<PAGE> 1
As Filed with the Securities and Exchange
Commission on March 1, 1999
1933 Act File No. 2-70863
1940 Act File No. 811-3126
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 29 / X /
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
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Amendment No. 31 / X /
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(Check appropriate box or boxes.)
FREEDOM MUTUAL FUND
(Exact Name of Registrant)
One Beacon Street, Boston, MA 02108
(Address of Principal Executive Offices)
(617) 725-2300
(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):
<PAGE> 2
/x/ Immediately upon filing pursuant to paragraph (b) / / On February
27, 1998, pursuant to paragraph (b) / / 60 days after filing pursuant
to paragraph (a)(1) / / On _____ pursuant to paragraph (a)(1) / / 75
days after filing pursuant to paragraph (a)(2) / / On _____ pursuant to
paragraph (a)(2).
If appropriate check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 3
[FREEDOM FUND LOGO]
FREEDOM CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
A money market fund investing in a diversified portfolio of high-grade
money market instruments.
FREEDOM GOVERNMENT SECURITIES FUND
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A money market fund investing exclusively in U.S. Government securities.
FREEDOM TAX EXEMPT MONEY FUND
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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.
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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
<PAGE> 4
TABLE OF CONTENTS
PAGE
----
Fund Investment Objectives and Strategies................................. 1
Volatility and Performance................................................ 3
Investor Fees and Fund Expenses........................................... 6
Investment Management..................................................... 6
Buying, Selling, Exchanging Fund Shares................................... 7
Distributions and Taxes................................................... 12
Additional Information on Fund Investments................................ 13
Financial Highlights...................................................... 15
Additional Information About the Funds.................................... 16
PROSPECTUS
(i)
<PAGE> 5
FUND INVESTMENT OBJECTIVES AND STRATEGIES
FUNDAMENTAL OBJECTIVES
The 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.
The 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.
The 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 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 Funds may maintain a stable $1.00 share price, although there is no
guarantee that a Fund 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.
All of the investments of each Fund must be high-quality securities. At
least 95% of the total assets of each Fund 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
Financial Highlights on page 15.
PRINCIPAL INVESTMENTS
The 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.
The 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.
PROSPECTUS
1
<PAGE> 6
The 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.
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 that
do not 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
each 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> 7
VOLATILITY AND PERFORMANCE
The information provided in the charts and tables below 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. It also assumes that you sold your shares
at the end of the period.
An independent measure of performance is listed with each Fund's average
annual returns. These measures can be used as a rough guide when gauging the
return of these and other investments. Keep in mind that these measures include
the effects of Fund expenses.
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
YEAR-BY-YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
CASH MANAGEMENT FUND
<S> <C>
1989 8.78
1990 7.80
1991 5.60
1992 3.13
1993 2.50
1994 3.59
1995 5.38
1996 4.86
1997 5.03
1998 5.03
</TABLE>
PROSPECTUS
3
<PAGE> 8
During the 10-year period shown in the bar chart above, the highest return
for a quarter was 2.27% (quarter ended June 30, 1989) and the lowest return for
a quarter was 0.60% (quarter ended June 30, 1993).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE YEAR ENDED 12/31/98
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Cash Management Fund........................................ 5.03% 4.78% 5.15%
*IBC First Tier Money Funds Average......................... 4.98% 4.79% 5.23%
</TABLE>
- ---------------
* The IBC First Tier Money Funds Average is an average of the performance of
those money market funds that invest primarily in any allowable Rule 2a-7
investment, except second-tier commercial paper.
GOVERNMENT SECURITIES FUND
YEAR-BY-YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
<S> <C>
1989 8.48
1990 7.69
1991 5.34
1992 3.18
1993 2.49
1994 3.36
1995 5.10
1996 4.69
1997 4.96
1998 4.93
</TABLE>
During the 10-year period shown in the bar chart above, the highest return
for a quarter was 2.18% (quarter ended June 30, 1989) and the lowest return for
a quarter was 0.59% (quarter ended June 30, 1993).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE YEAR ENDED 12/31/98)
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Government Securities Fund.................................. 4.93% 4.61% 5.01%
*IBC US Government & Agencies Taxable Funds Average......... 4.91% 4.71% 5.13%
</TABLE>
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* The IBC US Government & Agencies Taxable Funds Average is an average of the
performance of those money market funds that invest primarily in Treasury
bills, securities issued by agencies of the U.S. government, and repurchase
agreements backed by any of those securities.
PROSPECTUS
4
<PAGE> 9
TAX EXEMPT MONEY FUND
YEAR-BY-YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
TAX EXEMPT MONEY FUND
<S> <C>
1989 5.69
1990 5.35
1991 3.96
1992 2.35
1993 1.73
1994 2.19
1995 3.23
1996 2.86
1997 3.04
1998 2.88
</TABLE>
During the 10-year period shown in the bar chart above, the highest return
for a quarter was 1.51% (quarter ended June 30, 1989) and the lowest return for
a quarter was 0.41% (quarter ended March 31, 1993).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE YEAR ENDED 12/31/98)
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Tax Exempt Money Fund....................................... 2.88% 2.84% 3.32%
*IBC Stockbroker & General Purpose Tax Free Funds Average... 2.93% 2.93% 3.47%
</TABLE>
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* The IBC Stockbroker & General Purpose Tax Free Funds Average is an average of
the performance of those money market funds that invest primarily in
obligations of tax-exempt entities, including state and municipal authorities.
To obtain current yield information for any of the Funds, please call
1(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 each Fund and certain expenses which may be
deducted from a Fund's assets.
<TABLE>
<CAPTION>
CASH GOVERNMENT TAX
MANAGEMENT SECURITIES EXEMPT
FUND FUND MONEY FUND
---------- ---------- ----------
<S> <C> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge (Load) Imposed on
Purchases.................................. None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends....................... None None None
Redemption Fees............................... None None None
Exchange Fees................................. None None None
Maximum Account Fees.......................... None None None
ANNUAL FUND OPERATING EXPENSES
Management Fees............................... .46% .50% .50%
Distribution (12b-1 Fees)..................... None None None
Other Expenses................................ .19% .11% .13%
TOTAL FUND OPERATING EXPENSES......... .65% .61% .63%
</TABLE>
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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............................. $7 $21 $36 $81
Government Securities Fund....................... 6 20 34 76
Tax Exempt Money Fund............................ 6 20 35 79
</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 1930, and as of December 31,
1998, had approximately $6.9 billion of assets under management.
PROSPECTUS
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<PAGE> 11
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
Purchases by Clients of Tucker Anthony or Sutro
You may open an account with a Fund and buy shares of a Fund through Tucker
Anthony Incorporated ("Tucker Anthony") or Sutro & Co., Incorporated ("Sutro")
utilizing a securities brokerage account. Your Tucker Anthony or Sutro
investment executive can assist you through all phases of your investment,
including initial and additional purchases, exchange and redemption.
With Brokerage Account Balances 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 (i.e.
immediately available funds) available in your brokerage account, your order
will be executed on the same business day and you will receive dividends on such
shares beginning 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 in your brokerage account,
your order will be executed on the next business day and dividends on such
shares will be paid beginning on that day. Any purchase utilizing funds other
than a free credit balance available on your brokerage account will be effected
as follows:
By Check When you pay Tucker Anthony or Sutro 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 that 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 is reasonably satisfied that the investment has
been collected and you will receive dividends on such shares beginning on such
day.
By Wire If notice from your bank of the wire transfer is received by
Tucker Anthony or Sutro before 12:00 noon New York time, your order will be
executed at 12:00 noon New York time on that day and you will receive dividends
on such shares beginning on such day. If notice from your bank of the wire
transfer is received by Tucker Anthony or Sutro after 12:00 noon New York time,
your order will be executed at 12:00 noon New York time on the next business day
and you will receive dividends on such shares beginning on such day. If you
transfer payment by wire, the transfer may be subject to a service charge by
your bank.
You should note that Tucker Anthony or Sutro may benefit from the use of
free credit balances in your brokerage account prior to their transfer to a
Fund.
PROSPECTUS
7
<PAGE> 12
Sweep Program
Under the terms of the Tucker Anthony or Sutro "sweep" program, you may
have your free credit balance in your brokerage account invested in shares of
any Fund or any other Freedom money market fund, although at any one time your
free credit balance may be invested automatically in only one fund. Free credit
balances in available funds of $2,000 or more at the close of each business day
will be invested automatically on the next business day in shares of the fund
you designate and dividends on such shares will begin on the following business
day. 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 and dividends on such
shares will begin on the following business day, generally on Tuesday.
If you wish additional information concerning the "sweep" program, please
call your investment executive.
Freedom Asset Account.
You may also open an account in any Fund and purchase shares of any 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 cash/margin account
- an account with one of the Funds
- a checkwriting 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 investment 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 investment executive and review
carefully the Freedom Asset Account agreement.
Minimum Investments in the Funds
A minimum investment requirement applies to all direct investments through
the Tucker Anthony and Sutro brokerage accounts.
<TABLE>
<CAPTION>
INITIAL INVESTMENT ADDITIONAL INVESTMENTS
------------------ ----------------------
<S> <C>
$100 or more
$1,000
</TABLE>
PROSPECTUS
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<PAGE> 13
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.
There is no minimum amount for initial or subsequent investment in
connection with purchases with available cash in your Freedom Asset Account or
purchases through the automatic "sweep" program sponsored by Tucker Anthony and
Sutro.
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.
SELLING FUND SHARES
Redemptions
In order to redeem shares purchased through a Tucker Anthony or Sutro
brokerage account, you should advise your investment executive, by telephone or
mail, to execute the redemption. Redemption proceeds will be held in your
brokerage account unless you give instructions to your investment 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 debit balances in
your brokerage account; clients will not be entitled to dividends declared on
the date of redemption. Each brokerage account will be scanned automatically for
debits as of the close of each business day and, after application of any free
credit balances in the account to such debits, a sufficient number of shares of
the Fund owned by you will be redeemed the following business day to satisfy any
remaining debits. In the case of certain automatic redemptions, where Freedom
Services Corporation cannot anticipate debits in a brokerage account (e.g.,
checks written against your account), clients will not be entitled to dividends
declared on the date of redemption; such dividends will be retained by the
client's broker-dealer. You should be aware that Tucker Anthony or Sutro may
benefit from the use of free credit balances in your account prior to their
transfer to a Fund.
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 checkwriting feature, you
must complete a purchase application electing the feature and return the
application to your Tucker Anthony or Sutro investment executive.
PROSPECTUS
9
<PAGE> 14
If you redeem shares by using the checkwriting 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 checkwriting 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 received by Freedom Services Corporation prior to 12:00
noon New York time will be priced on the basis of net asset value per share at
12:00 noon New York time that day. Redemption orders received by Freedom
Services Corporation subsequent to 12:00 noon New York time will be priced on
the basis of net asset value per share at 12:00 noon New York time the next day
that net asset value is computed.
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.
EXCHANGE PRIVILEGES
Shares of each Fund may be exchanged for shares of the other Funds
described in this Prospectus. In addition, if you have a Sutro brokerage account
and 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 Fund, you should obtain a prospectus from your Sutro investment
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 investment executive. If your exchange into a
Fund is an initial investment in that Fund, the minimum amount of the exchange
must be $1,000. After your initial investment, you may make subsequent exchanges
in minimum amounts of $100.
Timing of Exchanges
Exchanges received by Freedom Services Corporation prior to 12:00 noon New
York time will be priced on the basis of net asset value per share at 12:00 noon
New York time that day. Exchanges received by Freedom Services Corporation
subsequent to 12:00 noon New York time will be priced on
PROSPECTUS
10
<PAGE> 15
the basis of net asset value per share at 12:00 noon New York time the next day
that net asset value is computed.
GENERAL ACCOUNT POLICIES
Business Hours
The Funds are open on the same days as the New York Stock Exchange
(generally, Monday through Friday). Fund representatives are available from 8:00
a.m. to 5:00 p.m., New York time. To obtain additional information, 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 you bring your account back up to $500 or close it out. 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 your 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.
- Each Fund may suspend sales of it 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 executives of Tucker Anthony or Sutro
responsible for transmission of all orders to that Fund.
PROSPECTUS
11
<PAGE> 16
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
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 Government
Securities Fund) most states' laws provide for a pass-through of the state and
local income tax exemption afforded to direct owners of U.S. government
securities. Thus, for residents of most states, the portion of distributions
derived from the Government Securities 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
PROSPECTUS
12
<PAGE> 17
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.
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
PROSPECTUS
13
<PAGE> 18
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 they will be marked 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, in 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
Like other mutual funds and organizations around the world, each of the
Funds could be adversely affected if its computer systems or those of its
service providers do not properly process dates beginning with January 1, 2000
and information related to those dates (the "Year 2000 Problem"). Each of the
Funds has taken and is taking steps with respect to its computer systems that it
believes are reasonably designed to address the Year 2000 Problem. None of the
Funds currently expect its computer systems to experience a Year 2000 Problem
which would have a material adverse impact on such Fund. In addition, each of
the Funds has sought and received assurances from its service providers that
they have taken similar measures and do not currently expect their computer
systems or those of their service providers to experience a Year 2000 Problem.
However, there can be no assurances in this area, including the possibility that
the Year 2000 Problem could negatively affect the issuers of securities,
investment markets, communication systems or the economy in general.
PROSPECTUS
14
<PAGE> 19
FINANCIAL HIGHLIGHTS
The table of FINANCIAL HIGHLIGHTS below represents a summary history of our
operations. The table uses the Funds' fiscal year (which ends December 31) and
expresses the information in terms of a single share outstanding throughout each
year. The table has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose unqualified report, along with each Fund's financial
statements, are included in the Annual Report, which begins on page 17. The
financial highlights information should be read in conjunction with the
financial statements and related notes.
<TABLE>
<CAPTION>
NET RATIO OF
NET ASSET DIVIDENDS NET ASSET ASSETS EXPENSES
VALUE NET FROM NET VALUE END OF TO AVERAGE
YEAR BEGINNING INVESTMENT INVESTMENT END OF TOTAL YEAR DAILY
ENDED OF YEAR INCOME INCOME YEAR RETURN (THOUSANDS) NET ASSETS
- --------------------------------- --------- ---------- ---------- --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH MANAGEMENT FUND
December 31, 1998................ $1.00 $0.0491 $(0.0491) $1.00 5.03% $2,330,295 0.65%
December 31, 1997................ 1.00 0.0492 (0.0492) 1.00 5.03 1,746,837 0.69
December 31, 1996................ 1.00 0.0476 (0.0476) 1.00 4.86 1,637,286 0.71
December 31, 1995................ 1.00 0.0526 (0.0526) 1.00 5.38 1,346,625 0.73
December 31, 1994................ 1.00 0.0353 (0.0353) 1.00 3.59 1,083,661 0.75
GOVERNMENT SECURITIES FUND
December 31, 1998................ $1.00 $0.0481 $(0.0481) $1.00 4.93% $443,517 0.61%
December 31, 1997................ 1.00 0.0485 (0.0485) 1.00 4.96 370,358 0.65
December 31, 1996................ 1.00 0.0460 (0.0460) 1.00 4.69 309,938 0.65
December 31, 1995................ 1.00 0.0500 (0.0500) 1.00 5.10 317,400 0.65
December 31, 1994................ 1.00 0.0331 (0.0331) 1.00 3.36 268,434 0.65
TAX EXEMPT MONEY FUND
December 31, 1998................ $1.00 $0.0283 $(0.0283) $1.00 2.88%* $355,393 0.63%(a)
December 31, 1997................ 1.00 0.0300 (0.0300) 1.00 3.04* 289,904 0.66 (a)
December 31, 1996................ 1.00 0.0283 (0.0283) 1.00 2.86 263,089 0.63
December 31, 1995................ 1.00 0.0319 (0.0319) 1.00 3.23 274,076 0.64
December 31, 1994................ 1.00 0.0216 (0.0216) 1.00 2.19 248,045 0.65
<CAPTION>
RATIO OF NET
INVESTMENT
INCOME TO
YEAR AVERAGE DAILY
ENDED NET ASSETS
- --------------------------------- -------------
<S> <C>
CASH MANAGEMENT FUND
December 31, 1998................ 4.91%
December 31, 1997................ 4.92
December 31, 1996................ 4.76
December 31, 1995................ 5.26
December 31, 1994................ 3.54
GOVERNMENT SECURITIES FUND
December 31, 1998................ 4.81%
December 31, 1997................ 4.86
December 31, 1996................ 4.60
December 31, 1995................ 5.00
December 31, 1994................ 3.31
TAX EXEMPT MONEY FUND
December 31, 1998................ 2.83%(b)
December 31, 1997................ 2.98(b)
December 31, 1996................ 2.82
December 31, 1995................ 3.19
December 31, 1994................ 2.16
</TABLE>
- ---------------
(a) Ratio of expenses to average daily net assets after expense credits was
0.62% and 0.64% for the years ended December 31, 1998 and December 31, 1997,
respectively.
(b) Ratio of net investment income to average daily net assets after expense
credits was 2.83% and 3.00% for the years December 31, 1998 and December 31,
1997, respectively.
* Total return would have been lower without credits allowed by the custodian.
PROSPECTUS
15
<PAGE> 20
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
semi-annual report, 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 the SEC's 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. 811-3519.
PROSPECTUS
16
<PAGE> 21
NO SALES OR REDEMPTION CHARGES
DISTRIBUTORS
Tucker Anthony Incorporated
One Beacon Street
Boston, Massachusetts 02108
Telephone Toll Free
800-453-8206
Sutro & Co. Incorporated
201 California Street
San Francisco, California 94111
INVESTMENT ADVISER
Freedom Capital Management Corporation
One Beacon Street
Boston, Massachusetts 02108-3105
TRANSFER AND SHAREHOLDER
SERVICES AGENT
Freedom Services Corporation
cOne World Financial Center
200 Liberty Street
New York, New York 10281
Telephone Toll Free
800-453-8206
[FREEDOM GROUP OF MONEY FUNDS LOGO]
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the
offering made by this Prospectus and, if given or made, such information, or
representation must not be relied upon as having been authorized by the Fund or
its Distributor. This Prospectus does not constitute an offering by the Fund or
by the Distributor in any jurisdiction in which such offering may not lawfully
be made.
F01APD 0299
[FREEDOM GROUP OF MONEY FUNDS LOGO]
FREEDOM
CASH MANAGEMENT
FUND
*
FREEDOM
GOVERNMENT
SECURITIES FUND
*
FREEDON
TAX EXEMPT
MONEY FUND
---------------------------------
ANNUAL REPORT - December 31, 1998
---------------------------------
<PAGE> 22
PART B
To the Registration Statement of Freedom Mutual Fund
including Freedom Cash Management Fund
(the "Cash Management Fund") and Freedom
Government Securities Fund ("Government Securities Fund")
<PAGE> 23
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
(INDIVIDUALLY A "FUND" AND COLLECTIVELY 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
Each of the Funds' financial statements as of and for the year ended
December 31, 1998, which are included in each 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> 24
GENERAL INFORMATION
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, $1.00 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
2
<PAGE> 25
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 each
Fund 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
3
<PAGE> 26
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).
The procedures for buying, selling and exchanging a Fund's shares are the
same for clients of Cleary Gull & Reiland Inc. ("Cleary Gull") as they
are for clients of Tucker Anthony Incorporated and Sutro & Co. Incorporated.
You should be aware that Cleary Gull may benefit from the use of free credit
balances in your account prior to their transfer to a Fund.
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> 27
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 on page 32 of 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> 28
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
6
<PAGE> 29
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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Municipal Notes. Municipal notes generally are used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include:
1. Tax Anticipation Notes. Tax anticipation notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenues, such as income, sales, use and
business taxes, and are payable from these specific future taxes.
2. Revenue Anticipation Notes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue, such as revenues available
under federal revenue sharing programs.
3. Bond Anticipation Notes. Bond anticipation notes are issued to provide
interim financing until long-term financing can be arranged. In most cases, the
long-term bonds then provide the money for the repayment of the notes.
4. Construction Loan Notes. Construction loan notes are sold to provide
construction financing. After successful completion and acceptance, many
projects receive permanent financing through the Federal Housing Administration
under "Fannie Mae" (the Federal National Mortgage Association) or "Ginnie Mae"
(the Government National Mortgage Association).
5. Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a
short-term obligation with a stated maturity of 365 days or less. It is issued
by agencies of state and local governments to finance seasonal working capital
needs or as short-term financing in anticipation of longer term financing.
Municipal Bonds. Municipal bonds, which meet longer term capital needs and
generally have maturities of more than one year when issued, have two principal
classifications: general obligation bonds and revenue bonds.
1. General Obligation Bonds. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and waste and sewer
systems. The basic security behind a general obligation bond is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.
2. Revenue Bonds. Revenue bonds fund two sorts of projects,
publicly-operated facilities ("revenue bonds") and privately-operated facilities
("industrial development bonds").
(a) Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, waste and sewer
systems; highways, bridges and tunnels; port and airport facilities;
colleges and
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<PAGE> 31
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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<PAGE> 32
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> 33
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> 34
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> 35
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.
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.
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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<PAGE> 36
With respect to investment restrictions Number 1 through 12 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> 37
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.
The following investment restrictions may be changed by the Board of
Trustees without the approval of shareholders. Appropriate notice will be given
of any changes in these restrictions made by the Board of Trustees. With respect
to investment restrictions Number 12 through 15 below, the Funds may not:
13. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, and
except for purchases of the securities of money market mutual funds.
14. Purchase securities of any issuer for the purpose of exercising
control or management, except in connection with a merger, consolidation,
acquisition or reorganization.
15. Invest more than 5% of either Fund's total assets in securities of any
issuer which, together with its predecessors, has been in continuous operation
less than three years.
16. Purchase or retain the securities of an issuer if those officers or
trustees of the Trust or officers or directors of the Adviser who are also
officers or directors of the issuer and who each own beneficially more than 1/2
of 1% of the securities of that issuer together own more than 5% of the
securities of such issuer.
17. Neither Fund currently intends to invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and limitations as that
Fund.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of net assets will not be considered a violation
of any of the foregoing restrictions.
TAX EXEMPT MONEY FUND
The following investment restrictions apply to the Tax Exempt Money Fund.
They may not be changed without a shareholder vote. A change requires the
affirmative vote of a majority of the Fund's outstanding shares, which as used
in this Statement means the lesser of (1) 67% of the Fund's outstanding shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. With respect to investment restrictions Number 1 through 12
below, the Fund may not:
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<PAGE> 38
1. Purchase securities on margin; sell short; purchase warrants; or write,
purchase, or sell straddles, spreads, or combinations thereof.
2. Borrow money, except from banks for temporary purposes (not for
leveraging or investment) and then in an aggregate amount not in excess of 10%
of the value of the Fund's assets at the time of such borrowing, provided, that
so long as such borrowings exceed 5% of the value of the net assets, the Fund
will not make any investments; or mortgage, pledge or hypothecate any assets
except in connection with any such borrowing and in an aggregate amount not in
excess of the dollar amount borrowed.
3. Act as an underwriter of securities of other issuers, except to the
extent that the purchase of Municipal Securities in accordance with the Fund's
investment objective, policies and limitations may be deemed to be an
underwriting.
4. Purchase securities (other than under repurchase agreements of not more
than one week's duration, considering only the remaining days to maturity of
each existing repurchase agreement) for which there exists no readily available
market, or for which there are legal or contractual restrictions on resale
(excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, which the Board of Trustees or the Adviser has
determined under Board-approved guidelines are liquid), if as a result of any
such purchase, more than 10% of the Fund's net assets would be invested in such
securities.
5. Purchase any securities if, immediately after such purchase, more than
25% of the value of the Fund's total assets would be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that there is no limitation with respect to investments
in general municipal obligations and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
6. Purchase securities of any one issuer, other than the U.S. Government,
its agencies and instrumentalities, if immediately after such purchase more than
5% of the value of the Fund's total assets would be invested in such issuer.
7. Acquire more than 10% of any class of securities of an issuer, except
securities issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, or securities which are backed by the full faith and credit
of the United States.
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> 39
11. Issue any class of securities senior to any other class of securities,
except that the Fund may purchase when-issued securities as described under
"Investment Objectives and Policies."
12. Invest more than 25% of its total assets within a single state of the
United States or the District of Columbia.
13. The Fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund.
The following investment restrictions may be changed by the Board of
Trustees without the approval of shareholders. Appropriate notice will be given
of any changes in these restrictions made by the Board of Trustees. With respect
to investment restrictions Number 14 through 17 below, the Fund may not:
14. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, and
except for purchases of the securities of money market mutual funds.
15. Purchase securities of any issuer for the purpose of exercising
control or management, except in connection with a merger, consolidation,
acquisition or reorganization.
16. Invest more than 5% of the Fund's total assets in securities of any
issuer which, together with its predecessors, has been in continuous operation
less than three years, except obligations issued or guaranteed by the U.S.
Government or its agencies, or Municipal Securities (other than industrial
development bonds) (for this purpose the period of operation of the issuer shall
include the period of operation of any predecessor or unconditional guarantor of
such issuer).
17. Purchase or retain the securities of an issuer if those officers or
trustees of the Trust or officers or directors of the Adviser who are also
officers or directors of the issuer and who each own beneficially more than 1/2
of 1% of the securities of that issuer together own more than 5% of the
securities of such issuer.
18. The Fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and limitations as the
Fund.
For the purposes of the limitations set forth in paragraphs 5, 6, 7, 16
and 17, the Fund will regard the entity which has the ultimate responsibility
for the payment of principal and interest as the issuer.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of net assets will not be considered a violation
of any of the foregoing restrictions.
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PORTFOLIO TRANSACTIONS
The Advisory Agreements authorize the Adviser (subject to the control of
the Boards of Trustees) to select brokers and dealers to execute purchases and
sales of portfolio securities. They direct the Adviser to use its best efforts
to obtain the best overall terms for the Trusts, taking into account such
factors as price (including dealer spread), the size, type and difficulty of the
transaction involved, and the financial condition and execution capability of
the broker or dealer.
With respect to the Cash Management Fund and the Government Securities
Fund, the Adviser generally will purchase portfolio securities for both Funds
either directly from the issuer or from dealers who specialize in "money market"
instruments. During the last three fiscal years ended December 31, 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> 41
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 "Investment 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 4.62%, the
compound effective yield was 4.73%, and the Fund had an average weighted
maturity of investments of 32 days.
Government Securities Fund. For the seven day period ended December 31,
1998, the simple annualized yield of the Government Securities Fund was 4.45%,
the compound effective
19
<PAGE> 42
yield was 4.55%, and the Fund had an average weighted maturity of investments of
38 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 3.09%, the compound
effective yield was 3.14%, the tax equivalent annualized simple yield was 5.12%
and the tax equivalent compounded effective yield was 5.20% (in each case
assuming an income tax rate of 39.6%), and the Fund had an average weighted
maturity of investments of 33 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 received by Freedom Services
Corporation prior to 12:00 noon New York time will be priced at 12:00 noon New
York time that day. Purchase or redemption orders received 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. 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.
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<PAGE> 43
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.
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<PAGE> 44
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 is 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> 45
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.
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 tax rate schedules and calculations to ensure
23
<PAGE> 46
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> 47
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, Chief Executive
Officer and Director of the Adviser since July 1992. He is 64. Director of
Freedom Distributors Corporation 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, Director,
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<PAGE> 48
Clerk and General Counsel since November 1986. He is 43. Executive Vice
President and Director with 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 - Senior Vice President of the
Adviser since February 1998. She is 50.
Paul F. Marandett -- Vice President - Senior Vice President of the Adviser
since 1996. 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.
Vice President and Clerk with Freedom Distributors Corporation. She is 35.
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.
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<PAGE> 49
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 0 0 0 0
Richard A. Farrell 3,730 3,994 10,751 21,300
Ernest T. Kendall 2,730 2,994 9,751 23,900
Richard B. Osterberg 3,730 3,994 10,751 27,900
William C. Dennis, Jr. 0 0 0 0
William H. Darling 2,030 2,294 9,051 14,500
John R. Haack 2,030 2,294 9,051 18,741
Laurence R. Veator, Jr. 2,030 2,294 9,051 14,500
</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.
As of January 29, 1999, S. Douglas Sukeforth, South China, Maine was the
beneficial owner of approximately 5.57% of the shares of the Tax Exempt Money
Fund. To the knowledge of the Mutual Fund and Tax Exempt Trust, no other 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> 50
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. Cleary
Gull & Reiland Inc. ("Cleary Gull"), located at 100 E. Wisconsin Avenue,
Milwaukee, WI 53202, is an affiliate of the Adviser. Cleary Gull, a brokerage
firm, 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> 51
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> 52
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 $9,245,499, $1,946,255 and $1,648,108,
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> 53
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 accountants, is hereby incorporated
by reference from such Fund's Annual Report filed with the SEC.
31
<PAGE> 54
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> 55
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> 56
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> 57
PART C
To the Registration Statement of Freedom Mutual Fund
including Freedom Cash Management Fund
(the "Cash Management Fund") and Freedom
Government Securities Fund ("Government Securities Fund")
Item 23. Exhibits.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1. (a) Agreement and Declaration of Trust dated December 22,
1980. (i)
(b) Amendment No. 1 to Agreement and Declaration of Trust. (i)
(c) Amendment No. 2 to Agreement and Declaration of Trust. (i)
(d) Amendment No. 3 to Agreement and Declaration of Trust. (i)
(e) Amendment No. 4 to Agreement and Declaration of Trust. (i)
(f) Amendment No. 5 to Agreement and Declaration of Trust. (i)
(g) Amendment No. 6 to Agreement and Declaration of Trust. (i)
2. By-Laws as amended and restated. (i)
3. Specimen share certificates for the Cash Management Fund and
Government Securities Fund. (ii)
4. Advisory Agreement dated May 20, 1998 between Registrant and
Freedom Capital Management Corporation. (ix)
5. Distribution Agreement dated November 29, 1996 by and among
the Registrant, Tucker Anthony Incorporated, Freedom
Distributors Corporation and Sutro & Co., Incorporated. (iii)
6. None.
7. Custody Agreement dated March 19, 1981 between Registrant and
State Street Bank. (iv)
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. (ix)
9. Legal Opinion and Consent of Goodwin, Procter & Hoar with
respect to the Cash Management Fund and Government Securities
Fund. (v)
10. Consent of PricewaterhouseCoopers LLP.
11. Not Applicable.
12. Investment Letters. (vi)
13. Prototype IRA (including SEP IRA) and Keogh Plan offered by
Tucker Anthony and R.L. Day, Inc. (vii)
C-1
<PAGE> 58
14. Financial Data Schedules for the Cash Management Fund and
Government Securities Fund.
15. None.
16. Powers of Attorney. (viii)
- ------------
Footnote
Reference
- ------------
(i) Filed as an exhibit under Post-Effective Amendment No. 26, File No.
2-70863, 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.
26, 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. 26, 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 under Post-Effective Amendment No. 26, File
No. 2-70863, to the Registrant's Registration Statement on Form N-1A,
and incorporated herein by reference.
(v) Filed as exhibit number 10 under Post-Effective Amendment No. 26, File
No. 2-70863, to the Registrant's Registration Statement on Form N-1A,
and incorporated herein by reference.
(vi) Filed as exhibit number 13 under Post-Effective Amendment No. 26, File
No. 2-70863, to the Registrant's Registration Statement on Form N-1A,
and incorporated herein by reference.
(vii) Filed as exhibit number 14 under Post-Effective Amendment No. 26,
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. 26, File
No. 2-70863, to the Registrant's Registration Statement on Form N-1A,
and incorporated herein by reference.
(ix) Filed as an exhibit under Post-Effective Amendment No. 28, File
No. 2-70863, to the Registrant's Registration Statement on Form N-1A,
under the same exhibit number 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 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> 59
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 of Freedom
Clerk and General Counsel 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"), Sutro & Co.
Incorporated ("Sutro") and Tucker Anthony Incorporated ("Tucker Anthony") act as
co-distributors for the Cash Management Fund and Government Securities Fund
series of the Trust. Freedom also acts as co-distributor with Tucker Anthony and
Sutro for Freedom Group of Tax Exempt Funds, a registered investment company.
Freedom acts as a distributor for four other registered investment companies:
Freedom Investment Trust, Freedom Investment Trust II, Freedom Investment Trust
III and Fund Manager Portfolio.
(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> 60
<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 (1)............................. General Counsel, Secretary, Clerk and Director
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).......................... Chairman and CEO
Mary Jane Delaney (1)........................ Executive Vice President, General Counsel and Secretary
Raymond J. Minehan (1)....................... Executive Vice President
Charles W. Hubbard(1)........................ Executive Vice President
Thomas R. Weinberger (3)..................... President
Jerry Phillips (1)........................... Executive Vice President
</TABLE>
(1) Business address is 201 California Street, San Francisco, California
94111.
(2) Business address is One Beacon Street, Boston, Massachusetts 02108.
C-4
<PAGE> 61
(3) Business address is 11150 Santa Monica Blvd., Suite 1500, Los Angeles,
California 90025
(c) Not applicable.
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> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant hereby certifies that it meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in this City of Boston and Commonwealth
of Massachusetts on the 1st day of March 1, 1999.
FREEDOM MUTUAL FUND
By: /s/ Dexter A. Dodge
----------------------------------------
Dexter A. Dodge, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
/s/ Dexter A. Dodge Chairman and Trustee March 1, 1999
- -------------------------------------
Dexter A. Dodge, Principal
Executive Officer
/s/ Darlene F. Rego Treasurer March 1, 1999
- -------------------------------------
Darlene F. Rego, Principal Financial
and Accounting Officer
- ------------------------------------- Trustee March 1, 1999
William C. Dennis, Jr.
*
- ------------------------------------- Trustee March 1, 1999
Richard A. Farrell
*
- ------------------------------------- Trustee March 1, 1999
Ernest T. Kendall
*
- ------------------------------------- Trustee March 1, 1999
Richard B. Osterberg
*
- ------------------------------------- Trustee March 1, 1999
William H. Darling
*
- ------------------------------------- Trustee March 1, 1999
John R. Haack
*
- ------------------------------------- Trustee March 1, 1999
Laurence R. Veator, Jr.
</TABLE>
*By: /s/ Dexter A. Dodge
Dexter A. Dodge, Attorney-in-Fact under Powers of Attorney dated
February 1, 1995, January 23, 1997, January 27, 1997 and
January 28, 1997 and included as Exhibit 19 to Post-Effective
Amendment No. 26, File No. 2-70863, and incorporated herein
by reference.
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Post-
Effective Amendment No. 29, File No. 2-70863, to the registration statement of
Form N-1A (the "Registration Statement") of our report dated February 17, 1999,
relating to the financial statements and financial highlights of Freedom Cash
Management Fund and Freedom Government Securities Fund (each a series of Freedom
Mutual Fund), which appear in such Prospectus, and to the incorporation by
reference of our report into the Statement of Additional Information which also
constitutes part of this Registration Statement. We also consent to the
reference to us under the heading "Financial Highlights" in such Prospectus and
to the reference to us under the heading "Financial Statements and Independent
Accountants" in such Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 25, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> FREEDOM CASH MANAGEMENT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2,281,313,128
<INVESTMENTS-AT-VALUE> 2,281,886,590
<RECEIVABLES> 61,805,278
<ASSETS-OTHER> 1,308,592
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,344,426,998
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,132,055
<TOTAL-LIABILITIES> 14,132,055
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,330,437,074
<SHARES-COMMON-STOCK> 2,330,439,336
<SHARES-COMMON-PRIOR> 1,746,992,586
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (142,131)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,330,294,943
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 111,185,853
<OTHER-INCOME> 0
<EXPENSES-NET> 13,036,505
<NET-INVESTMENT-INCOME> 98,149,348
<REALIZED-GAINS-CURRENT> 11,489
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 98,160,837
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 98,149,348
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,790,266,223
<NUMBER-OF-SHARES-REDEEMED> (7,302,802,116)
<SHARES-REINVESTED> 95,982,643
<NET-CHANGE-IN-ASSETS> 583,446,750
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (155,882)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,245,499
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,036,505
<AVERAGE-NET-ASSETS> 1,998,999,853
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.049
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.049)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.007
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> FREEDOM GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 438,602,706
<INVESTMENTS-AT-VALUE> 438,734,893
<RECEIVABLES> 6,350,280
<ASSETS-OTHER> 542,346
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 445,495,332
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,978,367
<TOTAL-LIABILITIES> 1,978,367
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 443,547,320
<SHARES-COMMON-STOCK> 443,511,767
<SHARES-COMMON-PRIOR> 370,357,295
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (30,355)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 443,516,965
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,117,078
<OTHER-INCOME> 0
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<REALIZED-GAINS-CURRENT> 4,289
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<NET-CHANGE-FROM-OPS> 18,736,644
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,166,074,812
<NUMBER-OF-SHARES-REDEEMED> (1,111,347,812)
<SHARES-REINVESTED> 18,427,472
<NET-CHANGE-IN-ASSETS> 73,154,472
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 2,384,723
<AVERAGE-NET-ASSETS> 389,250,932
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.048
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.048)
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<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.006
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
