

Borrowing

Each Fund may borrow up to 10% of the value of its net assets from banks
for temporary purposes (not for leveraging or investment) but will not make any
new investments so long as such borrowings exceed 5% of the value of its net
assets.

Illiquid Securities

Illiquid securities are those securities that cannot be disposed of in the
ordinary course of business, seven days or less, at approximately the value at
which a Fund has valued the securities. They may be thinly traded or traded in
markets that do not function as efficiently as established markets, which may
make them difficult to sell if a Fund must raise cash to meet redemptions.
Because they generally are traded in inefficient markets, their value may have a
subjective element. Each Fund may not invest more than 10% of its net assets in
securities for which no readily available market exists or which are otherwise
illiquid.

Year 2000

The investment manager does not currently anticipate that computer problems
related to the year 2000 will have a material effect on any Fund. However, there
can be no assurances in this area, including the possibility that year 2000
computer problems could negatively affect communication systems, investment
markets or the economy in general.

Prospectus

17
<PAGE> 43
FINANCIAL HIGHLIGHTS

The financial highlights tables are intended to help you understand each
Fund's financial performance for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in the
tables represent the rate that an investor would have earned (or lost) on an
investment in each Fund assuming reinvestment of all dividends and
distributions. This information has been audited by PricewaterhouseCoopers LLP
whose report, along with each Fund's financial statements, are included in the
Annual Report, which begins on page 21.

<TABLE>
<CAPTION>
Net Ratio of Ratio of Net
Net Asset Dividends Net Asset Assets Expenses Investment
Value Net from Net Value End of to Average Income to
Year Beginning Investment Investment End of Total Year Daily Average Daily
Ended of Year Income Income Year Return (Thousands) Net Assets Net Assets
----- ----------- ---------- ---------- ---------- ------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH MANAGEMENT FUND

December 31, 1998

December 31, 1997......... $1.00 $0.0492 $(0.0492) $1.00 5.03% $1,746,837 0.69% 4.92%

December 31, 1996......... 1.00 0.0476 (0.0476) 1.00 4.86 1,637,286 0.71 4.76

December 31, 1995......... 1.00 0.0526 (0.0526) 1.00 5.38 1,346,625 0.73 5.26

December 31, 1994......... 1.00 0.0353 (0.0353) 1.00 3.59 1,083,661 0.75 3.54

GOVERNMENT SECURITIES FUND

December 31, 1998

December 31, 1997......... $1.00 $0.0485 $(0.0485) $1.00 4.96% $ 370,358 0.65% 4.86%

December 31, 1996......... 1.00 0.0460 (0.0460) 1.00 4.69 309,938 0.65 4.60

December 31, 1995......... 1.00 0.0500 (0.0500) 1.00 5.10 317,400 0.65 5.00

December 31, 1994......... 1.00 0.0331 (0.0331) 1.00 3.36 268,434 0.65 3.31
</TABLE>

Prospectus

18
<PAGE> 44
<TABLE>
<CAPTION>
Net Ratio of Ratio of Net
Net Asset Dividends Net Asset Assets Expenses Investment
Value Net from Net Value End of to Average Income to
Year Beginning Investment Investment End of Total Year Daily Average Daily
Ended of Year Income Income Year Return (Thousands) Net Assets Net Assets
----- ----------- ---------- ---------- ---------- ------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TAX EXEMPT MONEY FUND

December 31, 1998

December 31, 1997.... $1.00 $0.0300 $(0.0300) $1.00 3.04%* $ 289,904 0.64%(a) 3.00%(b)

December 31, 1996.... 1.00 0.0283 (0.0283) 1.00 2.86 263,089 0.63 2.82

December 31, 1995.... 1.00 0.0319 (0.0319) 1.00 3.23 274,076 0.64 3.19

December 31, 1994.... 1.00 0.0216 (0.0216) 1.00 2.19 248,045 0.65 2.16
</TABLE>

- -------------

(a) Ratio of expenses to average daily net assets prior to expense credits was
0.66% for 1997.

(b) Ratio of net investment income to average daily net assets prior to expense
credits was 2.98% for 1997.

* Total return would have been lower without credits allowed by the custodian.

Prospectus

19
<PAGE> 45
{Back Cover Page}

ADDITIONAL INFORMATION ABOUT THE FUNDS

A Statement of Additional Information (SAI), which is incorporated by
reference into this Prospectus, contains additional information about the Funds.
The Funds' most recent annual and semi-annual reports contain additional
information about the Funds' investments.

You may request free of charge the current SAI or the most recent annual
and semi-annual reports, or other information about each Fund, by calling
1-800-453-8206 or writing to:

Freedom Services Corporation
One World Financial Center
200 Liberty Street
New York, New York 10281

The SEC also makes available to the public reports and information about
each Fund. Certain reports and information, including the SAI, are available on
the SEC's website (http://www.sec.gov) or at the SEC's Public Reference Room in
Washington, D.C. You may call 1-800-SEC-0330 to get information on the
operations of the Public Reference Room or you may write to Public Reference
Section, Washington, D.C. 20549-6009 to get information from the Public
Reference Section. The Public Reference Section will charge a duplicating fee
for copying and sending any information you request.

Freedom Cash Management Fund.
Freedom Government Securities Fund.
Investment Company Act File No. 811-3126.
Freedom Tax Exempt Money Fund.
Investment Company Act File No. 811-3126.

Prospectus

20
<PAGE> 46
PART B

To the Registration Statement of Freedom Group of
Tax Exempt Funds including Freedom Tax Exempt Money
Fund (the "Tax Exempt Fund") and Freedom California
Tax Exempt Money Fund (the "California Fund")
<PAGE> 47
STATEMENT OF ADDITIONAL INFORMATION

FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND
A SERIES OF
FREEDOM GROUP OF TAX EXEMPT FUNDS
(THE "FUND")

This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Fund's Prospectus dated March 1, 1999, which may be
obtained at no charge from Freedom Distributors Corporation, One Beacon Street,
Boston, Massachusetts 02108. Unless otherwise defined herein, capitalized terms
have the meanings given to them in the Prospectus.

The date of this Statement of Additional Information is March 1, 1999.

TABLE OF CONTENTS

Page

GENERAL INFORMATION............................................................1

INVESTORS FOR WHOM THE FUND IS DESIGNED........................................2

INVESTMENT POLICIES............................................................3

INVESTMENT RESTRICTIONS.......................................................15

PORTFOLIO TRANSACTIONS........................................................17

CURRENT YIELD.................................................................18

ADDITIONAL INFORMATION ON REDEMPTION..........................................18

NET ASSET VALUE...............................................................19

ADDITIONAL INFORMATION ON TAXES...............................................20

MANAGEMENT OF THE FUND........................................................24

THE INVESTMENT ADVISER........................................................26

DISTRIBUTION OF SHARES OF THE FUND............................................28

TRANSFER AGENT................................................................29

CUSTODIAN.....................................................................29

FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANTS..............................29

INFORMATION ABOUT SECURITIES RATINGS OF NATIONALLY RECOGNIZED STATISTICAL
RATING ORGANIZATIONS ("NRSROs"................................................30

Each of the Fund's financial statements as of and for the year ended
December 31, 1998, which are included in the Fund's Annual Report for that year,
are incorporated by reference. The Annual Report is available with the
Prospectus, without charge, upon request by calling (800) 453-8206.

<PAGE> 48

GENERAL INFORMATION

Freedom Group of Tax Exempt Funds (the "Trust") is a Massachusetts
business trust, having been organized on June 1, 1982. The Trust currently has
two series, Freedom Tax Exempt Money Fund, a tax exempt money market fund which
is described in a separate prospectus and statement of additional information,
and Freedom California Tax Exempt Money Fund (the "Fund"). The Trustees of the
Trust have authority to issue an unlimited number of shares of beneficial
interest, [$.__] par value per share. The Trustees also have authority, without
the necessity of a shareholder vote, to create any number of new series or
classes or to commence the public offering of shares of any previously
established series or classes. The Trustees have authorized shares of the Fund
to be issued in only one class.

The assets received by the Fund from the issue and sale of its shares,
and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, constitute the underlying assets of the Fund. The
underlying assets of the Fund are required to be segregated on the books of
account and are to be charged with the expenses in respect to the Fund and with
a share of the general expenses of the Trust. Any general expenses of the Trust
not readily identifiable as belonging to a particular Fund shall be allocated by
or under the direction of the Trustees in such manner as the Trustees determine
to be fair and equitable, taking into consideration, among other things, the
nature and type of expense and the relative sizes of the Funds.

Each share of the Fund has equal dividend, redemption and liquidation
rights with other shares of the Fund and when issued is fully paid and
nonassessable by the Trust. Under the Trust's Master Trust Agreement, no annual
or regular meeting of shareholders is required. Thus, there will ordinarily be
no annual shareholder meetings, unless otherwise required by the Investment
Company Act of 1940 (the "1940 Act"). The Trust called a meeting of shareholders
on December 16, 1996 at which time shareholders elected the Board of Trustees.
Thereafter, the Trustees are a self-perpetuating body until fewer than 50% of
the Trustees serving as such are Trustees who were elected by shareholders. At
that time another meeting of shareholders will be called to elect Trustees. On
any matter submitted to the shareholders for a vote, the holder of each share of
the Fund is entitled to one vote per share (with proportionate voting for
fractional shares) regardless of the relative net asset value thereof. Under the
Master Trust Agreement, any Trustee may be removed by vote of two-thirds of the
outstanding Trust shares, and holders of ten percent or more of the outstanding
shares of the Trust can require Trustees to call a meeting of shareholders for
purposes of voting on the removal of one or more Trustees. The Master Trust
Agreement also provides that if ten or more shareholders who have been such for
at least six months and who hold in the aggregate shares with a net asset value
of at least $25,000 inform the Trustees that they wish to communicate with other
shareholders, the Trustees will either give such shareholders access to the
shareholder lists or inform them of the cost involved if the Trust forwards
materials to the shareholders on their behalf. If the Trustees object to mailing
such materials, they must inform the Securities and Exchange Commission and
thereafter comply with the requirements of the 1940 Act.

Shares do not have cumulative voting rights, which means that in
situations in which shareholders elect Trustees, holders of more than 50% of the
shares voting for the election of

<PAGE> 49

Trustees can elect 100% of the Trust's Trustees, and the holders of less than
50% of the shares voting for the election of Trustees will not be able to elect
any person as a Trustee.

Shares have no preemptive or subscription rights and are fully
transferable. There are no conversion rights.

Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations for the
Trust. However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for indemnification
for all losses and expenses of any shareholder of the Fund held personally
liable for the obligations of the Trust. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund would be unable to meet its obligations. The
Advisor believes that, in view of the above, the risk of personal liability to
shareholders is remote.

The Trust is an "open-end" management investment company, and is a
"diversified company" as those terms are defined in the 1940 Act. The Fund
intends to qualify as a "money market fund" within the meaning of Rule 2a-7
under the 1940 Act, which includes complying with the portfolio quality,
maturity and diversification requirements of that rule. Pursuant to Rule 2a-7,
compliance with the diversification requirements under the rule constitutes
meeting the definitional requirements of a diversified company under the 1940
Act. Generally, a fund that intends to meet its diversification requirements
under Rule 2a-7 may not invest more than 5% of its total assets in any one
issuer, although this limit may be greater if the securities are held for short
periods, are guaranteed or are subject to certain redemption or resale rights,
and there is no limit on investments in U.S. Government securities.

The Trust called a meeting of shareholders on May 20, 1998, at which
time the shareholders approved (i) a new investment advisory agreement between
the Trust and the Advisor and (ii) the election of PricewaterhouseCoopers LLP as
the Trust's independent auditors.

INVESTORS FOR WHOM THE FUND IS DESIGNED

The Fund is designed for investors who, because of their tax bracket,
would benefit from receiving income exempt from federal and California personal
income taxes. The Fund is not appropriate for retirement plans where income is
already tax-deferred.

The Fund offers the economic advantages of block purchases of securities
and diversification. Securities and instruments of the types in which the Fund
invests are not generally available in denominations of less than $100,000, and
in many cases the minimum denominations are substantially higher. Typically,
higher yields are not available unless money market instruments are bought
directly from issuers in amounts of $1,000,000 or more. The Fund also offers
investors the opportunity to participate in a more diversified selection of
short-term securities than the size of each investor's own portfolio might
otherwise permit.

Investment in the Fund may also relieve the investor of several
administrative burdens usually associated with the direct purchase of money
market instruments, such as coordinating

2
<PAGE> 50

maturities and reinvestments, safekeeping of securities, surveying the market
for the best price at which to buy and/or sell and maintaining separate
principal and income records. Furthermore, purchasers electing and complying
with the procedures for expedited redemption have the convenience, if a
redemption order is received before 12:00 noon, New York time, on a business day
on which the New York Stock Exchange is open for regular trading, of having the
proceeds from the redemption of their shares remitted to their bank account at a
member bank of the Federal Reserve System by Federal Funds wire for use on the
same business day, provided that the federal wire system is open. In addition,
shareholders availing themselves of the Fund's check redemption program have the
convenience of making redemptions merely by writing a check. See "How to Redeem
Shares" in the Prospectus. All such advantages, however, will be reduced to the
extent of the expenses and losses of the Fund in which you invest (including
losses from portfolio transactions or from defaults, if any, in payments of
interest or principal by issuers).

INVESTMENT POLICIES

The following information supplements the discussion of the Fund's
investment policies discussed in the Prospectus. The policies described above in
this section are not fundamental and may be changed upon notice to shareholders.

OPERATING AS A MONEY MARKET FUND--GENERALLY

In order to provide you with liquidity, the Fund follows practices to
maintain a $1.00 share price: limiting its portfolio's average maturity to 90
days or less; buying securities which mature in 397 days or less; and buying
only high quality securities with minimal credit risks. Of course, the Fund
cannot guarantee a $1.00 share price, but these practices help to minimize any
price fluctuations that might result from rising or declining interest rates.
While the Fund invests in high quality securities, you should be aware that your
investment is not without risk even if all the securities in the portfolio are
paid in full at maturity. The Fund has a fundamental investment objective with
an investment program to aid in achieving its objective. There is no assurance
that the Fund will achieve its investment objectives. All money market
instruments and debt securities, including short-term municipal securities, can
change in value when interest rates change or when an issuer's creditworthiness
changes.

The Fund will limit its portfolio investments to securities that, at the
time of acquisition, (i) are rated in the two highest categories by at least two
nationally recognized statistical rating organizations ("NRSROs") (or by one
NRSRO if only one NRSRO has rated the security), (ii) if not rated, are
obligations of an issuer whose other outstanding short-term debt obligations are
so rated, or (iii) if not rated, are of comparable quality as determined by the
Adviser in accordance with procedures established by the Trustees (collectively,
"Eligible Securities"). The Fund will limit its investments to Eligible
Securities that present minimal credit risk, as determined by the Adviser in
accordance with procedures established by the Trustees.

3
<PAGE> 51

Securities are classified as second tier securities. A description of the
ratings of the NRSROs is contained in the Statement of Additional Information.

ADDITIONAL INFORMATION ON CALIFORNIA MUNICIPAL SECURITIES

"California Municipal Securities" are generally understood to include
debt obligations issued by the State of California and its political
subdivisions to obtain funds for various public purposes. Such securities may
have fixed or adjustable rates of interest. Following purchase by the Fund, a
California Municipal Security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event requires a
sale of such security by the Fund, although Freedom Capital Management
Corporation (the "Adviser") will consider such event to be relevant in
determining whether the Fund should continue to hold such security in its
portfolio. If the rating accorded by Moody's or S&P for California Municipal
Securities changes due to changes in the rating systems, the Fund will attempt
to use comparable ratings as standards for investments in accordance with the
investment policies contained herein.

The two principal classifications of California Municipal Securities
are "municipal notes" and "municipal bonds."

Municipal Notes. Municipal notes generally are used to provide for
short-term capital needs and generally have maturities of one year or less and
are sold in anticipation of a bond sale, collection of taxes or receipt of other
revenues. Municipal notes include:

1. Tax Anticipation Notes. Tax anticipation notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenues, such as income, sales, use and
business taxes, and are payable from these specific future taxes.

2. Revenue Anticipation Notes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue, such as revenues available
under federal revenue sharing programs.

3. Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. In most
cases, the long-term bonds then provide the money for the repayment of the
notes.

4. Construction Loan Notes. Construction loan notes are sold to provide
construction financing. After successful completion and acceptance, many
projects receive permanent financing through the Federal Housing Administration
under "Fannie Mae" (the Federal National Mortgage Association) or "Ginnie Mae"
(the Government National Mortgage Association).

5. Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a
short-term obligation with a stated maturity of 365 days or less. It is issued
by agencies of state and local governments to finance seasonal working capital
needs or as short-term financing in anticipation of longer term financing.

4
<PAGE> 52

6. Other. The Fund may invest in certain variable and floating rate
demand notes. Such securities have interest rates that are adjusted
periodically. Variable and floating rate demand notes generally have a maturity
in excess of one year but permit their holder to demand prepayment upon a
specified number of days' notice and so may be treated as short-term investments
under certain circumstances.

Municipal Bonds. Municipal bonds, which meet longer term capital needs
and generally have maturities of more than one year when issued, have two
principal classifications: general obligation bonds, revenue bonds.

1. General Obligation Bonds. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and waste and sewer
systems. The basic security behind a general obligation bond is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.

2. Revenue Bonds. Revenue bonds fund two sorts of projects,
publicly-operated facilities ("revenue bonds") and privately-operated facilities
("industrial development bonds").

(a) Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, waste and sewer
systems; highways, bridges and tunnels; port and airport facilities;
colleges and universities; and hospitals. Although the principal
security behind these bonds may vary, many provide additional security
in the form of a debt service reserve fund which may be used to make
principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security, including partially
or fully insured mortgages, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a
governmental entity's ability (without obligation) to make up
deficiencies in the debt service reserve fund.

(b) Industrial Development Bonds. Industrial development bonds,
which are considered municipal bonds if the interest paid thereon is
exempt from federal income tax, are issued by or on behalf of public
authorities to raise money to finance various privately-operated
facilities for business and manufacturing, housing, sports, and
pollution control. These bonds are also used to finance
privately-operated public facilities such as airports, mass transit
systems, ports, and parking. The payment of the principal and interest
on such bonds is dependent solely on the ability of the facility's user
to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment. Tax exempt
industrial development bonds do not generally carry the pledge of the
issuing municipality.

Certain of the California Municipal Securities may be backed by a letter
of credit issued by a domestic or foreign bank in order to improve their credit
rating. In that case, the Fund considers

5
<PAGE> 53

the bank to be the ultimate obligor and credit risk. See "Special Considerations
and Risk Factors."

There are also other types of California Municipal Securities that are,
or may become, available which are similar to the foregoing municipal notes and
municipal bonds. California Municipal Securities are sometimes supported by an
irrevocable, unconditional external agreement (normally a bank letter of credit)
from a bank whose own securities are of high quality in order to improve the
credit rating of the California Municipal Security. Such external agreement may
be issued by a foreign bank.

For the purpose of the Fund's investment restrictions set forth
beginning on page 9, the identification of the "issuer" of California Municipal
Securities which are not general obligation bonds is made by the Adviser on the
basis of the characteristics of the obligation as described above, the most
significant of which is the source of funds for the payment of principal and
interest on such securities. In the case of industrial development bonds, the
"issuer" is the user of the facility, which is usually a non-governmental
entity.

The Fund will not generally invest more than 25% of its total assets in
any industry. Tax exempt California Municipal Securities issued by the State of
California and its political subdivisions are not considered part of any
industry. However, "industrial development bonds" described above will be
subject to this limitation. It is possible that the Fund may from time to time
invest more than 25% of its assets in a particular segment of the California
Municipal Securities market, such as hospital revenue obligations, housing
agency obligations, or airport revenue obligations. This would be the case only
if the Adviser determined that the yields available from obligations in a
particular segment of the market justified the additional risks associated with
such concentration. Economic, business, political and other developments
generally affecting the revenues of issuers in a market segment (e.g. proposed
legislation or pending court decisions affecting the financing of projects and
market factors affecting the demand for their services or products) may have a
general adverse effect on all municipal securities in the segment. The Fund
reserves the right to invest more than 25% of its assets in industrial
development bonds. However, the interest on certain tax exempt securities which
the Fund may purchase will be included in income subject to the federal
alternative minimum tax. The Fund's present policy is to invest no more than 20%
of its total assets in taxable securities including those subject to the
alternative minimum tax.

Obligations of issuers of California Municipal Securities are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code. In addition, the
obligations of such issuers may become subject to laws enacted in the future by
Congress, state legislatures, or referenda extending the time for payment of
principal and/or interest, or imposing other constraints upon enforcement of
such obligations or upon municipalities to levy taxes. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of any issuer to pay, when due, the principal of and interest on its
California Municipal Securities may be materially affected. The Fund may invest
more than 25% of its total assets in California Municipal Securities the
interest upon which is paid from revenues of similar types of projects. There
could be economic, business or political developments which might affect all
California Municipal Securities of a similar type. However, the Fund believes
that the most important consideration affecting the credit risk is the quality
of

6
<PAGE> 54

particular issues of California Municipal Securities, rather than factors
affecting all, or broad classes of, California Municipal Securities.

CERTAIN INVESTMENT STRATEGIES

Repurchase Agreements. The Fund may enter into repurchase agreements
with a bank, financial institution or broker-dealer as a means of earning income
for periods as short as overnight. These transactions must be fully
collateralized at all times, but involve some credit risk to the Fund if the
other party should default on its obligation and the Fund is delayed or
prevented from recovering the collateral. Repurchase agreements maturing in more
than seven days, together with any other illiquid instruments held by the Fund
(excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 which the Board of Trustees or the Adviser has
determined under Board-approved guidelines are liquid), will not, at the time
entered into, exceed 10% of the net assets of the Fund. Because of their short
maturity, repurchase agreements provide liquidity to the Fund while allowing the
Fund to remain fully or substantially invested. The Fund will only enter into
repurchase agreements of one business day's maturity and only with
broker/dealers with substantial capital or major U.S. banks. Each repurchase
agreement will be fully collateralized with respect to both principal and
interest by U.S. Treasury instruments for the entire term of the agreement. Upon
payment, possession of all underlying collateral will be transferred to an agent
of the Fund for the term of the agreement. If a particular securities dealer or
bank defaults on its obligation to repurchase the underlying security as
required by the terms of a repurchase agreement, the Fund will incur a loss to
the extent that the proceeds it realizes on the sale of the collateral are less
than the repurchase price of the security. In addition, should the defaulting
securities dealer or bank file for bankruptcy, the Fund could incur certain
costs in establishing that it is entitled to dispose of the collateral and its
realization on the collateral may be delayed or limited.

Borrowing. The Fund may borrow up to 10% of the value of its net assets
from banks for temporary purposes (not for leveraging or investment) but will
not make any new investments so long as such borrowings exceed 5% of the value
of its net assets.

Illiquid Securities. The Fund may invest up to 10% of its net assets in
securities for which no readily available market exists or which are otherwise
illiquid (including repurchase agreements maturing in more than one week). The
Fund may purchase restricted securities eligible for resale to "qualified
institutional buyers" pursuant to Rule 144A under the Securities Act of 1933.
However, if the Trustees determine that they are liquid, based upon a continuing
review of the trading markets for specific Rule 144A securities, then they may
be purchased without regard to the 10% limit. The Trustees will carefully
monitor the Fund's investments in these securities, focusing on factors, among
others, such as valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of illiquidity
in the Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.

RISK CONSIDERATIONS

The ability of the Fund to achieve its investment objectives is
dependent on the continuing ability of the issuers of California Municipal
Securities in which the Fund invests to meet their

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<PAGE> 55

obligations for the payment of principal and interest when due. It should also
be pointed out that, unlike other types of investments, California Municipal
Securities traditionally have not been subject to regulation by, or registration
with, the Securities and Exchange Commission, although there have been proposals
which would provide for regulation in the future.

With respect to California Municipal Securities that are backed by a
letter of credit issued by a foreign bank, the Fund considers the bank to be the
ultimate obligor and credit risk. Investment in foreign banks may involve risks
not present in domestic investments. These include the fact that the foreign
bank may be subject to different, and in some cases less comprehensive,
regulatory, accounting, financial reporting and disclosure standards than are
domestic banks.

There are risks in any investment program, and there is no assurance
that the Fund will achieve its investment objective. California Municipal
Securities are subject to relative degrees of credit risk and market volatility.
Credit risk relates to the issuer's (and any guarantor's) ability to make timely
payments of principal and interest. Market volatility relates to the changes in
market price that occur as a result of variations in the level of prevailing
interest rates and yield relationships between sectors in the tax exempt
securities market and other market factors.

You should be aware that certain California constitutional amendments,
legislative measures, executive orders, administrative regulations, voter
initiatives and judicial decisions could result in certain adverse consequences
affecting California Municipal Securities. For instance, certain provisions of
the California Constitution and statutes that limit the taxing and spending
authority of California governmental entities may impair the ability of the
issuers of some California Municipal Securities to maintain debt service on
their obligations, particularly if adverse economic developments should reduce
public revenues. Other measures affecting the taxing or spending authority of
California or its political subdivisions may be approved or enacted in the
future. Finally, the Fund will be affected by general changes in interest rates
nationally which will result in increases or decreases in the value of the
securities held by the Fund. For a more detailed discussion of the risks to
which California Municipal Securities are subject, see the Statement of
Additional Information.

The Fund is a "non-diversified" fund as defined in the Investment
Company Act of 1940. As a non-diversified fund, the Fund may invest a larger
percentage of its assets in individual issuers than a diversified fund. To the
extent the Fund makes investments in excess of five percent of its assets in a
particular issuer, its exposure to credit and market risks associated with that
issuer is increased and such investments, therefore, may make an investment in
the Fund riskier than an investment in a diversified fund. However, the Fund
will be subject to diversification requirements imposed under the Internal
Revenue Code.

Except for the Fund's investment objective and certain investment
restrictions designated as fundamental in the Statement of Additional
Information, the investment policies described in this Prospectus and in the
Statement of Additional Information are not fundamental policies. The Trustees
may change any non-fundamental investment policies without shareholder approval.

Since the Fund's portfolio concentrates its investments in California
Municipal Securities, the Fund is affected by any political, economic,
regulatory or other developments which constrain the taxing and spending
authority of California issuers or otherwise affect the ability of California

8
<PAGE> 56

issuers to pay interest or repay principal. The following information
constitutes only a brief summary of some of such developments and does not
purport to be a complete description.

Certain of the California Municipal Securities in which the Fund invests
may be obligations of issuers that rely, as a source of revenue, in whole or in
part, directly or indirectly, on ad valorem real property taxes. In 1978, state
voters approved an amendment to the State Constitution known as Proposition 13,
which added Article XIIIA to the State Constitution. The effect of Article XIIIA
is to limit ad valorem taxes on real property and to restrict the ability of
taxing entities to increase real property tax revenues. In addition, Article
XIIIA provides that additional taxes may be levied by cities, counties and
special districts only upon approval of not less than a two-thirds vote of the
"qualified electors" of such city, county or district, and requires not less
than a two-thirds vote of each of the two houses of the State Legislature to
enact any changes in state taxes for the purpose of increasing revenues, whether
by increased rates or changes in methods of computation.

Certain California Municipal Securities may be obligations of issuers
which rely in whole or in part on state revenues for payment of such
obligations. After the adoption of Article XIIIA, legislation was adopted which
provided for the reallocation of property taxes and other revenues to local
public agencies, the increase of state aid to such agencies, and the assumption
by the state of certain obligations previously paid out of local funds. More
recent legislation has, however, reduced state assistance payments to local
governments. There can be no assurance that any particular level of state aid to
local governments will be maintained in future years.

In 1979, an amendment was passed adding Article XIIIB to the State
Constitution. As amended in 1990, Article XIIIB imposes an "appropriations
limit" on the spending authority of the state and local government entities. In
general, the appropriations limit is based on certain 1978-1979 expenditures,
adjusted annually to reflect changes in the cost of living, population and
certain services provided by state and local government entities. If a
governmental entity raises revenues beyond its "appropriations limit" in any
year, a portion of the excess which cannot be appropriated within the following
year's limit must be returned to the entity's taxpayers within the two
subsequent fiscal years, generally by a tax credit, refund, or temporary
suspension of tax rates or fee schedules. One of the exclusions from these
limitations is "debt service" (defined as "appropriations required to pay the
cost of interest and redemption charges, including the funding of any reserve or
sinking fund required in connection therewith, on indebtedness existing or
legally authorized as of January 1, 1979 or on bonded indebtedness thereafter
approved" by the voters). During the 1986-87 fiscal year, when excess revenues
could not be carried over to the following year, the State General Fund
collected approximately $1 billion more than could be spent under the Article
XIIIB limitation. These excess revenues were returned to taxpayers, and no
assurance exists that similar excess tax collections will not recur in the
future.

In 1988 and 1990, Article XIIIB was amended to require the State
Legislature to establish a prudent state reserve, and to require the transfer of
50% of excess revenues to the State School Fund; any amounts allocated to the
State School Fund will increase the appropriations limit. It was further amended
in 1990 to exclude from the appropriations limit appropriations for qualified
capital outlay projects, certain increases in transportation-related taxes, and
certain emergency

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<PAGE> 57

appropriations. In 1988, California voters approved an initiative known as
Proposition 98, which, in addition to amending Article XIIIB, amended Article
XVI to require a minimum level of funding for public schools and community
colleges.

In addition to the adoption of Articles XIIIA and XIIIB, in June 1982
state voters approved initiative measures which: (1) repealed the state gift and
inheritance taxes and enacted a California death tax, and (2) reduced state
personal income tax revenues by increasing the amount by which personal income
tax brackets will be adjusted for inflation. The State Legislature has also
adopted other changes in revenue laws which reduce state tax revenues by
exempting business inventories from state personal property taxation, excluding
acquisitions of real estate to replace property transferred to a public entity
from the definition of "change of ownership" for property tax purposes, and
adopting a variety of tax credits.

In 1986, state voters approved an initiative measure known as
Proposition 62, which among other things requires that any tax for general
governmental purposes imposed by local governments be approved by a two-thirds
vote of the governmental entity's legislative body and by a majority of its
electorate, requires that any special tax (levied for other than general
governmental purposes) imposed by a local government be approved by a two-thirds
vote of its electorate, and restricts the use of revenues from a special tax to
the purposes or for the service for which the special tax was imposed. In 1996,
state voters approved an initiative measure known as Proposition 218, which
imposed similar voter approval requirements for local taxes imposed by charter
cities in California. In September 1995, the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality of
certain local taxes enacted by non-charter cities in California without voter
approval. It is not possible to predict the impact of the decision.

In July 1991, California increased taxes by adding two new marginal tax
rates, at 10% and 11%, effective for tax years 1991 through 1995. After 1995,
the maximum personal income tax rate returned to 9.3%, and the alternative
minimum tax rate dropped from 8.5% to 7%. In addition, legislation in July 1991
raised the sales tax by 1.25%, 0.5% of which was a permanent addition to
counties that was specifically earmarked to trust funds to pay for health and
welfare programs whose administration had been transferred to such counties. An
additional 0.5% of the sales tax rate was scheduled for termination on June 30,
1993, but was extended by legislation through December 31, 1993. The approval of
Proposition 172 on the November 1993 ballot by the voters extended this increase
permanently.

The application and interpretation of a number of the foregoing
provisions of the State Constitution and laws are currently and will probably
continue to be the subject of numerous lawsuits in the California courts. It is
not possible to predict the outcome of litigation or the ultimate scope and
impact of such provisions, their implementing legislation and regulations issued
by the State Board of Equalization. However, the outcome of such litigation,
legislation and regulations could substantially impact local property tax
collections and the ability of state agencies, local governments and districts
to make future payments on outstanding debt obligations.

Certain debt obligations in which the Fund invests may be payable solely
from the revenues of specific institutions, or may be secured by specific
properties, which are subject to provisions

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<PAGE> 58

of California law that could adversely affect the holders of such obligations.
For example, the revenues of California health care institutions may be subject
to state laws, and California laws limit the remedies of a creditor secured by a
mortgage or deed of trust.

The effects of these various constitutional and statutory provisions
upon the ability of the issuers of California Municipal Securities to pay
interest and principal on their obligations remains unclear. In addition, other
measures affecting the taxing or spending authority of the state or its
political subdivisions may be enacted in the future.

California is the most populous state in the nation with a total
population at the 1990 census of 29,976,000 (estimated at over 32.9 million as
of July 1, 1997). The State now comprises 12.3% of the nation's population and
12.5% of its total personal income. Its economy is broad and diversified with
major concentrations in high technology research and manufacturing, aerospace
and defense-related manufacturing, trade, entertainment, real estate, and
financial services. After experiencing strong growth throughout much of the
1980's, from 1990-1993, California suffered through a severe recession, the
worst since the 1930's, heavily influenced by large cutbacks in
defense/aerospace industries and military base closures and a major drop in real
estate construction. California's economy has been recovering and growing
steadily stronger since the start of 1994, to the point where the State's
economic growth is outpacing the rest of the nation. The unemployment rate,
while still higher than the national average, was 5.9% in October 1998, compared
to over 10% at the worst of the recession. Recent economic reports indicate
that, while the rate of economic growth is expected to be moderate over the next
three years, the increases in employment and income may exceed those of the
nation as a whole. The unsettled financial situation occurring in certain Asian
economies and its spillover effects elsewhere may adversely affect the State's
export-related industries and, therefore, the State's rate of economic growth.

Notwithstanding California's recent positive operating results, there
are long-term State budget uncertainties resulting from strict property tax
limits and the share of the budget which must be devoted to education as well as
the issues which necessarily accompany an economy in transition from
defense-related aerospace to the diverse clusters of high technology,
manufacturing and service industries, best described as the information economy.

The Governor signed the 1998-99 Budget Act on August 21, 1998. The
1998-99 Budget Act is based on projected General Fund revenues and transfers of
$57.0 billion (after giving effect to various tax reductions enacted in 1997 and
1998), a 4.2% increase from the revised 1997-98 figures. Special Fund revenues
were estimated at $14.3 billion. The revenue projections were based on the
Governor's May Revision to the 1998-99 Budget and may be overstated in light of
the possible effect on California's economic growth of worsening economic
problems in various international markets.

The Budget Act provides authority for expenditures of $57.3 billion from
the General Fund (a 7.3% increase from 1997-98), $14.7 billion from Special
Funds, and $3.4 billion from bond funds. The Budget Act projects a balance in
the SFEU at June 30, 1999 of $1.255 billion, a little more than 2% of General
Fund revenues. The Budget Act assumes the State will carry out its normal
intra-year cash flow borrowing in the amount of $1.7 billion of revenue
anticipation notes issued in October, 1998.

The most significant feature of the 1998-99 budget was agreement on a
total of $1.4 billion of tax cuts. The central element is a bill which provides
for a phased-in reduction of the Vehicle License Fee (VLF). Since the VLF is
currently transferred to cities and counties, the bill provides for the General
Fund to replace the lost revenues. Starting on January 1, 1999, the VLF will be
reduced by 25%, at a cost to the General Fund of approximately $500 million in
the 1998-99 Fiscal Year and about $1 billion annually thereafter.

In addition to the cut in the VLF, the 1998-99 budget includes both
temporary and permanent increases in the personal income tax dependent credit
($612 million General Fund cost in 1998-99, but less in future years), a
nonrefundable renters tax credit ($133 million), and various targeted business
tax credits ($106 million). About half of the business tax credits will only
become effective if Proposition 7, an initiative measure which includes various
tax credits, is rejected by the voters on the November 3, 1998 ballot.

The 1998-99 Budget Act includes increased funding for schools, higher
education, health, welfare and social service programs, and trial courts and
prisons. The Budget also includes new funding for natural resources projects,
dedication of $376 million of General Fund moneys for capital outlay projects,
funding of a 3% State employee salary increase, funding of 2,000 new Department
of Transportation positions to accelerate transportation construction projects,
and funding of the California Infrastructure and Economic Development Bank ($50
million).

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Because of the State of California's continuing budget problems, the
rating of the State's general obligation bonds was downgraded in July 1994 from
Aa to A1 by Moody's Investors Service, Inc.("Moody's"), from A+ to A by Standard
& Poor's Corporation, and from AA to A by Fitch IBCA, Inc.("Fitch"), All three
rating agencies expressed uncertainty in the State's ability to balance the
budget by 1996. However, in 1996, citing California's improving economy and
budget situation, both Fitch and Standard & Poor's raised their ratings from A
to A+. In October, 1997, Fitch raised its rating from A+ to AA- referring to the
State's fundamental strengths, the extent of its economic recovery and the
return of financial stability. In October 1998, Moody's raised its rating from
A1 to Aa3 citing the State's continuing economic recovery and a number of
actions taken to improve the State's credit condition, including the rebuilding
of cash and budget reserves.

On December 6, 1994, Orange County (California) became the largest
municipality in the United States to file for protection under the federal
bankruptcy laws. On June 12, 1996, it emerged from bankruptcy after the
successful sale of $880 million in municipal bonds allowed the county to pay off
the last of its creditors. On January 7, 1997, Orange County returned to the
municipal bond market with a $136 million bond issue maturing in 13 years at an
insured yield of 7.23%. In December, 1997, Moody's raised its ratings on $325
million of Orange County pension obligation bonds to Baa3 from Ba. In December
1997, Moody's raised its ratings on $325 million of Orange County pension
obligation bonds to Baa3 from Ba. In February 1998, Fitch assigned outstanding
Orange County pension obligation bonds a BBB rating.

Los Angeles County, the nation's largest county, has also experienced
financial difficulty. It has not yet recovered from the ongoing loss of revenue
caused by state property tax shift initiatives in 1993 through 1995. In April
1998, the Los Angeles County Chief Administrative Officer proposed an
approximately $13.2 billion 1998-99 budget, which would be 5.3% larger than the
1997-98 budget, and which would not require cuts in services and jobs to close a
projected deficit. In June 1998, the Los Angeles County Board of Supervisors
approved an approximately $13.6 billion 1998-99 budget, reserving the right to
make further changes to reflect revenue allocation decisions in the final State
budget. In December 1998, Moody's raised the ratings on the County's general
obligation bonds to A1 from A2.

Year 2000

In October 1997 the Governor issued Executive Order W-163-97 stating
that Year 2000 solutions would be a State priority and requiring each agency of
the State, no later than December 31, 1998, to address Year 2000 problems in
their essential systems and protect those systems from corruption by
non-compliant systems, in accordance with the Department of Information
Technology's California 2000 Program. There can be no assurance that steps being
taken by state or local government agencies with respect to the Year 2000
problem will be sufficient to avoid any adverse impact upon the budgets or
operations of those agencies or upon the Fund.

Special Types of California Municipal Securities

In addition to the general types of California Municipal Securities
discussed above, the Fund may invest in the following special types of
California Municipal Securities.

When-Issued Securities. California Municipal Securities are frequently
offered on a "when-issued" basis. When so offered, the price, which is generally
expressed in yield terms, is

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<PAGE> 60

fixed at the time the commitment to purchase is made, but delivery and payment
for the when-issued securities take place at a later date. Normally, the
settlement date occurs within one month of the purchase of municipal notes;
during the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund. To the extent that
assets of the Fund are not invested prior to the settlement of a purchase of
securities, the Fund will earn no income. It is the Fund's intention, however,
to be fully invested to the extent practicable, subject to the policies stated
above. While when-issued securities may be sold prior to the settlement date,
the Fund intends to purchase such securities with the purpose of actually
acquiring them unless a sale appears desirable for investment reasons. At the
time the Fund makes the commitment to purchase a California Municipal Security
on a when-issued basis, it will record the transaction and reflect the value of
the security in determining its net asset value.

In accordance with Securities and Exchange Commission policy, whenever
the Fund agrees to purchase securities on a when-issued basis, its custodian
will set aside cash or portfolio securities equal to the amount of the
commitment in a separate account. If necessary, additional assets will be placed
in the account daily so that the value of the account will equal the amount of
the Fund's purchase commitment. When the time comes to pay for when-issued
securities, the Fund will meet its obligations from the then-available cash
flow, sale of securities held in the separate account, cash held in the separate
account or otherwise, sale of other securities or, although it would not
normally expect to do so, from the sale of the when-issued securities themselves
(which may have a value greater or less than the Fund's payment obligations). To
the extent that the Fund sets aside portfolio securities to satisfy its purchase
commitment for when-issued securities, there will be a greater possibility of
fluctuation in market value of the Fund's shares (see "Pricing of Our Shares" in
the Prospectus) than if the Fund were to set aside cash. The Fund does not
intend to purchase when-issued securities for speculative purposes, but only in
furtherance of its investment objectives.

Variable and Floating Rate Instruments. The Fund may invest in certain
variable rate instruments (where the coupon interest rate adjusts on set dates)
or floating rate instruments (where the coupon interest rate adjusts whenever a
specific interest rate changes). The Fund may invest, subject to various
conditions, in any variable or floating rate instrument that is scheduled to
mature in more than 397 days if the Fund has certain demand rights to sell the
instrument. For the purposes of qualifying the Fund as a money market fund,
which includes complying with Rule 2a-7 under the Investment Company Act of
1940, each such long-term variable rate instrument shall be deemed to have a
maturity equal to the longer of the period remaining until the next readjustment
of the interest rate or until the principal amount can be recovered through
demand, and each such long-term floating rate instrument shall be deemed to have
a maturity equal to the period remaining until the principal amount can be
recovered through demand. The Fund also may invest, subject to various
conditions, in variable or floating rate securities where the principal amount
of each such security is unconditionally to be paid in full in 397 days or less.
For the purposes of qualifying as a money market fund, the maturity of each such
short-term variable rate instrument shall be deemed to be the earlier of the
period remaining until the next adjustment of the interest rate or until the
principal amount can be recovered through demand, and the maturity of each such
short-term floating rate security shall be deemed to be one day. Any variable or
floating rate instrument in which the Fund may invest must be reasonably
expected to have a market value that approximates its amortized cost and all are
subject to other conditions specified in Rule 2a-7.

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<PAGE> 61

Temporary Taxable and Tax-Exempt Investments

Although the Fund will be invested primarily in California Municipal
Securities, the Fund is authorized to place up to 20% of its net assets in
taxable investments, cash reserves or short-term municipal securities issued
outside of California during normal market conditions for liquidity reasons.
During periods of uncertain market conditions, the Fund may place more than 20%
of its total assets for temporary defensive purposes in taxable investments,
cash reserves or short-term municipal securities issued outside of California.
The taxable investments in which the Fund may invest are:

(a) obligations of the U.S. Government and its agencies and
instrumentalities (not all of such obligations are backed by the full
faith and credit of the United States; for example, bonds issued by
Federal National Mortgage Association, a private corporation, are backed
only by the credit of the issuing instrumentality);

(b) certificates of deposit, bankers' acceptances and short-term
obligations of domestic branches of U.S. banks with total assets of $1
billion or more;

(c) commercial paper rated at least A-1 by Standard & Poor's,
Prime-1 by Moody's (or equivalently rated by another NRSRO), or, if not
rated, of equivalent investment quality as determined by the Adviser;

(d) short-term debt securities of issuers having, at the time of
purchase, a quality rating within one of the two highest rating
categories by Moody's (Aaa or Aa) or Standard & Poor's (AAA or AA) (or
equivalently rated by another NRSRO);

(e) repurchase agreements with respect to an underlying security
which would otherwise qualify for investment by the Fund.

Temporary taxable investments of up to 20% of total assets may also be
made in anticipation of redemptions, pending investment of proceeds from
subscription for Fund shares or from the sale of portfolio securities, or
because of market conditions or the scarcity of suitable California Municipal
Securities. Interest income from taxable investments will be taxable to
shareholders as ordinary income under federal tax laws and California personal
income tax. Consequently, the Fund intends to invest its assets in California
Municipal Securities to the maximum extent possible and prudent.

The short-term tax exempt municipal securities of non-California issuers
in which the Fund may invest include tax anticipation notes, revenue
anticipation notes, general obligation bonds, industrial revenue bonds,
construction loan notes and tax anticipation commercial paper. Such securities
will be limited to those obligations which, at the time of purchase, are (a)
rated in the top two categories of Moody's (Aaa or Aa) or Standard & Poor's (AAA
or AA) or, in the case of municipal notes, rated MIG-1 by Moody's, or A-1 by
S&P; or (b) unrated municipal obligations which, in the opinion of the Adviser,
have credit characteristics equivalent to such ratings. The income from such
securities is exempt from federal income taxes but may not be exempt from
California personal income taxes.

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<PAGE> 62
Computer-Related Risks

Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may be
adversely affected by computer systems (whether their own systems or systems of
their service providers) that do not properly process dates beginning with
January 1, 2000 and information related to those dates. The Advisor currently is
in the process of reviewing its internal computer systems as they relate to the
Fund, as well as the computer systems of those service providers upon which the
Fund relies, in order to obtain reasonable assurances that the Fund will not
experience a material adverse impact related to that problem. The Fund does not
currently anticipate that that problem will have a material adverse impact on
its portfolio investments, taken as a whole. There can be no assurances in that
area, however, including the possibility that that problem could negatively
affect the investment markets or the economy generally.

Generally

There can be no assurance that the Fund will achieve its investment
objectives or be able to maintain its net asset value per share at $1.00. The
price stability and liquidity of the Fund may not be equal to that of a money
market fund which exclusively invests in short-term taxable money market
securities. The taxable money market is a broader and more liquid market with a
greater number of investors, issuers, and market makers than the short-term
California Municipal Securities market.

Yields on California Municipal Securities are dependent on a variety of
factors, including the general conditions of the money market and of the
municipal bond and municipal note market, the size of a particular offering, the
maturity of the obligations and the rating of the issue.

Tax exempt securities purchased on a when-issued basis are subject to
changes in value as a result of changes in interest rates in the same way that
securities held in the Fund's portfolio are. Purchasing tax exempt securities on
a when-issued basis can thus involve a risk that yields available in the market
when delivery takes place may actually be higher than those obtained in the
when-issued transaction.

INVESTMENT RESTRICTIONS

The following investment restrictions may not be changed without a
shareholder vote. A change requires the affirmative vote of a majority of the
Fund's outstanding shares, which as used in this Statement means the lesser of
(1) 67% of the Fund's outstanding shares present at a meeting at which the
holders of more than 50% of the outstanding shares are present in person or by
proxy, or (2) more than 50% of the Fund's outstanding shares. With respect to
investment restrictions Number 1 through 9 below, the Fund may not:

1. Purchase securities on margin; sell short; purchase warrants; or
write, purchase, or sell straddles, spreads, or combinations thereof.

2. Borrow money, except from banks for temporary purposes (not for
leveraging or investment) and then in an aggregate amount not in excess of 10%
of the value of the Fund's assets at the time of such borrowing, provided, that
so long as such borrowings exceed 5% of the value of the net assets, the Fund
will not make any investments; or mortgage, pledge or hypothecate any assets
except in connection with any such borrowing and in an aggregate amount not in
excess of the dollar amount borrowed.

3. Act as an underwriter of securities of other issuers, except to the
extent that the purchase of securities in accordance with the Fund's investment
objective, policies and limitations may be deemed to be an underwriting.

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<PAGE> 63

determined under Board-approved guidelines are liquid), if as a result of any
such purchase, more than 10% of the Fund's net assets would be invested in such
securities.

5. Purchase any securities if, immediately after such purchase, more
than 25% of the value of the Fund's total assets would be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that there is no limitation with respect to
investments issued or guaranteed by the California state government or a
political subdivision thereof and obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.

6. Purchase or sell real estate, except this shall not prevent the Fund
from investing in securities secured by real estate or interests therein.

7. Purchase or sell commodities or commodity futures contracts, or oil,
gas or mineral exploration or development programs.

8. Make loans, except that the Fund may hold debt instruments and enter
into repurchase agreements in accordance with its investment objectives and
policies.

9. Issue any class of securities senior to any other class of
securities, except that the Fund may purchase when-issued securities as
described in the Prospectus and herein.

10. The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies and limitations as the Fund.

The following investment restrictions may be changed by the Board of
Trustees without the approval of shareholders. Appropriate notice will be given
of any changes in these restrictions made by the Board of Trustees. With respect
to investment restrictions Number 11 through 14 below, the Fund may not:

11. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, and
except for purchases of securities of money market mutual funds.

12. Purchase securities of any issuer for the purpose of exercising
control or management, except in connection with a merger, consolidation,
acquisition or reorganization.

13. Invest more than 5% of the Fund's total assets in securities of any
issuer which, together with its predecessors, has been in continuous operation
less than three years, except obligations issued or guaranteed by the U.S.
Government or its agencies, or California Municipal Securities (other than
industrial development bonds) (for this purpose the period of operation of the
issuer shall include the period of operation of any predecessor or unconditional
guarantor of such issuer).

16
<PAGE> 64

14. Purchase or retain the securities of an issuer if those officers or
trustees of the Trust or officers or directors of the Adviser who are also
officers or directors of the issuer and who each own beneficially more than 1/2
of 1% of the securities of that issuer together own more than 5% of the
securities of such issuer.

15. The Fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies and
limitations as the Fund.

For the purposes of the limitations set forth in paragraphs 5, 13 and
14, the Fund will regard the entity which has the ultimate responsibility for
the payment of principal and interest as the issuer.

If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of net assets will not be considered a violation
of any of the foregoing restrictions.

PORTFOLIO TRANSACTIONS

The Advisory Agreement authorizes the Adviser (subject to the control of
the Board of Trustees) to select brokers and dealers to execute purchases and
sales of portfolio securities. The Advisory Agreement directs the Adviser to use
its best efforts to obtain the best overall terms for the Fund, taking into
account such factors as price (including dealer spread), the size, type and
difficulty of the transaction involved, and the financial condition and
execution capability of the broker or dealer.

Purchases and sales of the Fund's portfolio securities are generally
placed by the Adviser with the issuer, the issuer's underwriter or with a
primary market maker. Usually no brokerage commission is paid, although the
price usually includes an undisclosed compensation. (Transactions with primary
market makers reflect the spread between bid and asked prices; purchases of
underwritten issues include an underwriting fee paid by the issuer to the
underwriter.) During the last three fiscal years ended December 31, 1996, 1997
and 1998 the Fund paid no brokerage commissions.

To the extent that the execution and price offered by more than one
dealer are comparable, the Adviser may, in its discretion, effect transactions
in portfolio securities with dealers who provide the Fund with research services
such as credit analysis. Any such research services would be available for use
on all investment advisory accounts of the Adviser.

Other investment advisory clients advised by the Adviser may also invest
in the same securities as the Fund. When these clients buy or sell the same
securities at substantially the same time, the Adviser may average the
transactions as to price and allocate the amount of available investments in a
manner which the Adviser believes to be equitable to each client, including the
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtainable for
it. On the other hand, to the extent permitted by law, the Adviser may aggregate
the securities to be sold or purchased for the Fund

17
<PAGE> 65
with those to be sold or purchased for other clients managed by it in order to
obtain best execution.

In no instance will portfolio securities be purchased from or sold to
Sutro, Tucker Anthony Incorporated or any affiliated person (as defined in the
1940 Act) thereof.

CURRENT YIELD

The Securities and Exchange Commission requires by rule that a yield
quotation set forth in an advertisement or prospectus for a "money market" fund
be computed by a standardized method based on a historical seven calendar day
period referred to as the "base period." The yield quoted may be a simple
annualized yield or a compounded effective yield which gives effect to the
reinvestment of the proceeds of the investment portfolio. The yield for the Fund
may also be quoted on a tax equivalent basis. If the compounded effective yield
is used in an advertisement, the simple annualized yield must also be included.
Both yields are computed on the basis of the base period return on a
hypothetical pre-existing account in the Fund having a balance of one share at
the beginning of the seven-day base period. The base period return equals the
net change in value of the account over the seven-day period, including
dividends declared both on the original share and on any additional shares
purchased with previous dividends (such dividends are declared daily and paid
from the net investment income of the Fund) and minus all fees, other than
nonrecurring account or sales charges charged to all shareholder accounts, in
proportion to the length of the base period and the Fund's average account size.
The fees deducted will take into account the expense limitation agreement as
described in "Our Management" in the Prospectus. The net change in value does
not include realized gains and losses from the sale of securities or unrealized
appreciation or depreciation of the securities. The base period return is then
multiplied by 365/7 to arrive at the annualized simple yield. The compounded
effective yield is calculated by dividing the base period return (calculated as
above) by 7, adding 1, raising that sum to the 365th power and subtracting 1
from the result. Both calculations of yields are then expressed to at least two
decimal points. The tax equivalent annualized simple yield is determined by
dividing that portion of the annualized simple yield that is tax-exempt by 1
minus a stated income tax rate, and adding the quotient to that portion, if any,
of the Fund's yield that is not tax-exempt. The tax equivalent compounded
effective yield is calculated by dividing that portion of the compounded
effective yield by 1 minus a stated income tax rate and adding the quotient to
that portion, if any, of the Fund's compounded effective yield that is not
tax-exempt.

For the seven day period ended December 31, 1998, the simple annualized
yield of the Fund was [__]%, the compound effective yield was [__]%, the tax
equivalent annualized simple yield was [__]% and the tax equivalent compounded
effective yield was [__]% (in each case assuming an income tax rate of [__]%),
and the Fund had an average weighted maturity of investments of [__] days.

ADDITIONAL INFORMATION ON REDEMPTION

The Fund may suspend redemption privileges or postpone the date of
payment on shares for more than seven days during any period (1) when the New
York Stock Exchange is closed (other than for weekends or holidays) or trading
on the Exchange is restricted as determined by the Securities and Exchange
Commission ("SEC"), (2) when an emergency exists, as defined by the

18
<PAGE> 66

SEC, which makes it not reasonably practicable for the Fund to dispose of
securities owned by it or fairly to determine the value of its assets, or (3) as
the SEC may otherwise permit.

It is possible that under unusual circumstances the redemption price may
be more or less than the shareholder's cost, depending on the market value of
the Fund's portfolio at the time.

NET ASSET VALUE

As disclosed in the Prospectus, the net asset value per share of the
Fund is determined at 12:00 noon New York time Monday through Friday, as
described below. The Fund will be closed on the following national business
holidays: New Year's Day, Martin Luther King Day, Washington's Birthday, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

The net asset value per share of the Fund is determined daily under the
general supervision of the Trust's Board of Trustees by the Fund's custodian at
12:00 noon New York time on each day on which the New York Stock Exchange is
open for regular trading or on which there is a sufficient degree of trading in
the Fund's portfolio securities that the current net asset value of the Fund's
redeemable securities might be materially affected by changes in the value of
the portfolio securities. Purchase or redemption orders accepted by Freedom
Services Corp. prior to 12:00 noon New York time will be priced at 12:00 noon
New York time that day. Purchase or redemption orders accepted by Freedom
Services Corp. subsequent to 12:00 noon New York time will be priced at 12:00
noon New York time the next day that net asset value is computed. Net asset
value per share is computed by taking the value of all assets of the Fund, less
liabilities, and dividing by the number of shares outstanding. To determine the
value of the assets of the Fund for the purpose of obtaining the net asset
value, portfolio securities are valued at amortized cost, as described below,
and interest is accrued daily.

Since the Fund has adopted a policy of normally holding portfolio
securities to maturity, all portfolio securities of the Fund will normally be
valued at amortized cost. Thus, it is not expected that realized or unrealized
gains or losses on portfolio securities will be a substantial factor in the
computation of the net asset value or gross income of the Fund. If in some
extraordinary circumstance the Fund experiences gains or losses (realized or
unrealized), whether recognized or unrecognized, this could result in a change
in net asset value, a change in dividends, or both.

The Trust intends to comply with the provisions of Rule 2a-7 under the
1940 Act, which permits the Fund to compute the net asset value using the
amortized cost method of valuing portfolio securities. To comply with that rule,
the Board of Trustees has agreed to establish procedures to stabilize the net
asset value for the Fund at $1.00 per share. These procedures include a review
by the Board of Trustees of the extent of any deviation of net asset value per
share, based on available market quotations or estimates of market value
determined by the Board of Trustees in good faith, from the Fund's $1.00
amortized cost value per share. If that deviation exceeds 1/2 of 1%, the Board
of Trustees will consider any action that should be initiated to reasonably
eliminate or reduce material dilution or other unfair results to shareholders.
Such action may include selling portfolio securities prior to maturity,
withholding dividends, or utilizing a net asset value per share as determined by
using available market quotations. In addition, the Fund must (a) maintain a
dollar weighted average portfolio maturity of 90 days or

19
<PAGE> 67

less, (b) not purchase any instrument with a remaining maturity greater than 397
days, (c) limit portfolio investments, including repurchase agreements, to
securities that, at the time of acquisition, (i) are rated in one of the two
highest categories by at least two NRSROs (or by one organization if only one
organization has rated the security), (ii) if not rated, are obligations of an
issuer whose other outstanding short-term debt obligations are so rated, or
(iii) if not rated, are of comparable quality as determined by the Board of
Trustees in accordance with procedures established by the Board of Trustees, and
(d) comply with certain reporting and recordkeeping procedures. The Trust's
officers will periodically review the method of valuation and recommend changes
to the Board of Trustees which may be necessary to assure that the portfolio
securities of the Fund are valued at their fair value as determined by the
Trustees in good faith. The Fund will limit its investments to securities that
present minimal credit risks, as determined by the Board of Trustees in
accordance with the procedures established by the Board of Trustees.

Amortized cost valuation involves valuing a security at its acquisition
cost and adding or subtracting, ratably to maturity, adjustments for
amortization of premium or accretion of discount, regardless of the impact of
current market factors on the market value of the security. Under the amortized
cost method of valuation, neither the amount of daily income nor net asset value
is affected by any unrealized appreciation or depreciation of the portfolio. As
a result, in periods of declining interest rates, the indicated daily yield on a
portfolio valued by amortized cost will be higher than on a portfolio valued by
market prices.

Since there is no sales load involved in an investment in the Fund, 100%
of the shareholder's purchase price is invested in shares of the Fund.

ADDITIONAL INFORMATION ON TAXES

The following discussion offers only a brief outline of certain federal
and California tax consequences of investing in the Fund. Investors should
consult their own tax advisors for more detailed information and for the
information regarding the impact of other state and local taxes upon such an
investment.

Federal Income Taxation of the Fund

The Fund intends to qualify and elect to be treated as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If so qualified, the Fund will not be liable for federal
income taxes on its net investment income (i.e., the Fund's investment company
taxable income, as that term is defined in the Code, without regard to the
deduction for dividends paid) and net capital gain (i.e., the Fund's net
long-term capital gains in excess of the sum of net short-term capital losses
and capital loss carryovers from prior years, if any) that it distributes to
shareholders, provided that the Fund distributes at least 90% of its net
investment income and tax-exempt interest income for the taxable year. However,
the Fund will be subject under current tax rates to a federal income tax at a
maximum effective rate of 35% on any undistributed net investment income and net
capital gain. To qualify for tax treatment as a "regulated investment company"
under the Code, the Fund must, among other things, (i) derive in each taxable
year at least 90% of its gross income from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
stock, securities or foreign currencies, or other income derived with respect to
its business of investing

20
<PAGE> 68

in such stock, securities or currencies and (ii) diversify its holdings so that,
at the end of each quarter of its taxable year, (A) at least 50% of the market
value of the Fund's assets is represented by cash, U.S. Government securities,
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer and (B) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities or securities of other
regulated investment companies). Furthermore, in order to be entitled to pay
tax-exempt interest income dividends to its shareholders, the Fund must satisfy
the requirement that, at the close of each quarter of its taxable year, at least
50% of the value of its total assets consists of obligations the interest of
which is exempt from federal income tax. The Fund intends to satisfy this
requirement.

The Code imposes a nondeductible 4% excise tax on a regulated investment
company that fails to distribute, or be deemed to have distributed, during each
calendar year an amount at least equal to the sum of (1) 98% of its taxable
ordinary income for the calendar year (not taking into account any capital gains
or losses), (2) 98% of its capital gains in excess of capital losses (adjusted
for certain ordinary losses) for the twelve month period ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. For this purpose, any income
or gain retained by the Fund that is subject to corporate tax will be considered
to have been distributed by year-end. The Fund intends to make sufficient
distributions to avoid this 4% excise tax.

Federal Income Taxation of Shareholders

Information concerning the tax status of dividends and distributions is
mailed to shareholders annually. The Fund anticipates that substantially all of
the dividends to be paid by the Fund will be exempt from federal income taxes
and California personal income taxes. If any portion of the Fund's dividends is
not exempt from federal or California personal income taxes, the Fund will
advise shareholders in the annual tax information notice of the percentage of
both tax exempt and taxable income. In accordance with the Code, expenses of the
Fund will be allocated pro rata between taxable and nontaxable income.

Net investment income received by the Fund from investments in debt
securities other than tax exempt securities, and any excess of net short-term
capital gain over net long-term capital loss recognized by the Fund, will be
taxable to shareholders upon distribution as ordinary income, regardless of
whether they are paid in cash or in additional shares. The excess of net
long-term capital gain over net short-term capital loss, to the extent properly
designated by the Fund, will be taxable to shareholders upon distribution as
long-term capital gain, regardless of the length of time the shares have been
held or whether they are paid in cash or in additional shares. However, it is
expected that any such amounts will be insubstantial in relation to the tax
exempt interest generated by the Fund.

Taxable distributions generally are included in a shareholder's gross
income for the taxable year in which they are received. However, dividends
declared in October, November and December and made payable to shareholders of
record in such a month are taxable as of December 31, provided that the Fund
pays the dividend during the following January. It is

21
<PAGE> 69

expected that none of the Fund's distributions will qualify for the 70%
corporate dividends-received deduction.

The Fund designates and pays exempt-interest dividends from interest
earned on all tax exempt obligations. Such exempt-interest dividends may be
excluded by shareholders of the Fund from their gross income for federal income
tax purposes.

To the extent that the net asset value at the time of purchase of shares
in the Fund reflects capital gains, a subsequent distribution to the shareholder
of such amounts, although constituting a return of his or her investment, would
be taxable as described above. Any loss on the sale or exchange of shares of the
Fund held for six months or less will be disallowed to the extent that
tax-exempt interest dividends were paid on such shares.

To the extent that the Fund's dividends distributed to shareholders are
derived from interest income exempt from federal income tax and are properly
designated as "exempt-interest dividends" by the Fund, they will be excludable
from a shareholder's gross income for federal income tax purposes. Shareholders
who are recipients of Social Security benefits should be aware that exempt
interest dividends received from the Fund must be taken into account for
purposes of determining whether their incomes are large enough to result in
taxation of up to 85% of the amount of such Social Security benefits.

All distributions of investment income during the year will have the
same percentage designated as tax exempt. Since the Fund invests primarily in
tax exempt securities, the percentage will be substantially the same as the
amount actually earned during any particular distribution period.

Interest on certain private activity bonds issued after August 7, 1986
not otherwise subject to federal income tax may be subject to the federal
alternative minimum tax ("AMT") although the interest continues to be excludable
from gross income for other purposes. The AMT requires certain taxpayers to use
alternative rate schedules and calculations to ensure that they pay at least a
minimum amount of income tax, even if they make substantial use of certain tax
deductions and exclusions (including the "items of tax preference"). Interest
from certain private activity bonds is one of the items of tax preference that
is added into income from other sources for the purposes of determining whether
a taxpayer is subject to the AMT and the amount of any tax to be paid. Under
regulations to be prescribed, exempt-interest dividends paid by the Fund will be
treated as interest on such private activity bonds to the extent of the
proportionate share of the interest on such bonds received by the Fund. In
addition, corporate investors should note that exempt-interest dividends will be
a component of the "current earnings" adjustment for the corporate AMT.
Prospective investors should consult their own tax advisors with respect to the
possible application of the AMT to their tax situation.

Opinions relating to the validity of tax exempt securities and the
exemption of interest thereon from federal and California income taxes are
rendered by recognized bond counsel to the issuers. Neither the Adviser's nor
the Fund's counsel makes any review of proceedings relating to the issuance of
tax-exempt securities or the bases of such opinions.

22
<PAGE> 70

From time to time, proposals have been introduced before Congress for
the purpose of restricting, limiting, or eliminating the federal income tax
exemptions for interest on municipal securities. It can be expected that similar
proposals may be introduced in the future. If any such proposal were enacted,
the availability of California Municipal Securities for investment by the Fund
and the value of the Fund's portfolio would be affected. In such an event, the
Fund would reevaluate its investment objective and policies.

California Taxation

The State of California has adopted legislation incorporating the
federal provisions relating to regulated investment companies effective as of
January 1, 1998. Thus, to the extent the Fund distributes its income annually,
the Fund will be exempt from the California franchise and corporate income tax
as a regulated investment company under Section 24871 of the California Revenue
and Taxation Code.

As a regulated investment company, the Fund may distribute dividends
("California exempt-interest dividends") that are exempt from the California
personal income tax to its individual shareholders, provided 50% or more of the
value of the total assets of the Fund at the close of each quarter of its
taxable year consists of obligations the interest on which (when held by an
individual) is exempt from personal income taxation under California law. The
Fund intends to satisfy this requirement so that it can distribute California
exempt-interest dividends. If the Fund fails to so qualify, no part of its
dividends will be exempt from the California personal income tax.

The portion of dividends constituting California exempt-interest
dividends is that portion derived from interest on obligations of California and
its municipalities and localities which pay interest excludable from income
under California law. Distributions from the Fund that are attributable to
sources other than those described in the preceding sentence generally will be
taxable to such shareholders as ordinary income. In addition, distributions
other than exempt-interest dividends to such shareholders are includable in
income that may be subject to the California alternative minimum tax. Any
dividends paid to corporate shareholders subject to the California franchise or
corporate income tax will be taxed as ordinary dividends to such shareholders.
The total amount of California exempt-interest dividends paid by the Fund to all
of its individual shareholders with respect to any taxable year cannot exceed
the amount of interest received by the Fund during such year on California
Municipal Obligations less any expenses and expenditures (including any
dividends paid to corporate shareholders) deemed to have been paid from such
interest.

Because, unlike federal law, California law does not impose personal
income tax on an individual's Social Security benefits, the receipt of
California exempt-interest dividends will have no effect on an individual's
California personal income tax.

Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Fund will not generally be deductible for California income tax
purposes. If the shareholders of the Fund receive any California exempt-interest
dividends and sell their shares within six months of their acquisition, then any
loss, to the extent of the amount of exempt-interest dividends received

23
<PAGE> 71
on the sale, will be disallowed. Any loss realized upon the redemption of shares
within thirty days before or after the acquisition of other shares of the same
series may be disallowed under the "wash sale" rules.

With respect to individual shareholders, California does not treat
tax-exempt interest as a tax preference item for purposes of its alternative
minimum tax. Distributions other than exempt-interest dividends are includable
in income subject to the California alternative minimum tax.

The foregoing is only a summary of some of the important California
personal income tax considerations generally affecting the Fund and its
shareholders. No attempt is made to present a detailed explanation of the
California personal income tax treatment of the Fund or its shareholders, and
this discussion is not intended as a substitute for careful planning.
Accordingly, potential investors in the Fund should consult their tax advisers
with respect to the application of California taxes to the receipt of the Fund's
dividends and to their own California tax situation.

MANAGEMENT OF THE FUND

The Trustees and executive officers of the Trust and their principal
occupations during the past five years are set forth below. Unless otherwise
indicated, the business address of each is One Beacon Street, Boston,
Massachusetts 02108.

*Dexter A. Dodge-Trustee, Chairman of the Board and Chief Executive
Officer and Managing Director of the Adviser since July 1992. He is 64. Vice
President of Freedom Distributors Corporation since 1989 and Director since
1994.

Richard A. Farrell-Trustee-160 Federal Street, Boston, Massachusetts
02110. He is 65. President since 1980 of Farrell, Healer & Co., a venture
capital management firm that manages The Venture Capital Fund of New England.

Ernest T. Kendall-Trustee-230 Beacon Street, Boston, Massachusetts
02116. He is 66. President, Commonwealth Research Group, Inc., Boston, MA, a
consulting firm specializing in microeconomics, regulatory economics and labor
economics, since 1978.

Richard B. Osterberg-Trustee-84 State Street, Boston, Massachusetts
02109. He is 54. Member of the law firm of Weston, Patrick, Willard & Redding,
Boston, MA since 1978.

*William C. Dennis, Jr.-Trustee-1 World Financial Center, New York,
New York 10281. He is 55. Chief Financial Officer of Freedom Securities
Corporation since 1997. Director of the Adviser since 1998.

- --------
* Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.

24
<PAGE> 72

William H. Darling -Trustee - 294 Washington Street, Suite 310, Boston,
Massachusetts 02108. He is 49. President, W.H. Darling & Co., Inc., managing
corporate general partner to a coal land lessor, since 1994. Partner of Sagamore
Partners, which provides trustee services to family and related trusts, since
1993. Certified Public Accountant, William A. Darling, CPA since 1982.

John R. Haack - Trustee - 311 Commonwealth Avenue #81, Boston,
Massachusetts 02115. He is 56. Vice President of Operations, Reliable
Transaction Processing, 1995 to present. Major General, Assistant to the
Commander in Chief, U.S. Space Command, 1993 to 1995. General Manager, Unilect
Industries, which is an electrical component manufacturer, 1993 to 1994.
Brigadier General, Commander of 102nd Fighter Interceptor Wing, U.S. Air Force
and Air National Guard, 1986 to 1993.

Laurence R. Veator, Jr. - Trustee - 8 Cove Way, Rust Island,
Gloucester, Massachusetts 01930. He is 65. Currently retired. Formerly,
President, Pacific/Interamerican Divisions of Grace Specialty Chemicals Co. from
1975 to 1987.

John J. Danello-President and Secretary-Executive Vice President of the
Adviser since 1997, Managing Director, Clerk and General Counsel since November
1986. He is 43. Senior Vice President since April 1998 and Director since
February 1989 and Clerk since February 1987 of Freedom Distributors Corporation.
Prior to November 1986, Mr. Danello was associated with the law firm of Goodwin,
Procter & Hoar.

Darlene F. Rego-Treasurer-Vice President of the Adviser since February
1995 and Assistant Vice President since December 1992. She is 35. Assistant
Treasurer of the Trusts from July 1987 until December 1992.

Mary Jeanne Currie-Vice President-Vice President of the Adviser since
February 1983. She is 50.

Paul F. Marandett-Vice President-Vice President of the Adviser since
1990. He is 56. From 1980 to 1990, Mr. Marandett was vice president with the
Bank of Boston.

Maureen M. Renzi-Assistant Secretary-Vice President of the Adviser since
February 1996 and Assistant Clerk and Compliance Officer since July 1992. She is
34. Paralegal at New England Securities from March 1989 to July 1992.

Messrs. Dodge, Danello, Dennis, and Marandett and Mesdames Currie, Rego
and Renzi are all officers of the Adviser as well as of the Trust.

During the last fiscal year of the Trust, the Trustees were compensated
as follows:

<TABLE>
<CAPTION>
AGGREGATE TOTAL
COMPENSATION COMPENSATION
FROM THE CALIFORNIA FROM FUND COMPLEX
NAME OF TRUSTEE TAX EXEMPT MONEY FUND PAID TO TRUSTEES(a)
<S> <C> <C>
Dexter A. Dodge
</TABLE>

25
<PAGE> 73
<TABLE>
<CAPTION>

<S> <C>
Richard A. Farrell

Ernest T. Kendall

Richard B. Osterberg

William C. Dennis, Jr.

William H. Darling

John R. Haack

Laurence R. Ventor, Jr.
</TABLE>
- ------------------

(a) Includes compensation from the Freedom Tax Exempt Money Fund,
Freedom Government Securities Fund, Freedom Cash Management Fund, California Tax
Exempt Money Fund and the FundManager Portfolios. The Trust does not provide any
pension or retirement benefits for the Trustees.

Although the nominees of the Fund may at times be the record holders of
in excess of 5% of shares of the Fund by virtue of holding shares in "street
name," to the knowledge of the Trust, no person owns beneficially 5% or more of
the shares of the Fund. As of January 31, 1999, the officers and Trustees of the
Trust as a group own less than 1% of the outstanding shares of the Fund.

THE INVESTMENT ADVISER

The investment adviser for the Fund is Freedom Capital Management
Corporation, a Massachusetts corporation (the "Adviser"), with offices at One
Beacon Street, Boston, Massachusetts 02108-3105. The Adviser is a registered
investment advisory firm which maintains a large securities research department,
the efforts of which will be made available to the Fund.

The Adviser is an indirect, wholly-owned subsidiary of Freedom
Securities Corporation, formerly known as JHFSC Acquisition Corp., a Delaware
corporation. Freedom Securities Corporation is located at One Beacon Street,
Boston, Massachusetts 02108.

On April 2, 1998, 7,400,000 shares of common stock of Freedom Securities
Corporation were sold to the public in an initial public offering. As a
consequence of this offering of stock, as well as an acquisition by Freedom
Securities Corporation and the implementation of certain incentive and stock
option plans, the previous controlling shareholder Thomas H. Lee Equity Fund
II, L.P. (and certain related entity shareholders), now owns less than 25% of
Freedom Securities Corporation's stock.

26
<PAGE> 74
Freedom Distributors Corporation ("Freedom" or the "Distributor"),
located at One Beacon Street, Boston, MA 02108-3105, serves as distributor and
principal underwriter for the Fund pursuant to a distribution agreement with the
Trust. Freedom, established in 1987, is a wholly-owned subsidiary of the
Adviser. Sutro & Co. Incorporated and Tucker Anthony Incorporated, brokerage
firms which are members of the New York Stock Exchange, are also distributors
for the Fund and indirect subsidiaries of Freedom Securities Corporation.

Pursuant to an investment advisory agreement dated as of May 20, 1998
(the "Advisory Agreement") between the Trust and the Adviser, the Adviser agreed
to act as investment adviser and manager to the Fund. As manager and investment
adviser, the Adviser will: (a) furnish continuously an investment program for
the Fund and determine, subject to the overall supervision and review of the
Board of Trustees, which investments should be purchased, held, sold or
exchanged, (b) provide supervision over all aspects of the Fund's operations
except those which are delegated to a custodian, transfer agent or other agent,
and (c) provide the Trust with such executive, administrative and clerical
personnel, officers and equipment as are deemed necessary for the conduct of the
business of the Trust.

For the services and facilities to be provided by the Advisor under the
Advisory Agreement, the Trust pays to the Advisor a monthly fee with respect to
the Fund as soon as practical after the last day of each calendar month, at a
rate equal to (i) one-half of one percent (.50%) on an annual basis of the
Monthly Average Net Assets (defined below) of the 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 the Fund for such calendar
month in excess of $500 million.

The "Monthly Average Net Assets" of the Fund for any calendar month is
equal to the quotient produced by dividing (i) the sum of the net assets of the
Fund, determined in accordance with procedures established from time to time by
or under the direction of the Board of Trustees of the Fund's Trust in
accordance with the Trust's 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 termination of the Advisory Agreement with respect to the
Fund during any calendar month, the fee with respect to such Fund for that month
will be reduced proportionately based upon the number of calendar days during
which it is in effect and the fee will be computed upon the average net assets
of such Fund for the days during which it is in effect.

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<PAGE> 75

The Fund bears all costs of its organization and operation, including
expenses of preparing, printing and mailing all shareholders' reports, notices,
prospectuses (except that the expense of printing and mailing prospectuses used
for promotional purposes will not be borne by the Fund), proxy statements and
reports to regulatory agencies; expenses relating to the issuance, registration
and qualification of shares of the Fund; government fees; interest charges;
expenses of furnishing to shareholders their account statements; taxes; expenses
of redeeming shares; brokerage and other expenses connected with the execution
of portfolio securities transactions; fees and expenses of the Trust's
custodian, including those for keeping books and accounts and calculating the
net asset value of shares of the Fund; fees and expenses of its independent
accountants, legal counsel, transfer agent and dividend disbursing agent; the
compensation and expenses of its Trustees who are not otherwise affiliated with
the Trust, the Adviser or John Hancock or any of their affiliates; expenses of
trustees' and shareholders' meetings; trade association memberships; insurance
premiums; and any extraordinary expenses.

The Advisory Agreement was approved by the outstanding shareholders of
the Fund at a meeting held on May 20, 1998. The Advisory Agreement for the Trust
was approved on May 19, 1998 by all of the Trustees, including all of the
Trustees who are not parties to the Advisory Agreement or "interested persons"
(as defined in the 1940 Act) of any such party. The Advisory Agreement will
continue in effect from year to year, provided that its continuance is approved
annually both (i) by the holders of a majority of the outstanding voting
securities of each Fund or by the Board of Trustees, and (ii) by a majority of
the Trustees who are not parties to the Advisory Agreement or "interested
persons" of any such party. The Advisory Agreement may be terminated on 60 days
written notice by either party and will terminate automatically if it is
assigned.

Mr. Osterberg, a Trustee of the Trust, is a member of the law firm of
Weston, Patrick, Willard & Redding, which has retained the Adviser from time to
time to provide investment advisory consulting services for clients of such
firm.

For the fiscal year ended December 31, 1996, the Fund incurred
investment advisory fees in the amount of $528,064. During the fiscal year ended
December 31, 1995, the Adviser waived $158,420 of that amount.

For the fiscal year ended December 31, 1997, the Fund incurred
investment advisory fees in the amount of $556,289. During the fiscal year ended
December 31, 1996, the Advisor waived $116,330 of that amount.

For the fiscal year ended December 31, 1998, the Fund incurred
investment advisory fees in the amount of [$________]. During the fiscal year
ended December 31, 1998, the Adviser waived [$________] of that amount.

DISTRIBUTION OF SHARES OF THE FUND

The Trust has entered into a Distribution Agreement with Freedom
Distributors Corporation, Tucker Anthony Incorporated, One Beacon Street,
Boston, Massachusetts, 02108 and Sutro & Co. Incorporated, 201 California
Street, San Francisco, California, 94111 (together the "Distributors") whereby
the Distributors act as exclusive selling agents of the Fund selling shares of
the Fund on

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<PAGE> 76

a "best efforts" basis. Although the Distributors distribute shares of the Fund
on a continuous basis, shares may also be purchased directly from the Fund. No
underwriting commissions or discounts are paid to the Distributors in connection
with their distribution of shares of the Fund.

TRANSFER AGENT

Freedom Services Corporation ("FSC"), One World Financial Center, 200
Liberty Street, New York, New York 10281, acts as transfer and shareholder
services agent for the Fund. FSC is a wholly-owned subsidiary of Freedom
Securities Corporation. Generally, FSC receives from the Fund a fee of $17.75
per account in payment for the shareholder services it provides (such as
providing monthly statements and processing purchase and sale orders) for
shareholders who hold shares of the Fund through their brokerage accounts.
Transfer agent charges are reduced for those shareholder accounts that are held
through a brokerage account with FSC.

CUSTODIAN

All cash and securities of the Fund are held by State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02106, as custodian.

FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110 serves as the Trust's independent accountants, providing audit services,
including review and consultation, in connection with various filings by the
Trust with the Securities and Exchange Commission and tax authorities.

Each of the Statement of Assets and Liabilities, Statement of
Operations, Statement of Changes in Net Assets and Schedule of Investments
included in each Fund's Annual Report as of or for the year ended December 31,
1998, including any notes thereto or report of independent accounts, is hereby
incorporated by reference from such Fund's Annual Report filed with the SEC.

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<PAGE> 77

INFORMATION ABOUT SECURITIES RATINGS OF NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS ("NRSROS")

Debt Security Ratings, Including Municipal Bonds

MOODY'S INVESTORS SERVICE, INC. Aaa--the "best quality." Aa--"high
quality by all standards", but margins of protection or other elements make
long-term risks appear somewhat larger than Aaa rated municipal bonds.

STANDARD & POOR'S CORPORATION. AAA--"obligations of the highest
quality." AA--issues with investment characteristics "only slightly less marked
than those of the prime quality issues."

Municipal Bonds

MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")

Aaa: Municipal bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa: Municipal bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large, fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.

A: Municipal bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

Baa: Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its bond ratings. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category. The
modifier 2 indicates a mid-range ranking; and modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.

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<PAGE> 78

STANDARD & POOR'S CORPORATION ("S&P")

AAA: Municipal bonds rated AAA are highest grade obligations. They
possess the ultimate degree of protection as to principal and interest. In the
market they move with interest rates and hence provide the maximum safety on all
counts.

AA: Municipal bonds rated AA also qualify as high-grade obligations, and
in the majority of instances differ from AAA issues only in small degree. Here,
too, prices move with the long-term money market.

A: Municipal bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe. They predominantly reflect money rates in their market behavior, but
also to some extent, economic conditions.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.

Municipal Notes

MOODY'S

Moody's ratings for state and municipal and other short-term obligations
will be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in long-term borrowing risk are of lesser importance in the short
run. Symbols used will be as follows:

MIG-1 - Notes are of the best quality enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both.

MIG-2 - Notes are of high quality, with margins of protection ample, although
not so large as in the preceding group.

MIG-3 - Notes are of favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding grades. Market access
for refinancing, in particular, is likely to be less well established.

MIG-4 - Notes are of adequate quality, carrying specific risk but having
protection commonly regarded as required of an investment security and not
distinctly or predominantly speculative.

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<PAGE> 79

S&P'S

SP-1 - Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.

SP-2 - Issues carrying this designation have a satisfactory capacity to pay
principal and interest.

Commercial Paper

MOODY'S

Moody's Commercial Paper ratings, which are also applicable to municipal
paper investments permitted to be made by the Fund, are opinions of the ability
of issuers to repay punctually their promissory obligations not having an
original maturity in excess of nine months. Moody's employs the following
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

S&P'S

S&P's ratings are a current assessment of the likelihood of timely
payment of debt having an original maturity of no more than 365 days. Ratings
are graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues within the "A" category are delineated
with the numbers 1, 2, and 3 to indicate the relative degree of safety, as
follows:

A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.

A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.

A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

IBCA LIMITED/IBCA INC.

Short-term obligations, including commercial paper, rated A-1+ by IBCA
Limited or its affiliate IBCA Inc. are obligations supported by the highest
capacity for timely repayment. Obligations rated A-1 have a very strong capacity
for timely repayment. Obligations rated A-2 have a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.

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<PAGE> 80

FITCH INVESTORS SERVICES, INC.

Fitch Investors Services, Inc. employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance for timely payment.
The rating F-1 reflects an assurance of timely payment only slightly less in
degree than issues rated F-1+, while the rating F-2 indicates a satisfactory
degree of assurance for timely payment, although the margin of safety is not as
great as indicated by the F-1+ and F-1 categories.

DUFF & PHELPS INC.

Duff & Phelps Inc. employs the designation of Duff 1 with respect to top
grade commercial paper and bank money instruments. Duff 1+ indicates the highest
certainty of timely payment: Short-term liquidity is clearly outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations. Duff 1-
indicates high certainty of time payment. Duff 2 indicates good certainty of
timely payment: liquidity factors and company fundamentals are sound.

THOMSON BANKWATCH, INC. ("BANKWATCH")

BankWatch will assign both short-term debt ratings and issuer ratings to
the issuers it rates. BankWatch will assign a short-term rating ("TBW-1,"
"TBW-2," "TBW-3," or "TBW-4") to each class of debt (e.g., commercial paper or
non-convertible debt), having a maturity of one year or less, issued by a
holding company structure or an entity within the holding company structure that
is rated by BankWatch. Additionally, BankWatch will assign an issuer rating
("A," A/B," "B," "B/C, "C," "C/D," "D," "D/E," and "E") to each issuer that it
rates.

Note: Certain NRSROs utilize rankings within rating categories indicated
by a + or -. The Fund, in accordance with industry practice, recognizes such
rankings with categories as graduations, viewing for example S&P's rating of
A-1+ and A-1 as being in S&P's highest rating category.

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<PAGE> 81
STATEMENT OF ADDITIONAL INFORMATION

FREEDOM CASH MANAGEMENT FUND
FREEDOM GOVERNMENT SECURITIES FUND
EACH A SERIES OF
FREEDOM MUTUAL FUND
AND
FREEDOM TAX EXEMPT MONEY FUND
A SERIES OF
FREEDOM GROUP OF TAX EXEMPT FUNDS
(THE "FUNDS")

This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Funds' Prospectus dated March 1, 1999, which may be
obtained at no charge from Freedom Distributors Corporation, One Beacon Street,
Boston, Massachusetts 02108. Unless otherwise defined herein, capitalized terms
have the meanings given to them in the Prospectus.

The date of this Statement of Additional Information is March 1, 1999.

TABLE OF CONTENTS
PAGE

GENERAL INFORMATION............................................................2

INVESTORS FOR WHOM THE TRUSTS ARE DESIGNED.....................................3

INVESTMENT POLICIES............................................................4

INVESTMENT RESTRICTIONS.......................................................13

PORTFOLIO TRANSACTIONS........................................................18

CURRENT YIELD.................................................................19

ADDITIONAL INFORMATION ON REDEMPTION..........................................20

NET ASSET VALUE...............................................................20

ADDITIONAL INFORMATION ON TAXES...............................................22

MANAGEMENT OF THE TRUSTS......................................................25

THE INVESTMENT ADVISER........................................................27

DISTRIBUTION OF SHARES OF THE TRUSTS..........................................30

TRANSFER AGENT................................................................30

CUSTODIAN.....................................................................30

FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANTS..............................30

INFORMATION ABOUT SECURITIES RATINGS OF NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS ("NRSROs")...................32

Freedom Mutual Fund and Freedom Group of Tax Exempt Funds are
Massachusetts business trusts, having been organized on December 22, 1980 and
June 1, 1982, respectively. Freedom Mutual Fund (the "Mutual Fund") has two
series, Freedom Cash Management Fund (the "Cash Management Fund") and Freedom
Government Securities Fund (the "Government Securities Fund"). Freedom Group of
Tax Exempt Funds (individually the "Tax Exempt Trust" and collectively with the
Mutual Fund the "Trusts") currently has two series, Freedom Tax Exempt Money
Fund (the "Tax Exempt Money Fund") and Freedom California Tax Exempt Money Fund,
which is described in a separate prospectus and statement of additional
information. The Trustees of each Trust have authority to issue an unlimited
number of shares of beneficial interest, [$.__] par value per share. The
Trustees also have authority, without the necessity of a shareholder vote, to
create any number of new series or classes or to commence the public offering of
shares of any previously established series or classes. The Trustees have
authorized shares of the Fund to be issued in only one class.

The assets received by the Trusts from the issue and sale of shares of
each Fund, and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are especially allocated to that Fund and constitute
the underlying assets of such Fund. The underlying assets of each Fund are
required to be segregated on the books of account and are to be charged with the
expenses in respect to that Fund and with a share of the general expenses of the
Trust. Any general expenses of the Trust not readily identifiable as belonging
to a particular Fund shall be allocated by or under the direction of the
Trustees in such manner as the Trustees determine to be fair and equitable,
taking into consideration, among other things, the nature and type of expense
and the relative sizes of the Funds.

Each share of a Fund has equal dividend, redemption and liquidation rights
with other shares of that Fund and when issued is fully paid and nonassessable
by the Trusts. Under the Trusts' Master Trust Agreements, no annual or regular
meeting of shareholders is required. Thus, there will ordinarily be no annual
shareholder meetings, unless otherwise required by the Investment Company Act of
1940 (the "1940 Act"). The Trusts called a meeting of shareholders on December
16, 1996 at which time shareholders elected the Board of Trustees. Thereafter,
the Trustees are a self-perpetuating body until fewer than 50% of the Trustees
serving as such are Trustees who were elected by shareholders. At that time
another meeting of shareholders will be called to elect Trustees. On any matter
submitted to the shareholders for a vote, the holder of each share of a Fund is
entitled to one vote per share (with proportionate voting for fractional shares)
regardless of the relative net asset value thereof. Shareholders of a Fund are
not entitled to vote on any matter which does not affect that Fund but which
requires a separate vote of another Fund. Under the Master Trust Agreements, any
Trustee may be removed by vote of two-thirds of the outstanding Trust shares,
and holders of ten percent or more of the outstanding shares of a Trust can
require Trustees to call a meeting of shareholders for purposes of voting on the
removal of one or more Trustees. The Master Trust Agreements also provide that
if ten or more shareholders who have been such for at least six months and who
hold in the aggregate shares with a net asset value of at least $25,000 inform
the Trustees that they wish to communicate with other shareholders, the Trustees
will either give such shareholders access to the shareholder lists or inform
them of the cost involved if the Trusts forward materials to the shareholders on
their behalf. If the Trustees object to mailing such

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<PAGE> 83
materials, they must inform the Securities and Exchange Commission and
thereafter comply with the requirements of the 1940 Act.

Shares do not have cumulative voting rights, which means that in
situations in which shareholders elect Trustees, holders of more than 50% of the
shares voting for the election of Trustees can elect 100% of the Trust's
Trustees, and the holders of less than 50% of the shares voting for the election
of Trustees will not be able to elect any person as a Trustee.

Shares have no preemptive or subscription rights and are fully
transferable. There are no conversion rights.

Under Massachusetts law, the shareholders of each Trust could, under
certain circumstances, be held personally liable for the obligations for the
Trust. However, the Master Trust Agreement of each Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for indemnification
for all losses and expenses of any shareholder of the Fund held personally
liable for the obligations of the Trust. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund would be unable to meet its obligations. The
Advisor believes that, in view of the above, the risk of personal liability to
shareholders is remote.

Each of the Trusts is an "open-end" management investment company, and is
a "diversified company" as those terms are defined in the 1940 Act. Each Fund
intends to qualify as a "money market fund" within the meaning of Rule 2a-7
under the 1940 Act, which includes complying with the portfolio quality,
maturity and diversification requirements of that rule. Pursuant to Rule 2a-7,
compliance with the diversification requirements under the rule constitutes
meeting the definitional requirements of a diversified company under the 1940
Act. Generally, a fund that intends to meet its diversification requirements
under Rule 2a-7 may not invest more than 5% of its total assets in any one
issuer, although this limit may be greater if the securities are held for short
periods, are guaranteed or are subject to certain redemption or resale rights,
and there is no limit on investments in U.S. Government securities.

The Trusts called a meeting of shareholders on May 20, 1998, at which time
the shareholders approved (i) a new investment advisory agreement between each
Trust and the Advisor and (ii) the election of PricewaterhouseCoopers LLP as
each Trust's independent auditors.

INVESTORS FOR WHOM THE TRUSTS ARE DESIGNED

The following information supplements the discussion of the Funds'
investment objectives and policies in the Prospectus of the Funds.

The Funds offer the economic advantages of block purchases of securities
and diversification. Securities and instruments of the types in which the Funds
invest are not generally available in denominations of less than $100,000, and
in many cases the minimum denominations are substantially higher. Typically,
higher yields are not available unless money market instruments are bought
directly from issuers in amounts of $1,000,000 or more. The

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<PAGE> 84
Funds also offer investors the opportunity to participate in a more diversified
selection of short-term securities than the size of each investor's own
portfolio might otherwise permit.

Investment in the Funds may also relieve the investor of several
administrative burdens usually associated with the direct purchase of money
market instruments, such as coordinating maturities and reinvestments,
safekeeping of securities, surveying the market for the best price at which to
buy and/or sell and maintaining separate principal and income records.
Furthermore, purchasers electing and complying with the procedures for expedited
redemption have the convenience, if a redemption order is received before 12:00
noon, New York time, on a business day on which the New York Stock Exchange is
open for regular trading, of having the proceeds from the redemption of their
shares remitted to their bank account at a member bank of the Federal Reserve
System by Federal Funds wire for use on the same business day, provided that the
federal wire system is open. In addition, shareholders availing themselves of
the Trust's check redemption program have the convenience of making redemptions
merely by writing a check. See "How to Redeem Shares" in the Prospectus. All
such advantages, however, will be reduced to the extent of the expenses and
losses of the Fund in which you invest (including losses from portfolio
transactions or from defaults, if any, in payments of interest or principal by
issuers).

INVESTMENT POLICIES

The following information supplements the discussion of the Funds'
investment policies discussed in the Prospectus. The policies described below in
this section are not fundamental and may be changed upon notice to the
shareholders.

OPERATING AS MONEY MARKET FUNDS--GENERALLY

In order to provide you with liquidity, the Funds follow practices to
maintain a $1.00 share price: limiting their portfolios' average maturity to 90
days or less; buying securities which mature in 397 days or less; and buying
only high quality securities with minimal credit risks. Of course, the Funds
cannot guarantee a $1.00 share price, but these practices help to minimize any
price fluctuations that might result from rising or declining interest rates.
While each Fund invests in high quality securities, you should be aware that
your investment is not without risk even if all the securities in the portfolio
are paid in full at maturity. Each of the Funds has a fundamental investment
objective with an investment program to aid in achieving its objective. There is
no assurance that the Funds will achieve their investment objectives. All money
market instruments and debt securities, including U.S. Government securities,
can change in value when interest rates change or when an issuer's
creditworthiness changes.

Each of the Funds will limit its portfolio investments to high quality
money market obligations that, at the time of acquisition, (i) are rated in the
two highest categories by at least two nationally recognized statistical rating
organizations ("NRSROs") (or by one NRSRO if only one NRSRO has rated the
security), (ii) if not rated, are obligations of an issuer whose other
outstanding short-term debt obligations are so rated, or (iii) if not rated, are
of comparable quality as determined by the Adviser in accordance with procedures
established by the Trustees (collectively, "Eligible Securities"). Each Fund
will limit its investments to

4
<PAGE> 85
Eligible Securities that present minimal credit risk, as determined by the
Adviser in accordance with procedures established by the Trustees.

All Eligible Securities may be classified as "first tier" securities and
"second tier" securities. In general, first tier securities consist of Eligible
Securities that have received the highest rating by at least two NRSROs (or by
one NRSRO if only one NRSRO has rated the security) or which are unrated but
determined to be of comparable quality. All other Eligible Securities are
classified as second tier securities. Neither the Cash Management Fund nor the
Government Securities Fund may invest more than 5% of its total assets in second
tier securities or invest more than 1% of its total assets or $1.0 million
(whichever is greater) in the second tier securities of any single issuer. A
description of the ratings of the NRSROs is contained in the Statement of
Additional Information.

ADDITIONAL INFORMATION ON INVESTMENTS -- MUTUAL FUND ONLY

The Cash Management Fund may invest in all categories of investments
described below, whereas the Government Securities Fund may invest only in U.S.
Treasury securities, U.S. Government agency securities and repurchase agreements
with respect to which the underlying securities are in those two categories.

U.S. Treasury Securities: Either Fund may invest in the various types of
marketable securities issued by the U.S. Treasury, which consist of bills, notes
and bonds. Such securities are direct obligations of the United States
Government and differ mainly from each other in the length of their maturity.
Treasury bills, the most frequently issued marketable government security, have
a maturity of up to one year and are issued on a discount basis.

U.S. Government Agency Securities: Either Fund may invest in U.S.
Government agency securities, which are obligations guaranteed as to principal
and interest by an agency or instrumentality of the U.S. Government. Some U.S.
Government agency securities, such as Government National Mortgage Association
pass-through certificates, are backed by the full faith and credit of the United
States Treasury; others, such as securities of Federal Home Loan Banks, by the
right of the issuer to borrow from the Treasury; still others, such as bonds
issued by Federal National Mortgage Association, a private corporation, are
supported only by the credit of the instrumentality. The Government Securities
Fund will not invest in the securities issued by the Federal National Mortgage
Association or any other instrumentality where the bonds are supported only by
the credit of that instrumentality. Subject to the foregoing, the Funds may
invest in all types of U.S. Government agency securities currently outstanding
or issued in the future.

Domestic and Foreign Issuers. The Cash Management Fund may invest in U.S.
dollar-denominated time deposits, certificates of deposit, bankers' acceptances
of U.S. banks and their branches located outside of the U.S., U.S. branches and
agencies of foreign banks, and foreign branches of foreign banks. The Cash
Management Fund may also invest in U.S. dollar-denominated securities issued or
guaranteed by other U.S. or foreign issuers, including U.S. and foreign
corporations or other business organizations, foreign governments, foreign
government agencies or instrumentalities, and U.S. and foreign financial
institutions, including savings and loan institutions, insurance companies,
mortgage bankers, and real estate

5
<PAGE> 86
investment trusts, as well as banks. These short-term instruments may include
obligations bearing fixed, floating or variable interest rates.

Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by the Cash Management Fund will not benefit from
insurance from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation. Bankers' acceptances
are credit instruments evidencing the obligation of a bank to pay a draft drawn
on it by a customer. These instruments reflect the obligation both of the bank
and of the drawer to pay the face amount of the instrument upon maturity.
Certificates of deposit are interest-bearing negotiable certificates issued by
banks or financial institutions against funds deposited in the issuing
institution.

The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by governmental regulation.
Payment of interest and principal on these obligations may also be affected by
governmental action in the country of domicile of the branch (generally referred
to as sovereign risk). In addition, evidences of ownership of portfolio
securities may be held outside of the U.S. and the Cash Management Fund may be
subject to the risks associated with the holding of such property overseas.
Various provisions of federal law governing the establishment and operation of
U.S. branches do not apply to foreign branches of U.S. banks.

Obligations of U.S. branches and agencies of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation as well as by governmental action in the country in which the foreign
bank has its head office.

Obligations of foreign issuers involve certain additional risks. These
risks may include future unfavorable political and economic developments,
withholding taxes, seizures of foreign deposits, currency controls, interest
limitations, or other governmental restrictions that might affect payment of
principal or interest. Additionally, there may be less public information
available about foreign banks and their branches. Foreign issuers may be subject
to less governmental regulation and supervision than U.S. issuers. Foreign
issuers also generally are not bound by uniform accounting, auditing and
financial reporting requirements comparable to those applicable to U.S. issuers.

Variable and Floating Rate Instruments. The Cash Management Fund may
invest in certain variable rate instruments (where the coupon interest rate
adjusts on set dates) or floating rate instruments (where the coupon interest
rate adjusts whenever a specific interest rate changes). The Fund may invest,
subject to various conditions, in any variable or floating rate instrument that
is scheduled to mature in more than 397 days if the Fund has certain demand
rights to sell the instrument. For the purposes of qualifying the Fund as a
money market fund, which includes complying with Rule 2a-7 under the Investment
Company Act of 1940, each such long-term variable rate instrument shall be
deemed to have a maturity equal to the longer of the period remaining until the
next readjustment of the interest rate or until the principal amount can be
recovered through demand, and each such long-term floating rate

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instrument shall be deemed to have a maturity equal to the period remaining
until the principal amount can be recovered through demand. The Cash Management
Fund also may invest, subject to various conditions, in variable or floating
rate securities where the principal amount of each such security is
unconditionally to be paid in full in 397 days or less. For the purposes of
qualifying as a money market fund, the maturity of each such short-term variable
rate instrument shall be deemed to be the earlier of the period remaining until
the next adjustment of the interest rate or until the principal amount can be
recovered through demand, and the maturity of each such short-term floating rate
security shall be deemed to be one day. Any variable or floating rate instrument
in which the Cash Management Fund may invest must be reasonably expected to have
a market value that approximates its amortized cost and all are subject to other
conditions specified in Rule 2a-7.

Repurchase Agreements. Both Funds may invest in securities subject to
repurchase agreements with any member bank of the Federal Reserve System or
primary dealer in U.S. Government securities. A repurchase agreement is
characterized as an agreement under which the purchaser (i.e., the Fund)
acquires the obligation (debt security) and the seller agrees, at the time of
the sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the purchaser's holding period. This
results in a fixed rate of return insulated from market fluctuations during such
period. The underlying securities will only consist of U.S. Treasury or
Government agency securities in the case of the Government Securities Fund, and
those securities plus certificates of deposit, commercial paper or bankers'
acceptances in the case of the Cash Management Fund. Repurchase agreements will
be entered into with primary dealers for periods not to exceed seven days. Each
repurchase agreement will be fully collateralized with respect to both principal
and interest for the entire term of the agreement. Upon payment, possession of
all of the underlying collateral will be transferred to an agent of a Fund for
the term of the agreement. If a particular bank or securities dealer defaults on
its obligation to repurchase the underlying security as required by the terms of
a repurchase agreement, a Fund will incur a loss to the extent that the proceeds
it receives in the sale of collateral are less than the repurchase price of the
security. In addition, should the defaulting securities dealer or bank file for
bankruptcy, a Fund could incur certain costs in establishing that it is entitled
to dispose of the collateral and its realization on the collateral may be
delayed or limited.

ADDITIONAL INFORMATION ON INVESTMENTS -- TAX EXEMPT MONEY FUND ONLY

Following purchase by the Tax Exempt Money Fund, a Municipal Security (as
defined in the Prospectus) may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Tax Exempt Money Fund. Neither
event requires a sale of such security by the Fund, although Freedom Capital
Management Corporation (the "Adviser") will consider such event to be relevant
in determining whether the Fund should continue to hold such security in its
portfolio. If the rating accorded by a Nationally Recognized Statistical Rating
Organization ("NRSRO") for Municipal Securities changes due to changes in the
rating systems, the Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained herein.

The two principal classifications of Municipal Securities are "municipal
notes" and "municipal bonds."

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<PAGE> 88
Municipal Notes. Municipal notes generally are used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include:

2. Revenue Anticipation Notes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue, such as revenues available
under federal revenue sharing programs.

3. Bond Anticipation Notes. Bond anticipation notes are issued to provide
interim financing until long-term financing can be arranged. In most cases, the
long-term bonds then provide the money for the repayment of the notes.

Municipal Bonds. Municipal bonds, which meet longer term capital needs and
generally have maturities of more than one year when issued, have two principal
classifications: general obligation bonds and revenue bonds.

2. Revenue Bonds. Revenue bonds fund two sorts of projects,
publicly-operated facilities ("revenue bonds") and privately-operated facilities
("industrial development bonds").

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<PAGE> 89
universities; and hospitals. Although the principal security behind these
bonds may vary, many provide additional security in the form of a debt
service reserve fund whose money may be used to make principal and
interest payments on the issuer's obligations. Housing finance authorities
have a wide range of security, including partially or fully insured
mortgages, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. Some authorities provide
further security in the form of a state's ability (without obligation) to
make up deficiencies in the debt service reserve fund.

(b) Industrial Development Bonds. Industrial development bonds,
which are considered municipal bonds if the interest paid thereon is
exempt from federal income tax, are issued by or on behalf of public
authorities to raise money to finance various privately-operated
facilities for business and manufacturing, housing, sports, and pollution
control. These bonds are also used to finance privately-operated public
facilities such as airports, mass transit systems, ports, and parking. The
payment of the principal and interest on such bonds is dependent solely on
the ability of the facility's user to meet its financial obligations and
the pledge, if any, of real and personal property so financed as security
for such payment.

There are also other types of Municipal Securities that are, or may
become, available which are similar to the foregoing municipal notes and
municipal bonds. Municipal Securities are sometimes supported by an irrevocable,
unconditional external agreement (normally a bank letter of credit) from a bank
whose own securities are of high quality in order to improve the credit rating
of the Municipal Security. Such external agreement may be issued by a foreign
bank.

For the purpose of the Tax Exempt Money Fund's investment restrictions set
forth beginning on page 10, the identification of the "issuer" of Municipal
Securities which are not general obligation bonds is made by the Adviser on the
basis of the characteristics of the obligation as described above, the most
significant of which is the source of funds for the payment of principal and
interest on such securities. In the case of industrial development bonds, the
"issuer" is the user of the facility, which is usually a non-governmental
entity.

Obligations of issuers of Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code. In addition, the
obligations of such issuers may become subject to laws enacted in the future by
Congress, state legislatures, or referenda extending the time for payment of
principal and/or interest, or imposing other constraints upon enforcement of
such obligations or upon municipalities to levy taxes. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of any issuer to pay, when due, the principal of and interest on its
Municipal Securities may be materially affected. The Tax Exempt Money Fund may
invest more than 25% of its total assets in Municipal Securities the interest
upon which is paid from revenues of similar types of projects. There could be
economic, business or political developments which might affect all Municipal
Securities of a similar type. However, the Tax Exempt Money Fund believes that
the most important consideration affecting credit risk is the quality of
particular issues of Municipal Securities, rather than factors affecting all, or
broad classes of, Municipal Securities.

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SPECIAL TYPES OF MUNICIPAL SECURITIES -- TAX EXEMPT MONEY FUND ONLY

In addition to the general types of Municipal Securities discussed above,
the Tax Exempt Money Fund may invest in the following Municipal Securities.

When-Issued Securities. Municipal Securities are frequently offered on a
"when-issued" basis. When so offered, the price, which is generally expressed in
yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued securities take place at a later date.
Normally, the settlement date occurs within one month of the purchase of
municipal notes; during the period between purchase and settlement, no payment
is made by the Tax Exempt Money Fund to the issuer and no interest accrues to
the Fund. To the extent that assets of the Fund are not invested prior to the
settlement of a purchase of securities, the Fund will earn no income. It is the
Fund's intention, however, to be fully invested to the extent practicable,
subject to the policies stated above. While when-issued securities may be sold
prior to the settlement date, the Fund intends to purchase such securities with
the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase a
Municipal Security on a when-issued basis, it will record the transaction and
reflect the value of the security in determining its net asset value.

In accordance with Securities and Exchange Commission policy, whenever the
Tax Exempt Money Fund agrees to purchase securities on a when-issued basis, its
custodian will set aside cash or portfolio securities equal to the amount of the
commitment in a separate account. If necessary, additional assets will be placed
in the account daily so that the value of the account will equal the amount of
the Fund's purchase commitment. When the time comes to pay for when-issued
securities, the Fund will meet its obligations from the then-available cash
flow, sale of securities held in the separate account, cash held in the separate
account or otherwise, sale of other securities or, although it would not
normally expect to do so, from the sale of the when-issued securities themselves
(which may have a value greater or less than the Fund's payment obligations). To
the extent that the Fund sets aside portfolio securities to satisfy its purchase
commitment for when-issued securities, there will be a greater possibility of
fluctuation in market value of the Fund's shares (see "Pricing of Our Shares" in
the Prospectus) than if the Fund were to set aside cash. The Fund does not
intend to purchase when-issued securities for speculative purposes, but only in
furtherance of its investment objectives.

Variable and Floating Rate Instruments. The Tax Exempt Money Fund may
invest in certain variable rate instruments (where the coupon interest rate
adjusts on set dates) or floating rate instruments (where the coupon interest
rate adjusts whenever a specific interest rate changes). The Fund may invest,
subject to various conditions, in any variable or floating rate instrument that
is scheduled to mature in more than 397 days if the Fund has certain demand
rights to sell the instrument. For the purposes of qualifying the Fund as a
money market fund, which includes complying with Rule 2a-7 under the Investment
Company Act of 1940, each such long-term variable rate instrument shall be
deemed to have a maturity equal to the longer of the period remaining until the
next readjustment of the interest rate or until the principal amount can be
recovered through demand, and each such long-term floating rate instrument shall
be deemed to have a maturity equal to the period remaining until the principal

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<PAGE> 91
amount can be recovered through demand. The Tax Exempt Money Fund also may
invest, subject to various conditions, in variable or floating rate securities
where the principal amount of each such security is unconditionally to be paid
in full in 397 days or less. For the purposes of qualifying as a money market
fund, the maturity of each such short-term variable rate instrument shall be
deemed to be the earlier of the period remaining until the next adjustment of
the interest rate or until the principal amount can be recovered through demand,
and the maturity of each such short-term floating rate security shall be deemed
to be one day. Any variable or floating rate instrument in which the Tax Exempt
Money Fund may invest must be reasonably expected to have a market value that
approximates its amortized cost and all are subject to other conditions
specified in Rule 2a-7.

TEMPORARY TAXABLE INVESTMENTS -- TAX EXEMPT MONEY FUND ONLY

Although the Tax Exempt Money Fund will be invested primarily in Municipal
Securities, the Fund is authorized to place up to 20% of its net assets in
taxable investments or in cash reserves during normal market conditions for
liquidity reasons. During periods of uncertain market conditions, the Fund may
place more than 20% of its total assets for temporary defensive purposes in
taxable investments or cash reserves. The taxable investments in which the Fund
may invest are:

(a) obligations of the U.S. Government and its agencies and
instrumentalities (not all of such obligations are backed by the full faith and
credit of the United States; for example, bonds issued by Federal National
Mortgage Association, a private corporation, are backed only by the credit of
the issuing instrumentality);

(b) certificates of deposit, bankers' acceptances and short-term
obligations of domestic branches of U.S. banks with total assets of $1 billion
or more;

(c) commercial paper rated at least A-1 by Standard & Poor's, Prime-1 by
Moody's (or equivalently rated by another NRSRO), or, if not rated, of
equivalent investment quality as determined by the Adviser;

(d) short-term debt securities of issuers having, at the time of purchase,
a quality rating within one of the two highest rating categories by Moody's (Aaa
or Aa), Standard & Poor's (AAA or AA) or Fitch (AAA or AA) (or equivalently
rated by another NRSRO); and

(e) repurchase agreements with respect to an underlying security which
would otherwise qualify for investment by the Fund.

Temporary taxable investments of up to 20% of total assets may also be
made in anticipation of redemptions, pending investment of proceeds from
subscription for Fund shares or from the sale of portfolio securities, or
because of market conditions or the scarcity of suitable tax exempt securities.
Interest income from such investments will be taxable to shareholders as
ordinary income under federal tax laws. Consequently, the Fund intends to invest
its assets in Municipal Securities to the maximum extent possible and prudent.

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<PAGE> 92
CERTAIN INVESTMENT STRATEGIES

Repurchase Agreements. Each of the Funds may enter into repurchase
agreements with a bank, financial institution or broker-dealer as a means of
earning income for periods as short as overnight. A repurchase agreement
provides for a Fund to purchase securities, subject to the seller's agreement to
repurchase such securities at a specified time (normally the next business day)
and price. Each repurchase agreement entered into by a Fund will provide that
the value of the collateral underlying the repurchase agreement will always be
at least equal to the repurchase price, including any accrued interest. A Fund's
right to liquidate its collateral, in the event of a default by the seller,
could involve certain costs, losses or delays and, to the extent that proceeds
from any sale upon a default of the obligation to repurchase are less than the
repurchase price, a Fund could suffer a loss.

Repurchase agreements maturing in more than seven days, together with any
other illiquid instruments held by the Tax Exempt Money Fund (excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, which the Board of Trustees or the Adviser has
determined under Board-approved guidelines are liquid), will not, at the time
entered into, exceed 10% of the net assets of such Fund. Because of their short
maturity, repurchase agreements provide liquidity to the Fund while allowing the
Fund to remain fully or substantially invested. The Fund will only enter into
repurchase agreements of one business day's maturity and only with
broker/dealers with substantial capital or major U.S. banks. Each repurchase
agreement will be fully collateralized with respect to both principal and
interest by U.S. Treasury instruments for the entire term of the agreement. Upon
payment, possession of all underlying collateral will be transferred to an agent
of the Fund for the term of the agreement. If a particular securities dealer or
bank defaults on its obligation to repurchase the underlying security as
required by the terms of a repurchase agreement, the Fund will incur a loss to
the extent that the proceeds it realizes on the sale of the collateral are less
than the repurchase price of the security. In addition, should the defaulting
securities dealer or bank file for bankruptcy, the Fund could incur certain
costs in establishing that it is entitled to dispose of the collateral and its
realization on the collateral may be delayed or limited.

Borrowing. Each Fund may borrow up to 10% of the value of its net assets
from banks for temporary purposes (not for leveraging or investment) but will
not make any new investments so long as such borrowings exceed 5% of the value
of its net assets.

Illiquid Securities. Each Fund may invest up to 10% of its net assets in
securities for which no readily available market exists (including repurchase
agreements maturing in more than one week) or for which there are legal or
contractual restrictions on resale. However, if the Trustees or the Adviser
determine, based upon a review of Board approved guidelines, that restricted
securities eligible for resale to "qualified institutional buyers" pursuant to
Rule 144A under the Securities Act of 1933 are liquid or, with respect to the
Cash Management Fund only, that commercial paper issued as part of a non-public
offering pursuant to Section 4(2) of the Securities Act of 1933 is liquid, then
they may be purchased without regard to the 10% limit. The Trustees will
carefully monitor each Fund's investments in Rule 144A securities, and the Cash
Management Fund's investments in Section 4(2) commercial paper, focusing on
factors, among others, such as valuation, liquidity and availability of
information. This

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<PAGE> 93
investment practice could have the effect of increasing the level of illiquidity
in the Funds to the extent that qualified institutional buyers become for a time
uninterested in purchasing these securities.

RISK CONSIDERATIONS

There can be no assurance that the Tax Exempt Money Fund will achieve its
investment objectives or be able to maintain its net asset value per share at
$1.00. In addition, the ability of the Tax Exempt Money Fund to achieve its
investment objective is dependent on the continuing ability of the issuers of
Municipal Securities in which the Fund invests to meet their obligations for the
payment of principal and interest when due. It should also be pointed out that,
unlike other types of investments, Municipal Securities traditionally have not
been subject to regulation by, or registration with, the Securities and Exchange
Commission, although there have been proposals which would provide for
regulation in the future. Further, the price stability and liquidity of the Fund
may not be equal to that of a money market fund which exclusively invests in
short-term taxable money market securities. The taxable money market is a
broader and more liquid market with a greater number of investors, issuers and
market makers than the short-term Municipal Securities market.

With respect to Municipal Securities that are backed by a letter of credit
issued by a foreign bank, the ultimate source of payment is the foreign bank.
Investment in foreign banks may involve risks not present in domestic
investments. These include the fact that the foreign bank may be subject to
different, and in some cases less comprehensive, regulatory, accounting,
financial reporting and disclosure standards than are domestic banks.

Yields on Municipal Securities are dependent on a variety of factors,
including the general conditions of the money market and of the municipal bond
and municipal note market, the size of a particular offering, the maturity of
the obligations and the rating of the issue.

COMPUTER-RELATED RISKS

Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may be
adversely affected by computer systems (whether their own systems or systems of
their service providers) that do not properly process dates beginning with
January 1, 2000 and information related to those dates. The Advisor currently is
in the process of reviewing its internal computer systems as they relate to each
of the Funds, as well as the computer systems of those service providers upon
which each such Fund relies, in order to obtain reasonable assurances that the
Fund will not experience a material adverse impact related to that problem. None
of the Funds currently anticipates that that problem will have a material
adverse impact on its portfolio investments, taken as a whole. There can be no
assurances in that area, however, including the possibility that that problem
could negatively affect the investment markets or the economy generally.

INVESTMENT RESTRICTIONS

CASH MANAGEMENT FUND AND GOVERNMENT SECURITIES FUND

The following investment restrictions apply to both the Cash Management
Fund and Government Securities Fund. They may not be changed without a
shareholder vote, shareholders of each Fund voting separately to change
restrictions applying to their Fund. A change requires the affirmative vote of a
majority of a Fund's outstanding shares, which as used in this Statement means
the lesser of (1) 67% of that Fund's outstanding shares present at a meeting at
which the holders of more than 50% of the outstanding shares are present in
person or by proxy, or (2) more than 50% of that Fund's outstanding shares.

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With respect to investment restrictions Number 1 through 10 below, neither
Fund may:

1. Purchase securities on margin; sell short; purchase warrants; or write,
purchase, or sell puts, calls, straddles, spreads or combinations thereof.

2. Borrow money, except from banks for temporary purposes (not for
leveraging or investment) and then in an aggregate amount not in excess of 10%
of the value of that Fund's assets at the time of such borrowing, provided, that
so long as such borrowings exceed 5% of the value of the net assets, that Fund
will not make any investments; or mortgage, pledge or hypothecate any assets
except in connection with any such borrowing and in an aggregate amount not in
excess of the dollar amount borrowed.

3. Act as an underwriter of securities of other issuers.

4. Purchase securities (other than under repurchase agreements of not more
than one week's duration, considering only the remaining days to maturity of
each existing repurchase agreement) for which there exists no readily available
market, or for which there are legal or contractual restrictions on resale
(excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, and, with regard to the Cash Management Fund,
commercial paper exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, which the Board of Trustees or the Adviser has
determined under Board-approved guidelines are liquid), if as a result of any
such purchase, more than 10% of that Fund's net assets would be invested in such
securities.

5. Purchase any securities if, immediately after such purchase, more than
25% of the value of that Fund's total assets would be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that there is no limitation with respect to investments
in U.S. Treasury securities, Government agency securities and bank obligations.
Neither all finance companies as a group nor all utility companies as a group
are considered a single industry for purposes of this restriction.

6. Purchase securities of any one issuer, other than U.S. Treasury
securities or Government agency securities, if immediately after such purchase,
more than 5% of the value of that Fund's total assets would be invested in such
issuer.

7. Acquire more than 10% of any class of securities of an issuer. For this
purpose, all outstanding bonds and other evidences of indebtedness shall be
deemed within a single class regardless of maturities, priorities, coupon rates,
series, designations, conversion rights, security or other differences.

8. Purchase or sell real estate.

9. Purchase or sell commodities or commodity futures contracts, or oil,
gas or mineral exploration or development programs.

10. Make loans, except that a Fund may purchase or hold debt instruments
and may enter into repurchase agreements in accordance with its investment
objective and policies.

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<PAGE> 95
11. Issue any class of securities senior to any other class of securities,
except each Fund may purchase when-issued securities as described under
"Investment Objectives and Policies."

12. Each Fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as that Fund.

13. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, and
except for purchases of the securities of money market mutual funds.

14. Purchase securities of any issuer for the purpose of exercising
control or management, except in connection with a merger, consolidation,
acquisition or reorganization.

15. Invest more than 5% of either Fund's total assets in securities of any
issuer which, together with its predecessors, has been in continuous operation
less than three years.

16. Purchase or retain the securities of an issuer if those officers or
trustees of the Trust or officers or directors of the Adviser who are also
officers or directors of the issuer and who each own beneficially more than 1/2
of 1% of the securities of that issuer together own more than 5% of the
securities of such issuer.

17. Neither Fund currently intends to invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and limitations as that
Fund.

TAX EXEMPT MONEY FUND

The following investment restrictions apply to the Tax Exempt Money Fund.
They may not be changed without a shareholder vote. A change requires the
affirmative vote of a majority of the Fund's outstanding shares, which as used
in this Statement means the lesser of (1) 67% of the Fund's outstanding shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. With respect to investment restrictions Number 1 through 12
below, the Fund may not:

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<PAGE> 96
1. Purchase securities on margin; sell short; purchase warrants; or write,
purchase, or sell straddles, spreads, or combinations thereof.

3. Act as an underwriter of securities of other issuers, except to the
extent that the purchase of Municipal Securities in accordance with the Fund's
investment objective, policies and limitations may be deemed to be an
underwriting.

4. Purchase securities (other than under repurchase agreements of not more
than one week's duration, considering only the remaining days to maturity of
each existing repurchase agreement) for which there exists no readily available
market, or for which there are legal or contractual restrictions on resale
(excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, which the Board of Trustees or the Adviser has
determined under Board-approved guidelines are liquid), if as a result of any
such purchase, more than 10% of the Fund's net assets would be invested in such
securities.

5. Purchase any securities if, immediately after such purchase, more than
25% of the value of the Fund's total assets would be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that there is no limitation with respect to investments
in general municipal obligations and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.

6. Purchase securities of any one issuer, other than the U.S. Government,
its agencies and instrumentalities, if immediately after such purchase more than
5% of the value of the Fund's total assets would be invested in such issuer.

7. Acquire more than 10% of any class of securities of an issuer, except
securities issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, or securities which are backed by the full faith and credit
of the United States.

8. Purchase or sell real estate, except this shall not prevent the Fund
from investing in Municipal Securities secured by real estate or interests
therein.

9. Purchase or sell commodities or commodity futures contracts, or oil,
gas or mineral exploration or development programs.

10. Make loans, except that the Fund may hold debt instruments and enter
into repurchase agreements in accordance with its investment objectives and
policies.

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<PAGE> 97
11. Issue any class of securities senior to any other class of securities,
except that the Fund may purchase when-issued securities as described under
"Investment Objectives and Policies."

12. Invest more than 25% of its total assets within a single state of the
United States or the District of Columbia.

13. The Fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund.

14. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, and
except for purchases of the securities of money market mutual funds.

15. Purchase securities of any issuer for the purpose of exercising
control or management, except in connection with a merger, consolidation,
acquisition or reorganization.

16. Invest more than 5% of the Fund's total assets in securities of any
issuer which, together with its predecessors, has been in continuous operation
less than three years, except obligations issued or guaranteed by the U.S.
Government or its agencies, or Municipal Securities (other than industrial
development bonds) (for this purpose the period of operation of the issuer shall
include the period of operation of any predecessor or unconditional guarantor of
such issuer).

17. Purchase or retain the securities of an issuer if those officers or
trustees of the Trust or officers or directors of the Adviser who are also
officers or directors of the issuer and who each own beneficially more than 1/2
of 1% of the securities of that issuer together own more than 5% of the
securities of such issuer.

18. The Fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and limitations as the
Fund.

For the purposes of the limitations set forth in paragraphs 5, 6, 7, 16
and 17, the Fund will regard the entity which has the ultimate responsibility
for the payment of principal and interest as the issuer.

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PORTFOLIO TRANSACTIONS

The Advisory Agreements authorize the Adviser (subject to the control of
the Boards of Trustees) to select brokers and dealers to execute purchases and
sales of portfolio securities. They direct the Adviser to use its best efforts
to obtain the best overall terms for the Trusts, taking into account such
factors as price (including dealer spread), the size, type and difficulty of the
transaction involved, and the financial condition and execution capability of
the broker or dealer.

With respect to the Cash Management Fund and the Government Securities
Fund, the Adviser generally will purchase portfolio securities for both Funds
either directly from the issuer or from dealers who specialize in "money market"
instruments. During the last three fiscal years ended December 31, 1996, 1997,
and 1998, the Cash Management Fund and the Government Securities Fund paid no
brokerage commissions.

With respect to the Tax Exempt Money Fund, purchases and sales of the
Fund's portfolio securities are generally placed by the Adviser with the issuer,
the issuer's underwriter or with a primary market maker. Usually no brokerage
commission is paid, although the price usually includes an undisclosed
compensation. (Transactions with primary market makers reflect the spread
between bid and asked prices; purchases of underwritten issues include an
underwriting fee paid by the issuer to the underwriter.) During the last three
fiscal years ended December 31, 1996, 1997 and 1998, the Tax Exempt Money Fund
paid no brokerage commissions.

With respect to all of the Funds, to the extent that the execution and
price offered by more than one dealer are comparable, the Adviser may, in its
discretion, effect transactions in portfolio securities with dealers who provide
the Trusts with research services such as credit analysis. Any such research
services would be available for use on all investment advisory accounts of the
Adviser.

Other investment advisory clients advised by the Adviser may also invest
in the same securities as the Trusts. When these clients buy or sell the same
securities at substantially the same time, the Adviser may average the
transactions as to price and allocate the amount of available investments in a
manner which the Adviser believes to be equitable to each client, including any
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by any Fund or the size of the position obtainable for
it. On the other hand, to the extent permitted by law, the Adviser may aggregate
the securities to be sold or purchased for any Fund with those to be sold or
purchased for other clients managed by it in order to obtain best execution.

In no instance will portfolio securities be purchased from or sold to
Tucker Anthony Incorporated ("Tucker Anthony"), Sutro & Co. Incorporated
("Sutro") or any affiliated person (as defined in the 1940 Act) thereof.

The Board of Trustees of the Mutual Fund has determined that any portfolio
transaction for the Mutual Fund may be executed through Tucker Anthony or Sutro,
if, in the Adviser's judgment, the use of Tucker Anthony or Sutro is likely to
result in price and execution at least

18
<PAGE> 99
as favorable as those of other qualified brokers, and if, in the transaction,
Tucker Anthony or Sutro charges the Mutual Fund a commission rate consistent
with those charged by Tucker Anthony or Sutro to comparable unaffiliated
customers in similar transactions. Neither Tucker Anthony nor Sutro will
participate in commissions in brokerage given by the Mutual Fund to other
brokers or dealers and will not receive any reciprocal brokerage business
resulting therefrom.

CURRENT YIELD

The Securities and Exchange Commission requires by rule that a yield
quotation set forth in an advertisement or prospectus for a "money market" fund
be computed by a standardized method based on a historical seven calendar day
period referred to as the "base period." The yield quoted may be a simple
annualized yield or a compounded effective yield which gives effect to the
reinvestment of the proceeds of the investment portfolio. The yield for the Tax
Exempt Money Fund may also be quoted on a tax equivalent basis. If the
compounded effective yield is used in an advertisement, the simple annualized
yield must also be included. Both yields are computed on the basis of the base
period return on a hypothetical pre-existing account in each Fund having a
balance of one share at the beginning of the seven-day base period. The base
period return equals the net change in value of the account over the seven-day
period, including dividends declared both on the original share and on any
additional shares purchased with previous dividends (such dividends are declared
daily and paid from the net investment income of the Fund) and minus all fees,
other than nonrecurring account or sales charges charged to all shareholder
accounts, in proportion to the length of the base period and the Fund's average
account size. The fees deducted will take into account the expense limitation
agreement as described in "Our Management" in the Prospectus. The net change in
value does not include realized gains and losses from the sale of securities or
unrealized appreciation or depreciation of the securities. The base period
return is then multiplied by 365/7 to arrive at the annualized simple yield. The
compounded effective yield is calculated by dividing the base period return
(calculated as above) by 7, adding 1, raising that sum to the 365th power and
subtracting 1 from the result. Both calculations of yields are then expressed to
at least two decimal points. The tax equivalent annualized simple yield is
determined by dividing that portion of the annualized simple yield that is
tax-exempt by 1 minus a stated income tax rate, and adding the quotient to that
portion, if any, of the Tax Exempt Money Fund's yield that is not tax-exempt.
The tax equivalent compounded effective yield is calculated by dividing that
portion of the compounded effective yield by 1 minus a stated income tax rate
and adding the quotient to that portion, if any, of the Tax Exempt Money Fund's
compounded effective yield that is not tax-exempt.

YIELD INFORMATION

Cash Management Fund. For the seven day period ended December 31, 1998,
the simple annualized yield of the Cash Management Fund was [__%], the compound
effective yield was [__%], and the Fund had an average weighted maturity of
investments of [___] days.

Government Securities Fund. For the seven day period ended December 31,
1998, the simple annualized yield of the Government Securities Fund was [__%],
the compound effective

19
<PAGE> 100
yield was [__%], and the Fund had an average weighted maturity of investments of
[___] days.

Tax Exempt Money Fund. For the seven day period ended December 31, 1998,
the simple annualized yield of the Tax Exempt Money Fund was [__%], the compound
effective yield was [__%], the tax equivalent annualized simple yield was [__]%
and the tax equivalent compounded effective yield was [__]% (in each case
assuming an income tax rate of [__]%), and the Fund had an average weighted
maturity of investments of [___] days.

ADDITIONAL INFORMATION ON REDEMPTION

The Trusts may suspend redemption privileges or postpone the date of
payment on shares of any Fund for more than seven days during any period (1)
when the New York Stock Exchange is closed (other than for week-ends or
holidays) or trading on the Exchange is restricted as determined by the
Securities and Exchange Commission ("SEC"), (2) when an emergency exists, as
defined by the SEC, which makes it not reasonably practicable for either Trust
to dispose of securities owned by it or fairly to determine the value of its
assets, or (3) as the SEC may otherwise permit.

It is possible that under unusual circumstances the redemption price may
be more or less than the shareholder's cost, depending on the market value of a
Fund's portfolio at the time.

NET ASSET VALUE

As disclosed in the Prospectus, the net asset value per share of each Fund
is determined at 12:00 noon New York time Monday through Friday, as described
below. The Funds will be closed on the following national business holidays: New
Year's Day, Martin Luther King Day, Washington's Birthday, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

The net asset value per share of the Funds is determined daily under the
general supervision of the Trusts' Board of Trustees by the Trusts' custodian at
12:00 noon New York time on each day on which the New York Stock Exchange is
open or on which there is a sufficient degree of trading in the Trusts'
portfolio securities that the current net asset value of the Trusts' redeemable
securities might be materially affected by changes in the value of the portfolio
securities. Purchase or redemption orders accepted by Freedom Services Corp.
prior to 12:00 noon New York time will be priced at 12:00 noon New York time
that day. Purchase or redemption orders accepted by Freedom Services Corp.
subsequent to 12:00 noon New York time will be priced at 12:00 noon New York
time the next day that net asset value is computed. Net asset value per share is
computed by taking the value of all assets of any Fund, less liabilities, and
dividing by the number of shares of the Fund outstanding. To determine the value
of the assets of any Fund for the purpose of obtaining the net asset value,
portfolio securities are valued at amortized cost, as described below, and
interest is accrued daily.

20
<PAGE> 101
Since the Trusts have adopted a policy of normally holding portfolio
securities to maturity, all portfolio securities of the Funds will normally be
valued at amortized cost. Thus, it is not expected that realized or unrealized
gains or losses on portfolio securities will be a substantial factor in the
computation of the net asset value or gross income of any Fund. If in some
extraordinary circumstance any Fund experiences gains or losses (realized or
unrealized), whether recognized or unrecognized, this could result in a change
in net asset value, a change in dividends, or both.

The Trusts intend to comply with the provisions of Rule 2a-7 under the
1940 Act, which permits each Fund to compute the net asset value using the
amortized cost method of valuing portfolio securities. To comply with that rule,
the Board of Trustees of each Trust has agreed to establish procedures to
stabilize the net asset value for each Fund at $1.00 per share. These procedures
include a review by the Board of Trustees of the extent of any deviation of net
asset value per share, based on available market quotations or estimates of
market value determined by the Boards of Trustees in good faith, from the Fund's
$1.00 amortized cost value per share. If that deviation exceeds 1/2 of 1%, the
Trustees will consider any action that should be initiated to reasonably
eliminate or reduce material dilution or other unfair results to shareholders.
Such action may include selling portfolio securities prior to maturity,
withholding dividends, or utilizing a net asset value per share as determined by
using available market quotations. In addition, the Trusts must (a) maintain a
dollar weighted average portfolio maturity of 90 days or less for each Fund, (b)
not purchase any instrument with a remaining maturity greater than 397 days, (c)
limit portfolio investments, including repurchase agreements, to securities
that, at the time of acquisition, (i) are rated in one of the two highest
categories by at least two NRSROs (or by one organization if only one
organization has rated the security), (ii) if not rated, are obligations of an
issuer whose other outstanding short-term debt obligations are so rated, or
(iii) if not rated, are of comparable quality as determined by the Boards of
Trustees in accordance with procedures established by the Boards of Trustees,
and (d) comply with certain reporting and recordkeeping procedures. The Trusts'
officers will periodically review the method of valuation and recommend changes
to the Boards of Trustees which may be necessary to assure that the portfolio
securities of the Funds are valued at their fair value as determined by the
Trustees in good faith. The Funds will limit their investments to securities
that present minimal credit risks, as determined by the Boards of Trustees in
accordance with the procedures established by the Boards of Trustees.

Amortized cost valuation involves valuing a security at its acquisition
cost and adding or subtracting, ratably to maturity, adjustments for
amortization of premium or accretion of discount, regardless of the impact of
current market factors on the value of the security. Under the amortized cost
method of valuation, neither the amount of daily income nor net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. As a
result, in periods of declining interest rates, the indicated daily yield on a
portfolio valued by amortized cost will be higher than on a portfolio valued by
market prices.

Since there is no sales load involved in an investment in either Trust,
100% of the shareholder's purchase price is invested in shares of the Fund
purchased.

21
<PAGE> 102
ADDITIONAL INFORMATION ON TAXES

The following discussion offers only a brief outline of certain federal
tax consequences of investing in the Funds. Investors should consult their own
tax advisors for more detailed information and for the information regarding the
impact of state and local taxes upon such an investment.

Each Fund intends to qualify and elect to be treated as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If so qualified, a Fund will not be liable for federal
income taxes on its net investment income (i.e., the Fund's investment company
taxable income, as that term is defined in the Code, without regard to the
deduction for dividends paid) and net capital gain (i.e., the Fund's net
long-term capital gains in excess of the sum of net short-term capital losses
and capital loss carryovers from prior years, if any) that it distributes to
shareholders, provided that the Fund distributes at least 90% of its net
investment income and tax-exempt interest income for the taxable year. However,
the Fund will be subject under current tax rates to a federal income tax at a
maximum effective rate of 35% on any undistributed net investment income and net
capital gain. To qualify for tax treatment as a "regulated investment company"
under the Code, a Fund must, among other things, (i) derive in each taxable year
at least 90% of its gross income from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies or other income derived with respect to its
business of investing in such stock, securities or currencies and (ii) diversify
its holdings so that, at the end of each quarter of its taxable year, (A) at
least 50% of the market value of the Fund's assets is represented by cash, U.S.
Government securities, securities of other regulated investment companies and
other securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets and 10% of the outstanding voting securities of such
issuer and (B) not more than 25% of the value of its total assets is invested in
the securities of any one issuer (other than U.S. Government securities or
securities of other regulated investment companies).

If for any taxable year any Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at
corporate rates and, in such event, dividend distributions to its shareholders
would be eligible for the corporate dividends received deduction.

The Code imposes a nondeductible 4% excise tax on a regulated investment
company that fails to distribute, or be deemed to have distributed, during each
calendar year an amount at least equal to the sum of (1) 98% of its taxable
ordinary income for the calendar year (not taking into account any capital gains
or losses), (2) 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for the twelve month period ending on
October 31 of the calendar year, and (3) all ordinary income and capital gains
for previous years that were not distributed during such years. For this
purpose, any income or gain retained by the Fund that is subject to corporate
tax will be considered to have been distributed by year-end. The Funds intend to
make sufficient distributions to avoid this 4% excise tax.

Taxable distributions generally are included in a shareholder's gross
income for the taxable year in which they are received. However, dividends
declared in October, November

22
<PAGE> 103
and December and made payable to shareholders of record in such a month are
taxable as of December 31, provided that a Fund pays the dividend during the
following January. It is expected that none of the Funds' distributions will
qualify for the 70% corporate dividends-received deduction.

CASH MANAGEMENT FUND AND GOVERNMENT SECURITIES FUND

Since none of the net investment income of the Cash Management Fund or the
Government Securities Fund will arise from dividends on common or preferred
stock, it is expected that none of the Trust's distributions to shareholders
will be eligible for the corporate dividends received deduction.

Since all net investment income will be distributed as dividends, it will
be taxable to shareholders as ordinary income, except for (a) such portion as
may exceed a shareholder's ratable share of a Fund's earnings and profits as
determined for tax purposes and available therefor, which excess will be applied
against and reduce the shareholder's adjusted tax basis for his shares, and (b)
amounts representing distributions of realized net capital gain (i.e., the
excess of net long-term capital gain over net short-term capital loss) and
properly designated as such. If the excess described in (a) above were to exceed
the shareholder's tax basis for his shares, the amount thereof would be treated
as gain from the sale or exchange of such shares. The amount of any net capital
gain realized by a Fund is, to the extent designated by that Fund, taxable to
shareholders as long-term capital gain, regardless of the length of time a
particular shareholder may have held his shares in the Fund. Not later than
sixty days after the end of each taxable year, each Fund will send to its
shareholders a written notice designating the amount of any distributions made
during such year which is a distribution of long-term capital gain or represents
a return of capital. In view of their policy of investing only in instruments
maturing within one year, it is unlikely that either Fund will realize any
long-term capital gains.

TAX EXEMPT MONEY FUND

Net investment income received by the Fund from investments in debt
securities other than tax exempt securities, and any excess of net short-term
capital gain over net long-term capital loss recognized by the Fund, will be
taxable to shareholders upon distribution as ordinary income, regardless of
whether the distribution is paid in cash or in additional shares. The excess of
net long-term capital gain over net short-term capital loss ("net capital
gain"), to the extent properly designated by the Fund, will be taxable to
shareholders upon distribution as long-term capital gain, regardless of the
length of time the shares have been held or whether the distribution is paid in
cash or in additional shares. Such distributions of net capital gain will not be
eligible for the dividends received deduction for corporations. However, it is
expected that any such amounts will be insubstantial in relation to the tax
exempt interest generated by the Fund.

23
<PAGE> 104
that they pay at least a minimum amount of income tax, even if they make
substantial use of certain tax deductions and exclusions (including the "items
of tax preference"). Interest from certain private activity bonds is one of the
items of tax preference that is added into income from other sources for the
purposes of determining whether a taxpayer is subject to the AMT and the amount
of any tax to be paid. Under regulations to be prescribed, exempt-interest
dividends paid by the Fund will be treated as interest on such private activity
bonds to the extent of the proportionate share of the interest on such bonds
received by the Fund. In addition, corporate investors should note that
exempt-interest dividends will be a component of the "current earnings"
adjustment for the corporate AMT. Prospective investors should consult their own
tax advisors with respect to the possible application of the AMT to their tax
situation.

To the extent that the net asset value at the time of purchase of shares
in the Fund reflects capital gains, a subsequent distribution to the shareholder
of such amounts, although constituting a return of his investment, would be
taxable as described above. Any loss on the sale or exchange of shares of the
Fund held for six months or less will be disallowed to the extent that
tax-exempt interest dividends were paid on such shares.

Information concerning the tax status of dividends and distributions is
mailed to shareholders annually. The Fund anticipates that substantially all of
the dividends to be paid by the Fund will be exempt from federal income taxes.
If any portion of the Fund's dividends is not exempt from federal income taxes,
the Fund will advise shareholders in the annual tax information notice of the
percentage of both tax exempt and taxable income. The Fund will also advise
shareholders in the annual tax information notice of the proportion of dividends
and distributions derived from Municipal Securities of each state. In accordance
with the Code, expenses of the Fund will be allocated pro rata between taxable
and nontaxable income.

Shareholders who are recipients of Social Security benefits should be
aware that tax-exempt interest dividends received from the Fund are taken into
account for purposes of determining whether their incomes are large enough to
result in taxation of up to 85% of the amount of such Social Security benefits.

From time to time, proposals have been introduced before Congress for the
purpose of restricting, limiting, or eliminating the federal income tax
exemptions for interest on Municipal Securities. It can be expected that similar
proposals may be introduced in the future. If any such proposal were enacted,
the availability of Municipal Securities for investment by the Fund and the
value of the Fund's portfolio would be affected. In such an event, the Fund
would reevaluate its investment objective and policies.

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<PAGE> 105
MANAGEMENT OF THE TRUSTS

The Trustees and executive officers of the Trusts and their principal
occupations during the past five years are set forth below. Unless otherwise
indicated, the business address of each is One Beacon Street, Boston,
Massachusetts 02108.

*Dexter A. Dodge -- Trustee, Chairman of the Board and Chief Executive
Officer and Managing Director of the Adviser since July 1992. He is 64. Vice
President of Freedom Distributors Corporation since 1989 and Director since
1994.*

Richard A. Farrell -- Trustee-160 Federal Street, Boston, Massachusetts
02110. He is 65. President since 1980 of Farrell, Healer & Co., a venture
capital management firm that manages The Venture Capital Fund of New England.

Ernest T. Kendall -- Trustee-230 Beacon Street, Boston, Massachusetts
02116. He is 66. President, Commonwealth Research Group, Inc., Boston, MA, a
consulting firm specializing in microeconomics, regulatory economics and labor
economics, since 1978.

Richard B. Osterberg -- Trustee-84 State Street, Boston, MA 02109. He is
54. Member of the law firm of Weston, Patrick, Willard & Redding, Boston, MA
since 1978.

*William C. Dennis, Jr. -- Trustee - 1 World Financial Center, New York,
New York 10281. He is 55. Chief Financial Officer of Freedom Securities
Corporation since 1997. Director of the Advisor since 1998.

William H. Darling -- Trustee - 294 Washington Street, Suite 310, Boston,
Massachusetts 02108. He is 49. President, W.H. Darling & Co., Inc., managing
corporate general partner to a coal land lessor, since 1994. Partner of Sagamore
Partners, which provides trustee services to family and related trusts, since
1993. Certified Public Accountant, William A. Darling, CPA since 1982.

John R. Haack -- Trustee - 311 Commonwealth Avenue #81, Boston,
Massachusetts 02115. He is 56. Vice President of Operations, Reliable
Transaction Processing, 1995 to present. Major General, Assistant to the
Commander in Chief, U.S. Space Command, 1993 to 1995. General Manager, Unilect
Industries, which is an electrical component manufacturer, 1993 to 1994.
Brigadier General, Commander of 102nd Fighter Interceptor Wing, U.S. Air Force
and Air National Guard, 1986 to 1993.

Laurence R. Veator, Jr. -- Trustee - 8 Cove Way, Rust Island, Gloucester,
Massachusetts 01930. He is 65. Currently retired. Formerly, President,
Pacific/Interamerican Divisions of Grace Specialty Chemicals Co. from 1975 to
1987.

John J. Danello -- President and Secretary-Executive Vice President of the
Adviser since 1997, Managing Director,

25
<PAGE> 106
Clerk and General Counsel since November 1986. He is 43. Senior Vice President
since April 1998 and Director since February 1989 and Clerk since February 1987
of Freedom Distributors Corporation. Prior to November 1986, Mr. Danello was
associated with the law firm of Goodwin, Procter & Hoar.

Darlene F. Rego -- Treasurer-Vice President of the Adviser since February
1995 and Assistant Vice President since December 1992. She is 35. Assistant
Treasurer of the Trusts from July 1987 until December 1992.

Mary Jeanne Currie -- Vice President-Vice President of the Adviser since
February 1983. She is 50.

Paul F. Marandett -- Vice President-Vice President of the Adviser since
1990. He is 56. From 1980 to 1990, Mr. Marandett was a vice president with the
Bank of Boston.

Maureen M. Renzi -- Assistant Secretary-Vice President of the Adviser
since February 1996 and Assistant Clerk and Compliance Officer since July 1992.
She is 34. Paralegal of New England Securities from March 1989 to July 1992.

Messrs. Dodge, Danello, Dennis, and Marandett and Mesdames Currie, Rego
and Renzi are all officers of the Adviser as well as of the Trusts.

- ----------
* Trustee may be deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940.

26
<PAGE> 107
During the last fiscal year of the Trust, the Trustees were compensated as
follows:

<TABLE>
<CAPTION>
AGGREGATE AGGREGATE AGGREGATE TOTAL
COMPENSATION COMPENSATION COMPENSATION COMPENSATION
FROM THE TAX FROM THE FROM THE CASH FROM FUND
EXEMPT GOVERNMENT MANAGEMENT COMPLEX PAID
NAME OF TRUSTEE MONEY FUND SECURITIES FUND FUND TO TRUSTEES(a)
- ---------------- ---------- --------------- ---- --------------
<S> <C> <C> <C> <C>
Dexter A. Dodge
Richard A. Farrell
Ernest T. Kendall
Richard B. Osterberg
William C. Dennis, Jr.
William H. Darling
John R. Haack
Laurence R. Veator, Jr.
</TABLE>

- ----------
(a) Includes compensation from the Tax Exempt Money Fund, Government
Securities Fund, Cash Management Fund, Freedom California Tax Exempt Money
Fund and Fund Manager Portfolios. The Trust does not provide any pension
or retirement benefits for the Trustees.

To the knowledge of the Mutual Fund and the Tax Exempt Trust, no person
beneficially owns 5% or more of the shares of any of the Funds. As of January
31, 1999, the officers and Trustees of the Mutual Fund as a group owned less
than 1% of each of the Cash Management Fund and the Government Securities Fund,
and the officers and Trustees of the Tax Exempt Trust as a group owned less than
1% of the Tax Exempt Money Fund.

THE INVESTMENT ADVISER

The investment adviser for each of the Funds is Freedom Capital Management
Corporation (formerly Tucker Anthony Management Corporation), a Massachusetts
corporation (the "Adviser"), with offices at One Beacon Street, Boston,
Massachusetts 02108-3105. The Adviser is a registered investment advisory firm
which maintains a large securities research department, the efforts of which
will be made available to the Funds.

The Adviser is an indirect, wholly-owned subsidiary of Freedom Securities
Corporation, formerly known as JHFSC Acquisition Corp., a Delaware Corporation.
Freedom Securities Corporation is located at One Beacon Street, Boston,
Massachusetts 02108.

On April 2, 1998, 7,400,000 shares of common stock of Freedom Securities
Corporation were sold to the public in an initial public offering. As a
consequence of this offering of stock, as well as an acquisition by Freedom
Securities Corporation and the implementation of certain incentive and stock
option plans, the previous controlling shareholder Thomas H. Lee Equity Fund II,
L.P. (and certain related entity shareholders), now owns less than 25% of
Freedom Securities Corporation's stock.

27
<PAGE> 108
Freedom Distributors Corporation ("Freedom"), located at One Beacon
Street, Boston, MA 02108-3105, Sutro & Co., Incorporated ("Sutro"), located at
201 California Street, San Francisco, CA 94111, and Tucker Anthony Incorporated,
located at One Beacon Street, Boston, MA 02108, ("Tucker Anthony", and together
with Freedom and Sutro, the "Distributors"), affiliates of the Adviser, serve as
distributors and principal underwriters for the Funds pursuant to a distribution
agreement with each Trust. Freedom, established in 1987, is an indirect
subsidiary of Freedom Securities Corporation. Tucker Anthony (formerly Tucker,
Anthony & R.L. Day, Inc.), a brokerage firm which is a member of the New York
Stock Exchange, is also an indirect subsidiary of Freedom Securities Corporation
and continues an investment banking and brokerage business established in 1892.
Sutro, a brokerage firm which is a member of the New York Stock Exchange, is an
indirect, wholly-owned subsidiary of Freedom Securities Corporation.

Pursuant to investment advisory agreements dated as of May 20, 1998
(the "Advisory Agreements") between the respective Trusts and the Adviser, the
Adviser agreed to act as investment adviser and manager to the Funds. As manager
and investment adviser, the Adviser will: (a) furnish continuously an investment
program for the Funds and determine, subject to the overall supervision and
review of the Boards of Trustees, which investments should be purchased, held,
sold or exchanged, (b) provide supervision over all aspects of the Funds'
operations except those which are delegated to a custodian, transfer agent or
other agent, and (c) provide the Trusts with such executive, administrative and
clerical personnel, officers and equipment as are deemed necessary for the
conduct of the business of the Trusts.

For the services and facilities to be provided by the Advisor under the
Advisory Agreements, each Trust pays to the Advisor a monthly fee with respect
to each Fund as soon as practical after the last day of each calendar month, at
a rate equal to (i) one-half of one percent (.50%) on an annual basis of the
Monthly Average Net Assets (defined below) of each

28
<PAGE> 109
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 of the Funds for any calendar
month is equal to the quotient produced by dividing (i) the sum of the net
assets of such Fund, determined in accordance with procedures established from
time to time by or under the direction of the Board of Trustees of the Fund's
Trust in accordance with the Trust's 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 the Advisory Agreement with
respect to any Fund during any calendar month, the fee with respect to such Fund
for that month will be reduced proportionately based upon the number of calendar
days during which it is in effect and the fee will be computed upon the average
net assets of such Fund for the days during which it is in effect.

Each Trust bears all costs of its organization and operation, including
expenses of preparing, printing and mailing all shareholders' reports, notices,
prospectuses (except that the expense of printing and mailing prospectuses used
for promotional purposes will not be borne by the Trusts), proxy statements and
reports to regulatory agencies; expenses relating to the issuance, registration
and qualification of shares of the Trust; government fees; interest charges;
expenses of furnishing to shareholders their account statements; taxes; expenses
of redeeming shares; brokerage and other expenses connected with the execution
of portfolio securities transactions; fees and expenses of the Trust's
custodian, including those for keeping books and accounts and calculating the
net asset value of shares of each Fund; fees and expenses of its independent
accountants, legal counsel, transfer agent and dividend disbursing agent; the
compensation and expenses of its Trustees who are not otherwise affiliated with
the Trust, the Adviser or any of their affiliates; expenses of trustees' and
shareholders' meetings; trade association memberships; insurance premiums; and
any extraordinary expenses.

The Advisory Agreement for each of the Mutual Fund and the Tax Exempt
Trust was approved on May 19, 1998 by all of the Trustees, including all of
the Trustees who are not parties to such Advisory Agreement or "interested
persons" (as defined in the Investment Company Act of 1940) of any such party
and was approved at a meeting held on May 20, 1998 by the outstanding
shareholders of each of the Cash Management Fund and the Government Securities
Fund and the outstanding shareholders of the Tax Exempt Money Fund,
respectively. The Advisory Agreements will continue in effect with respect to
the Mutual Fund and Tax Exempt Trust from year to year, provided that its
continuance is approved annually both (i) by the holders of a majority of the
outstanding voting securities of each Fund or by the Board of Trustees, and (ii)
by a majority of the Trustees who are not parties to the Advisory Agreements or
"interested persons" of any such party. The Advisory Agreements may be
terminated on 60 days written notice by either party and will terminate
automatically if they are assigned.

29
<PAGE> 110
Mr. Osterberg, a Trustee of the Trusts, is a member of the law firm of
Weston, Patrick, Willard & Redding, which has retained the Adviser from time to
time to provide investment advisory consulting services for clients of such
firm.

For the fiscal year ended December 31, 1996, the Cash Management Fund, the
Government Securities Fund and the Tax Exempt Money Fund paid the Adviser an
investment advisory fee of $6,993,034, $1,573,331, and $1,434,813 respectively.

For the fiscal year ended December 31, 1997, the Cash Management Fund,
Government Securities Fund and the Tax Exempt Money Fund paid the Adviser an
investment advisory fee of $7,749,372, $ 1,603,441 and $ 1,416,138 respectively.

For the fiscal year ended December 31, 1998, the Cash Management Fund, the
Government Securities Fund and the Tax Exempt Money Fund paid the Adviser an
investment advisory fee of [$________], [$________] and [$________],
respectively.

DISTRIBUTION OF SHARES OF THE TRUSTS

The Trusts have each entered into a Distribution Agreement with the
Distributors whereby the Distributors act as exclusive selling agent of the
Funds selling shares of each Fund on a "best efforts" basis. Although the
Distributors distribute shares of each Fund on a continuous basis, shares may
also be purchased directly from the Funds. No underwriting commissions or
discounts are paid to the Distributors in connection with their distribution of
shares of the Funds.

TRANSFER AGENT

Freedom Services Corporation ("FSC"), One World Financial Center, 200
Liberty Street, New York, New York 10281 acts as transfer and shareholder
services agent for the Funds. FSC is a wholly-owned subsidiary of Freedom
Securities Corporation. Generally, FSC receives from each of the Funds a fee of
$17.75 per account in payment for the shareholder services it provides (such as
providing monthly statements and processing purchase and sale orders) for
shareholders who hold shares of the Funds through their brokerage accounts.
Transfer agent charges are reduced for those shareholder accounts that are held
through a brokerage account with FSC.

CUSTODIAN

All cash and securities of the Trusts are held by State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02106, as custodian.

FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110 serves as the Trusts' independent accountants, providing audit services,
including review and consultation, in connection with various filings by the
Trusts with the Securities and Exchange Commission and tax authorities.

30
<PAGE> 111
Each of the Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Schedule of Investments included in each
Fund's Annual Report as of or for the year ended December 31, 1998, including
any notes thereto or report of independent accounts, is hereby incorporated by
reference from such Fund's Annual Report filed with the SEC.

31
<PAGE> 112
INFORMATION ABOUT SECURITIES RATINGS OF NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS ("NRSROS")

Debt Security Ratings, Including Municipal Bonds

MOODY'S INVESTORS SERVICE, INC. Aaa -- the "best quality." Aa -- "high
quality by all standards", but margins of protection or other elements make
long-term risks appear somewhat larger than Aaa rated municipal bonds.

STANDARD & POOR'S CORPORATION. AAA -- "obligations of the highest
quality." AA --issues with investment characteristics "only slightly less marked
than those of the prime quality issues."

Ratings of Municipal Notes

MOODY'S INVESTORS SERVICE, INC. MIG 1: the best quality. MIG 2: high
quality, with margins of protection ample although not so large as in the
preceding group.

Ratings of Commercial Paper

MOODY'S INVESTORS SERVICE, INC. The rating Prime-1 is the highest
commercial paper rating assigned by Moody's. Among the factors considered by
Moody's in assigning ratings are the following: valuation of the management of
the issuer; economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas;
evaluation of the issuer's products in relation to competition and customer
acceptance; liquidity; amount and quality of long-term debt; trend of earnings
over a period of 10 years; financial strength of the parent company and the
relationships which exist with the issuer; and recognition by the management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. These factors are all
considered in determining whether the commercial paper is rated P1, P2 or P3.

STANDARD & POOR'S CORPORATION. Commercial paper rated A-1+ (highest
quality) by S&P has the following characteristics: liquidity ratios are adequate
to meet cash requirements; and long-term senior debt is rated "A-1+" or better,
although in some cases "BBB" credits may be allowed. The issuer has access to at
least two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
The relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A1, A2, or A3.

IBCA LIMITED/IBCA INC. Short-term obligations, including commercial paper,
rated A-1+ by IBCA Limited or its affiliate IBCA Inc. are obligations supported
by the highest capacity for timely repayment. Obligations rated A-1 have a very
strong capacity for timely repayment. Obligations rated A-2 have a strong
capacity for timely repayment, although such capacity may be susceptible to
adverse changes in business, economic or financial conditions.

32
<PAGE> 113
FITCH INVESTORS SERVICES, INC. Fitch Investors Services, Inc. employs the
rating F-1+ to indicate issues regarded as having the strongest degree of
assurance for timely payment. The rating F-1 reflects an assurance of timely
payment only slightly less in degree than issues rated F-1+, while the rating
F-2 indicates a satisfactory degree of assurance for timely payment, although
the margin of safety is not as great as indicated by the F-1+ and F-1
categories.

DUFF & PHELPS INC. Duff & Phelps Inc. employs the designation of Duff 1
with respect to top grade commercial paper and bank money instruments. Duff 1+
indicates the highest certainty of timely payment: Short-term liquidity is
clearly outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations. Duff 1- indicates high certainty of time payment. Duff 2 indicates
good certainty of timely payment: liquidity factors and company fundamentals are
sound.

THOMSON BANKWATCH, INC. ("BANKWATCH"). BankWatch will assign both
short-term debt ratings and issuer ratings to the issuers it rates. BankWatch
will assign a short-term rating ("TBW-1," "TBW- 2," "TBW-3," or "TBW-4") to each
class of debt (e.g., commercial paper or non-convertible debt), having a
maturity of one-year or less, issued by a holding company structure or an entity
within the holding company structure that is rated by BankWatch. Additionally,
BankWatch will assign an issuer rating ("A," A/B," "B," "B/C, "C," "C/D," "D,"
"D/E," and "E") to each issuer that it rates.

Certain NRSROs utilize rankings within rating categories indicated by a +
or -. The Funds, in accordance with industry practice, recognize such rankings
with categories as graduations, viewing for example S&P's rating of A-1+ and A-1
as being in S&P's highest rating category.

Ratings of Short-Term Corporate Debt Securities

MOODY'S INVESTORS SERVICE, INC. Aaa -- Best quality. These securities
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Aa -- High quality by all
standards. They are rated lower than the best bond because margins of protection
may not be as large as in Aaa securities, fluctuation of protective elements may
be of greater amplitude, or there may be other elements present which made the
long-term risks appear somewhat greater.

STANDARD & POOR'S CORPORATION. AAA -- Highest grade. They possess the
ultimate degree of protection as to principal and interest. Marketwise, they
move with interest rates, and hence provide the maximum safety on all counts. AA
- -- High grade. Generally, these bonds differ from AAA issues only in a small
degree. Here, too, prices move with the long-term money market.

FITCH INVESTORS SERVICE, INC. AAA-High grade, broadly marketable, suitable
for investment by trustees and fiduciary institutions, and liable to but slight
market fluctuation other than through changes in the money rate. The prime
feature of an "AAA" bond is the

33
<PAGE> 114
showing of earnings several times or many times interest requirements for such
stability of applicable interest that safety is beyond reasonable question
whenever changes occur in conditions. Other features may be considered, such as
a wide margin of protection through collateral, security or direct lien on
specific property. Sinking funds or voluntary reduction of debt by call or
purchase are often factors, while guarantee or assumption by parties other than
the original debtor may influence their rating. AA -- Of safety virtually beyond
question and readily salable. Their merits are not greatly unlike those of "AAA"
class but a bond so rated may be junior though it has a strong lien, or the
margin of safety may be less strikingly broad. The issue may be the obligation
of a small company, strongly secured, but influenced as to rating by the lesser
financial power of the enterprise and more local type of market.

34
<PAGE> 115
PART C

To the Registration Statement of Freedom Group of
Tax Exempt Funds including Freedom Tax Exempt Money
Fund (the "Tax Exempt Fund") and Freedom California
Tax Exempt Money Fund (the "California Fund")

Item 23. Exhibits.

EXHIBIT NO. DESCRIPTION

1. (a) Amended and Restated Agreement and Declaration of
Trust (Master Trust Agreement) dated September 27,
1982.(i)

(b) Amendment No. 1 to Master Trust Agreement. (i)

(d) Amendment No. 3 to Master Trust Agreement. (i)

(e) Amendment No. 4 to Master Trust Agreement. (i)

2. By-Laws as amended and restated. (i)

3. Specimen share certificates for the Tax Exempt Fund and
California Fund. (ii)

4. Advisory Agreement dated May 20, 1998 between Registrant and
Freedom Capital Management Corporation.

5. Distribution Agreement dated November 29, 1996 between the
Registrant, Tucker Anthony Incorporated, Freedom Distributors
Corporation and Sutro & Co., Incorporated. (iii)

6. None.

7. (a) Custodian Agreement between Registrant and State
Street Bank and Trust Company. (iv)

(b) Letter Agreement to add the California Fund to
Custodian Agreement. (v)

8. Transfer Agency and Service Agreement dated June 16, 1998 by
and between Freedom Mutual Fund, and Freedom Group of Tax
Exempt Funds and Freedom Services Corporation.

9. Opinion and Consent of Goodwin, Procter & Hoar with respect to
the Tax Exempt Fund, Opinion and Consent of Goodwin, Procter &
Hoar with respect to the California Fund. (vi)

10. Consent of PricewaterhouseCoopers LLP.

11. Not Applicable.

12. Investment Letter. (vii)

C-1
<PAGE> 116
13. None.

14. Financial Data Schedules for the Tax Exempt Fund and the
California Fund.

15. None.

16. Powers of Attorney. (viii)

- ------------

Footnote
Reference
- ------------

(i) Filed as an exhibit under Post-Effective Amendment No. 21, File No.
2-78609, to the Registrant's Registration Statement on Form N-1A, under
the same exhibit number and incorporated herein by reference.

(ii) Filed as exhibit number 4 under Post-Effective Amendment No. 21, File
No. 2-70863, to the Registrant's Registration Statement on Form N-1A,
and incorporated herein by reference.

(iii) Filed as exhibit number 6 under Post-Effective Amendment No. 21, File
No. 2-70863, to the Registrant's Registration Statement on Form N-1A,
and incorporated herein by reference.

(iv) Filed as exhibit number 8(a) under Post-Effective Amendment No. 21,
File No. 2-70863, to the Registrant's Registration Statement on Form
N-1A, and incorporated herein by reference.

(v) Filed as exhibit number 8(b) under Post-Effective Amendment No. 21,
File No. 2-70863, to the Registrant's Registration Statement on Form
N-1A, and incorporated herein by reference.

(vi) Filed as exhibit number 10 under Post-Effective Amendment No. 21, File
No. 2-70863, to the Registrant's Registration Statement on Form N-1A,
and incorporated herein by reference.

(vii) Filed as exhibit number 13 under Post-Effective Amendment No. 21, File
No. 2-70863, to the Registrant's Registration Statement on Form N-1A,
and incorporated herein by reference.

(viii) Filed as exhibit number 19 under Post-Effective Amendment No. 21, File
No. 2-70863, to the Registrant's Registration Statement on Form N-1A,
and incorporated herein by reference.

- ------------

Item 24. Persons Controlled by or Under Common Control with Registrant.

Registrant is not directly or indirectly controlled by or
under common control with any person other than the Trustees. Registrant does
not have any subsidiaries.

Item 25. Indemnification.

Under Article VII of the Registrant's Amended and Restated
Agreement and Declaration of Trust, any present or former Trustee, Officer,
agent or employee or person serving in such capacity with another entity at the
request of the Registrant ("Covered Person") shall be indemnified against all
liabilities, including but not limited to amounts paid in satisfaction of
judgments, in compromises or as fines or penalties and expenses, including
reasonable legal and accounting fees, in connection with the defense or
disposition of any proceeding by or in the name of the Registrant or any
shareholder in his capacity as such if: (i) a favorable final decision on the
merits is made by a court or administrative body; or (ii) a reasonable
determination is made by a vote of the majority of a quorum of disinterested
Trustees or by independent legal counsel that the Covered Person was not liable
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in his office ("Disabling Conduct"); or (iii) a
determination is made to indemnify the Covered Person under procedures approved
by the Board of Trustees which in the opinion of independent legal counsel are
not inconsistent with the Investment Company Act of 1940. Said Article VII
further provides that the Registrant shall indemnify any Covered Person against
any such liabilities and expenses incurred in connection with the defense or
disposition of any other type of proceeding except with respect to any matter as
to which the Covered Person shall have engaged in Disabling Conduct or shall
have been finally adjudicated not to have acted in good faith and in the
reasonable belief that such Covered Person's action was in or not opposed to the
best interests of the Registrant.

Item 26. Business and Other Connections of Investment Adviser.

Freedom Capital Management Corporation (the "Adviser") is a
registered investment adviser. The Adviser's offices are located at One Beacon
Street, Boston, Massachusetts. It is a wholly-owned subsidiary of Freedom
Securities Corporation. Freedom Distributors Corporation, a registered
broker-dealer, is a wholly-owned subsidiary of the Adviser and acts as a
distributor of shares of the Registrant. The principal office of Freedom
Distributors Corporation is at One Beacon Street, Boston, Massachusetts 02108.
The principal office of Freedom Securities Corporation is at One Beacon Street,
Boston, Massachusetts. The Adviser offers a wide range of investment advisory
services to both individuals and institutions.

C-2
<PAGE> 117
On June 25, 1982, the Adviser and Tucker Anthony Incorporated,
a brokerage firm which is a member of the New York Stock Exchange and continues
an investment banking and brokerage business established in 1892, were acquired
by John Hancock Mutual Life Insurance Company ("John Hancock") as indirect
subsidiaries.

On November 29, 1996, John Hancock Mutual Life Insurance
Company (John Hancock), through its subsidiary, John Hancock Subsidiaries, Inc.,
transferred 95.1% of the capital stock of John Hancock Freedom Securities
Corporation to JHFSC Acquisition Corp., now known as Freedom Securities
Corporation, a Delaware corporation.

On April 2, 1998, 7,400,000 shares of common stock of Freedom
Securities Corporation were sold to the public in an initial public offering. As
a consequence of this offering of stock, as well as an acquisition by Freedom
Securities Corporation and the implementation of certain incentive and stock
option plans, the previous controlling shareholder Thomas H. Lee Equity Fund II,
L.P. (and certain related entity shareholders), now owns less than 25% of
Freedom Securities Corporation's stock.

The Adviser also acts as investment adviser for two other
registered investment companies, Freedom Mutual Fund and FundManager Portfolios.

The following information is provided with respect to each
director and executive officer of the Adviser:

<TABLE>
<CAPTION>
BUSINESS AND OTHER
POSITION POSITIONS WITHIN
NAME WITH ADVISER LAST TWO YEARS
- ---- ------------ --------------
<S> <C> <C>
Dexter A. Dodge Chairman, CEO and Director Director of the Adviser.
Director of Freedom Distributors
Corporation.

John J. Danello Executive Vice President, Director Senior Vice President and Director
Clerk and General Counsel of Freedom Distributors Corporation.

John H. Goldsmith Director President and Chief Executive
Officer of Freedom Securities
Corporation Inc. Chairman and Chief
Executive Officer of Tucker Anthony
Incorporated.

William C. Dennis Director Chief Financial Officer of Freedom
Securities Corporation.

Michael M. Spencer Director Director of the Adviser

Amy E. Ghisletta Chief Financial Officer Employee of Tucker Anthony
Incorporated
</TABLE>

Item 27. Principal Underwriters.

(a) Freedom Distributors Corporation ("Freedom") acts as
co-distributor with Sutro & Co. Incorporated ("Sutro"), and Tucker Anthony
Incorporated ("Tucker Anthony") with respect to the California Fund and the Tax
Exempt Fund. Freedom, Sutro and Tucker Anthony also act as co-distributors for
Freedom Mutual Fund and FundManager Portfolios, and Freedom acts as a
distributor for Freedom Investment Trust, Freedom Investment Trust II and
Freedom Investment Trust III, all registered investment companies.

(b)(1) The name of each director and officer of Freedom,
together with the offices held by such person with Freedom and the Registrant,
are set forth below. The principal business address of each person named below
is One Beacon Street, Boston, MA 02108.

C-3
<PAGE> 118

<TABLE>
<CAPTION>
NAME OFFICES WITH FREEDOM AND THE REGISTRANT
---- ---------------------------------------
<S> <C>
John J. Danello............................. President and Director of Freedom and Secretary of the
Registrant

Amy E. Ghisletta............................ Treasurer of Freedom

Dexter A. Dodge............................. Director of Freedom and Chief Executive Officer of the
Registrant.

Maureen M. Renzi............................ Vice President and Clerk of Freedom and Assistant
Secretary of the Registrant.
</TABLE>

(b)(2) The persons whose names and addresses are set forth
below hold the offices with Tucker Anthony indicated below. None of these
persons holds any position or office with Freedom.

<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS OFFICES WITH TUCKER ANTHONY
- ---------------- ---------------------------
<S> <C>
John H. Goldsmith (1)....................... Chairman, Chief Executive Officer and Director

Robert H. Yevich (2)........................ President and Director

Kevin J. McKay (2).......................... Executive Vice President

Marc Menchel (2)............................ General Counsel, Secretary and Clerk

John B. Mullin (2).......................... Treasurer and Chief Financial Officer
</TABLE>

(1) Business address is One Beacon Street, Boston, Massachusetts
02108.

(2) Business address is One World Financial Center, 200 Liberty
Street, New York, New York 10281.

(b)(3) The name and principal business address of each
director and officer of Sutro, together with the offices held by such persons
with Sutro, are set forth below. No officer or director of Sutro holds any
office with the Registrant.

<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS OFFICES WITH SUTRO
- ---------------- ------------------

<S> <C>
John F. Luikart (1)......................... President and CEO

Mary Jane Delaney (1)....................... Executive Vice President, General Counsel and Secretary

John H. Goldsmith (2)....................... Chairman

Raymond J. Minehan (1)...................... Executive Vice President

John W. Eisele (1).......................... Executive Vice President

Thomas R. Weinberger (3).................... Executive Vice President

Jerry Phillips (1).......................... Executive Vice President
</TABLE>

C-4
<PAGE> 119

(1) Business address is 201 California Street, San Francisco,
California 94111.

(2) Business address is One Beacon Street, Boston, Massachusetts
02108.

(3) Business address is 11150 Santa Monica Blvd., Suite 1500, Los
Angeles, California 90025

Item 28. Location of Accounts and Records.

The accounts and records of the Registrant are maintained at
the offices of Registrant at One Beacon Street, Boston, Massachusetts and at the
offices of the Custodian, State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02106 and 1776 Heritage Drive, North Quincy,
Massachusetts 01171.

Item 29. Management Services.

There are no management-related service contracts other than
the Advisory Agreement relating to management services described in Parts A and
B.

Item 30. Undertakings.

Not applicable.

C-5
<PAGE> 120
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant hereby certifies that it meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(a) under the Securities Act of 1933 and has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in this City of Boston and Commonwealth
of Massachusetts on the 31st day of December, 1998.

FREEDOM GROUP OF TAX EXEMPT FUNDS

By: /s/ Dexter A. Dodge
----------------------------------------
Dexter A. Dodge, Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.

Signature Title Date
<S> <C> <C>
/s/ Dexter A. Dodge Chairman and Trustee December 31, 1998
- --------------------------
Dexter A. Dodge, Principal
Executive Officer

/s/ Darlene F. Rego Treasurer December 31, 1998
- --------------------------
Darlene F. Rego, Principal
Financial and Accounting
Officer

Trustee December 31, 1998
- --------------------------
William C. Dennis

* Trustee December 31, 1998
- --------------------------
Richard A. Farrell

* Trustee December 31, 1998
- --------------------------
Ernest T. Kendall

* Trustee December 31, 1998
- --------------------------
Richard B. Osterberg

* Trustee December 31, 1998
- --------------------------
William H. Darling

* Trustee December 31, 1998
- --------------------------
John R. Haack

* Trustee December 31, 1998
- --------------------------
Laurence R. Veator, Jr.

*By: /s/ Dexter A. Dodge
- --------------------------
Dexter A. Dodge, Attorney-in-Fact under Powers of
Attorney dated February 1, 1995, January 27, 1997
and January 28, 1997 and included as Exhibit 19 to
Post-Effective Amendment No. 21, File No. 2-78609,
and incorporated herein by reference.
</TABLE>

<PAGE> 1
EXHIBIT 4

ADVISORY AGREEMENT

AGREEMENT made as of the 20th day of May, 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 render such services on the terms provided for herein,

<PAGE> 2
it shall notify the Trust in writing, whereupon such series of shares shall
become a Fund hereunder.

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

B-2
<PAGE> 3
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 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

B-3
<PAGE> 4
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
established from time to time by or under the

B-4
<PAGE> 5
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 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 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

B-5
<PAGE> 6
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.

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

B-6
<PAGE> 7
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 the continuance of this Agreement with respect
to any additional Fund is subject to the approval of this Agreement by a
majority of the outstanding voting securities of that Fund at the first annual
or special meeting of shareholders after this Agreement becomes effective with
respect to that Fund.

(b) Amendment. Any amendment to this Agreement shall become
effective with respect to any Fund upon approval of a majority of the
outstanding voting securities (as defined in the 1940 Act) of that Fund.

(c) Termination. This Agreement may be terminated with respect to
any Fund at any time, without payment of any penalty, by vote of the Trustees or
by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of that Fund, or by the Manager, on sixty (60) days' written notice to
the other party.

(d) Automatic Termination. This Agreement shall automatically and
immediately terminate in the event of its assignment.

(e) Approval, Amendment or Termination by Individual Fund. Any
approval, amendment or termination of this Agreement by the holders of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
any Fund shall be effective to continue, amend or terminate this Agreement with
respect to any such Fund notwithstanding (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.

B-7
<PAGE> 8
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 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.

B-8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.

FREEDOM GROUP OF TAX EXEMPT FUNDS FREEDOM CAPITAL MANAGEMENT CORPORATION

By: /s/ John Danello By: /s/ Dexter A. Dodge
----------------------------- ----------------------------------
Chief Executive Officer Chairman

ATTEST: ATTEST:

/s/ Maureen M. Renzy /s/ John Danello
- --------------------------------- --------------------------------------
Assistant Secretary Clerk

B-9

<PAGE> 1
EXHIBIT 8

TRANSFER AGENCY AND SERVICE AGREEMENT

AGREEMENT made as of the 16th day of June, 1998 by and between Freedom
Mutual Fund, and Freedom Group of Tax Exempt Funds, Massachusetts business
trusts having their principal office and place of business at One Beacon Street,
Boston, Massachusetts (the "Trusts"), and Freedom Services Corporation, a
Massachusetts corporation having its principal office and place of business at
200 Liberty Street, New York, New York 10281 ("FSC").

WITNESSETH

WHEREAS, the Trusts desire to appoint FSC as their transfer agent,
dividend disbursing agent and agent in connection with certain other activities,
and FSC desires to accept such appointment.

WHEREAS, the Trusts are authorized to issue shares in separate series,
with each such series representing interests in separate portfolio of securities
and other assets; and

WHEREAS, the Trusts presently offer shares of beneficial interest in four
(4) series (Freedom Cash Management Fund, Freedom Government Securities Fund,
Freedom Tax Exempt Money Fund and Freedom California Tax Exempt Money Fund) such
series, together with all other series subsequently established by the Trust and
made subject to this Agreement in accordance with Article 8, being herein
referred to as the "Fund(s)".

NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:

1
<PAGE> 2
Article 1 TERMS OF APPOINTMENT: DUTIES OF FSC

1.01 Subject to the terms and conditions set forth in this Agreement, the
Trusts hereby, employ and appoint FSC to act as, and FSC agrees to act as
transfer agent for the Funds' authorized and issued shares of beneficial
interest ("Shares"), with any accumulation, open-account or similar plans
provided to the shareholders of the Funds ("Shareholders") and set out in the
currently effective prospectuses of the Funds, including without limitation any
periodic investment plan or periodic withdrawal program.

1.02 FSC agrees that it will perform the following services:

(a) In accordance with procedures established from time to time by
agreement between Trusts and FSC, FSC shall:

(i) Receive for acceptance orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation
therefor to the Custodian of Funds (the "Custodian"):

(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
accounts;

(iii) Receive for acceptance, redemption requests and redemption
directions and deliver the appropriate documentation therefor
to the Custodian;

(iv) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over
or cause to be paid over in the appropriate manner such monies
as instructed by the redeeming Shareholders;

(v) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;

(vi) Prepare and transmit payments for dividends and distributions
declared by the Funds;

2
<PAGE> 3
(vii) Maintain records of account for and advise the Funds and
their Shareholders as to the foregoing; and

(viii) Record the issuance of Shares of the Funds and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of shares of the Funds which are authorized, based upon data
provided to it by the Funds, and issued and outstanding. FSC
shall also provide the Funds on a regular basis with the
total number of Shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of Shares, to monitor the issuance of such Shares or
to take cognizance of any laws relating to the issue or sale
of such Shares, which functions shall be the sole
responsibility of the Funds.

(b) In addition to and not in lieu of the services set forth in the
above paragraph (a) FSC shall: (i) perform all of the customary
services of a transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation, open-account or
similar plans (including without limitation any periodic investment
plan or periodic withdrawal program), including, but not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, receiving and tabulating proxies, mailing
Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts,
preparing and filing U.S. Treasury. Department Forms 1099 and other
appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders, preparing
and mailing confirmations' forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder a ccounts, preparing and
mailing activity statements for Shareholders, and providing
Shareholder account information and (ii)

3
<PAGE> 4
provide a system which will enable the Funds to monitor the total
number of Shares sold in each State.

(c) In addition, the Funds shall (i) identify to FSC in writing those
transactions and assets to be treated as exempt from the blue sky
reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of FSC for the Funds' blue sky State registration
status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Funds and
reporting of such transactions to the Funds as provided above.

Procedures applicable to certain of these services may be established
from time to time by agreement between the Funds and FSC but the failure of the
Funds to establish such procedures with respect to any service shall not in any
way diminish the duty and obligation of FSC to perform such services hereunder.

Article 2 FEES AND EXPENSES

2.01 For performance by FSC pursuant to this Agreement, the Funds agree
to pay FSC an annual maintenance fee for each Shareholder account as set forth
in the initial fee schedule attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 2.02 below may be changed from
time to time subject to mutual written agreement between the Trusts and FSC.

2.02 In addition to the fee paid under Section 2.01 above the Funds agree
to reimburse FSC for out-of-pocket expenses or advances incurred by FSC for the
items set out in the fee schedule attached hereto. In addition, any other
expenses

4
<PAGE> 5
incurred by FSC at the request or with the consent of the Funds, will be
reimbursed by the Funds.

2.03 The Funds agree to pay all fees and reimbursable expenses promptly
following the mailing of the respective billing notice. Postage for mailing of
dividends, proxies, Funds' reports and other mailings to all shareholder
accounts shall be advanced to FSC by the Funds at least seven (7) days prior to
the mailing date of such materials.

Article 3 REPRESENTATIONS AND WARRANTIES OF FSC

FSC represents and warrants to the Trust that:

3.01 It is a Delaware corporation duly organized and existing and in good
standing under the laws of the State of Delaware, and as a foreign corporation
under the laws of the Commonwealth of Massachusetts.

3.02 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.

3.03 It is empowered under applicable laws and by its charter and By-Laws
to enter into and perform this Agreement.

3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.

3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.

Article 4 REPRESENTATIONS AND WARRANTIES OF THE TRUSTS

The Trusts represent and warrant to FSC that:

4.01 They are each a trust duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.

5
<PAGE> 6
4.02 They are empowered under applicable laws and by their Declaration of
Trust and By-Laws to enter into and perform this Agreement.

4.03 All corporate proceedings required by said Declarations of Trust and
By-Laws have been taken to authorize them to enter into and perform this
Agreement.

4.04 They are open-end investment companies registered under the
Investment Company Act of 1940.

4.05 A registration statement under the Securities Act of 1933 is
currently effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with respect to all
Shares of the Funds being offered for sale.

Article 5 INDEMNIFICATION

5.01 FSC shall not be responsible for, and the Trusts shall indemnify and
hold FSC harmless from and against, any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities arising out of or attributable
to:

(a) All actions of FSC or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.

(b) The Trusts' refusal or failure to comply with the terms of this
Agreement, or which arise out of the Trusts' lack of good faith,
negligence or willful misconduct or which arise out of the breach of
any representation or warranty of the Trusts hereunder.

(c) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such
state or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the offer
or sale of such

6
<PAGE> 7
Shares in such state unless such violation results from any action
or omission by FSC or any of its agents or sub-contractors which
fails to comply with written instructions of the Trusts or any
officer of the Trusts that no offers or sales be made in general or
to the residents of a particular state.

5.02 FSC shall indemnify and hold the Trusts harmless from and against
any and all losses, damages, costs, charges, counsel fees, payments, expenses
and liabilities arising out of or attributed to any action or failure or
omission to act by FSC as a result of FSC's lack of good faith, negligence or
willful misconduct.

5.03 At any time FSC may apply to any officer of the Trusts for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by FSC under this
Agreement, and FSC and its agents or subcontractors shall not be liable and
shall be indemnified by the Funds for any action taken or omitted by them in
reliance upon such instructions or upon the opinion of such counsel. FSC, its
agents and subcontractors' shall be protected and indemnified in acting upon
any paper or document furnished by or on behalf of the Trusts, reasonably
believed to be genuine and to have been signed by the proper person or persons,
or upon any instruction, information, data, records or documents provided FSC or
its agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Trusts, and shall not be held to have
notice of any change of authority of any person, until receipt of written notice
thereof from the Trusts. FSC, its agents and subcontractors shall also be
protected and indemnified in recognizing share certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the officer of the
Trusts, and the proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.

5.04 In the event any party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission

7
<PAGE> 8
failure or damage reasonably beyond its control, or other causes reasonably
beyond its control, such party shall not be liable for damages to the other for
any damages resulting from such failure to perform or otherwise from such
causes.

5.05 No party to this Agreement shall be liable to the other parties for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.

5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.

Article 6 COVENANTS OF THE TRUSTS AND FSC

6.01 The Trusts shall promptly furnish to FSC the following:

(a) A certified copy of the resolution of the Board of Trustees
authorizing both the appointment of FSC and the execution and
delivery of this Agreement.

(b) A copy of the Declarations of Trust and By-Laws of the Trusts and
all amendments thereto.

6.02 FSC hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Funds for safekeeping of share
certificates, check forms

8
<PAGE> 9
and facsimile signature imprinting devices, if any; and for the preparation or
use, and for keeping account of, such certificates, forms and devices.

6.03 FSC shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the Rules thereunder, FSC agrees that all such records prepared or maintained by
FSC relating to the services to be performed by FSC hereunder are the property
of the Trusts and will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered to the Funds on and in
accordance with their request.

6.04 FSC and the Trusts agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.

6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Trusts, FSC will endeavor to notify the Trusts and to
secure instructions from an authorized officer of the Trust as to such
instruction. FSC reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.

Article 7 TERMINATION OF AGREEMENT

7.01 This Agreement may be terminated by any party upon one hundred
twenty (120) days' written notice to the other.

7.02 Should the Trusts exercise their right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the

9
<PAGE> 10
Trusts. Additionally, FSC reserves the right to charge for any other reasonable
expenses associated with such termination.

Article 8 ADDITIONAL FUNDS

8.01 In the event that the Trusts establish one or more of series of
Shares in addition to the present series with respect to which they desire to
have FSC render services as a transfer agent under the terms hereof, they shall
so notify FSC in writing, and if FSC agrees in writing to provide such services,
such series of Shares shall become a Fund hereunder.

Article 9 ASSIGNMENT

9.01 Except as provided in Section 9.03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by any party without the
written consent of the other party.

9.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.

9.03 FSC may, without further consent on the part of the Trusts,
subcontract for the performance hereof with or any other entity FSC deems
appropriate in order to comply with the terms and conditions of this Agreement,
provided, however, that FSC shall be as fully responsible to the Trusts for the
acts and omissions of any subcontractor as it is for its own acts and omissions.

Article 10 AMENDMENT

10.01 This Agreement may be amended or modified by a written agreement
executed by the parties hereto and authorized or approved by a resolution of the
Board of Trustees of the Trusts.

10
<PAGE> 11
Article 11 MASSACHUSETTS LAW TO APPLY

11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.

Article 12 MERGER OF AGREEMENT

12.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written.

Article 13 LIMITATION ON LIABILITY

13.01 The Declarations of Trust establishing the Trusts, dated
December 22, 1980 and June 1, 1982, copies of which, together with all
amendments thereto, are on file in the Office of the Secretary of the
Commonwealth of Massachusetts, provide all persons extending credit to,
contracting with or having any claim against the Trusts shall look only to the
assets of the Trusts, and neither the shareholders nor the Trustees, nor any of
the Trusts' officers, employees, or agents shall be personally liable therefore.

11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.

ATTEST: FREEDOM MUTUAL FUND

/s/ John Danello By: /s/ Dexter A. Dodge
- ----------------------------- --------------------------------
Dexter A. Dodge
Chairman

ATTEST: FREEDOM GROUP OF TAX EXEMPT FUNDS

/s/ John Danello By: /s/ Dexter A. Dodge
- ----------------------------- --------------------------------
Dexter A. Dodge
Chairman

ATTEST: FREEDOM SERVICES CORPORATION

/s/ John Danello By: /s/ Nicholas E. Bonadies
- ----------------------------- --------------------------------
Nicholas E. Bonadies
President

<PAGE> 1

EXHIBIT 10
----------

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectuses constituting part of this
Post-Effective Amendment No. 23, File No. 2-78609, to the registration statement
of Form N-1A (the "Registration Statement") of our reports dated January 30,
1998, relating to the financial statements and financial highlights of Freedom
California Tax Exempt Money Fund and Freedom Tax Exempt Money Fund (each a
series of Freedom Group of Tax Exempt Funds), which appear in such prospectuses,
and to the incorporation by reference of our reports into the Statements of
Additional Information which also constitute part of this Registration
Statement. We also consent to the reference to us under the heading "Financial
Highlights" in such prospectuses and to the reference to us under the headings
"Financial Statements and Independent Accountants" in such Statements of
Additional Information.

Boston, Massachusetts
December 30, 1998

<ARTICLE> 6
<CIK> 0000704348
<NAME> FREEDOM GROUP OF TAX EXEMPT FUNDS
<SERIES>
<NUMBER> 2
<NAME> FREEDOM CALIFORNIA TAX EXEMPT MONEY FUND

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 113,962,595
<INVESTMENTS-AT-VALUE> 113,978,378
<RECEIVABLES> 1,222,601
<ASSETS-OTHER> 140,649
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115,325,845
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 597,296
<TOTAL-LIABILITIES> 597,296
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 114,726,341
<SHARES-COMMON-STOCK> 114,726,341
<SHARES-COMMON-PRIOR> 115,336,645
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<NAME> FREEDOM TAX EXEMPT MONEY FUND

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