INDEPENDENCE ONE U.S. GOVERNMENT SECURITIES FUND
(A PORTFOLIO OF INDEPENDENCE ONE MUTUAL FUNDS)
PROSPECTUS
The shares of Independence One U.S. Government Securities Fund (the "Fund")
offered by this prospectus represent interests in the Fund which is a
diversified portfolio and one of a series of investment portfolios in
Independence One Mutual Funds (the "Trust"), an open-end management investment
company (a mutual fund). Michigan National Bank, along with Independence One
Capital Management Corporation as sub-adviser, professionally manage the Fund's
portfolio.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MICHIGAN NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY MICHIGAN NATIONAL
BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
The investment objective of the Fund is to seek high current income. In pursuing
this objective, the Fund's portfolio will also be managed in an effort to seek
total return. The Fund invests only in U.S. government securities.
Shares of the Fund are intended to be sold as an investment vehicle for
institutions, corporations and fiduciaries. Shareholders can invest, reinvest,
or redeem shares at any time without charge or penalty imposed by the Fund.
Shareholders have access to other portfolios of the Trust through an exchange
program.
This prospectus contains the information you should read and know before you
invest in shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated June 30,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information or make inquiries about the Fund by
writing to the Fund or calling toll-free 1-800-334-2292.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated June 30, 1995
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Risks 4
Repurchase Agreements 4
When-Issued and Delayed Delivery
Transactions 4
Investment Limitations 5
INDEPENDENCE ONE MUTUAL FUNDS
INFORMATION 5
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Management of the Trust 5
Board of Trustees 5
Investment Adviser 5
Advisory Fees 5
Adviser's Background 6
Sub-Adviser 6
Distribution of Fund Shares 7
Administration of the Fund 7
Administrative Services 7
Custodian 7
Transfer Agent and Dividend
Disbursing Agent 7
Independent Auditors 7
NET ASSET VALUE 8
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INVESTING IN THE FUND 8
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Share Purchases 8
To Place an Order 8
Minimum Investment Required 8
What Shares Cost 8
Certificates and Confirmations 9
Dividends and Capital Gains 9
EXCHANGE PRIVILEGE 9
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Exchange by Telephone 10
Written Exchange 10
REDEEMING SHARES 11
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By Telephone 11
By Mail 11
Accounts with Low Balances 12
Redemption in Kind 12
SHAREHOLDER INFORMATION 13
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Voting Rights 13
Massachusetts Partnership Law 13
EFFECT OF BANKING LAWS 13
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TAX INFORMATION 14
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Federal Income Tax 14
PERFORMANCE INFORMATION 14
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FINANCIAL STATEMENTS 16
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REPORT OF KPMG PEAT MARWICK LLP,
INDEPENDENT AUDITORS 24
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ADDRESSES Back Cover
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SUMMARY OF FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price)......................................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as
applicable)............................................................................................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)....................................... None
Exchange Fee.............................................................................................. None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver) (1)......................................................................... 0.19%
12b-1 Fees................................................................................................ None
Total Other Expenses...................................................................................... 0.36%
Total Operating Expenses (2)......................................................................... 0.55%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the investment adviser. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.70%.
(2) The Annual Fund Operating Expenses were 0.35% for the fiscal year ending
April 30, 1995. Total Operating Expenses absent the voluntary waiver of the
management fee by the adviser were 1.05% for the year ending April 30, 1995.
The annual Operating Expenses in the table above are based on expenses
anticipated during the fiscal year ending April 30, 1996. The Total Fund
Operating Expenses would be 1.06% absent the voluntary waiver described in
note (1) above.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "INDEPENDENCE ONE MUTUAL FUNDS INFORMATION." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<S> <C> <C> <C> <C>
EXAMPLE 1 year 3 years 5 years 10 years
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time
period. The Fund charges no redemption fee............................ $6 $18 $31 $69
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
INDEPENDENCE ONE U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Indpendent Auditors' Report on page 24.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
<S> <C> <C> <C>
1995 1994 1993(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.84 $ 10.31 $ 10.00
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INCOME FROM INVESTMENT OPERATIONS
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Net investment income 0.60 0.55 0.33
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Net realized and unrealized gain (loss) on investments (0.05) (0.47) 0.31
- ------------------------------------------------------------------ --------- --------- ---------
Total from investment operations 0.55 0.08 0.64
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LESS DISTRIBUTIONS
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Distribution from net investment income (0.60) (0.55) (0.33)
- ------------------------------------------------------------------ --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.79 $ 9.84 $ 10.31
- ------------------------------------------------------------------ --------- --------- ---------
TOTAL RETURN (B) 5.90% 0.66% 4.61%
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RATIOS TO AVERAGE NET ASSETS
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Expenses 0.35% 0.31% 0.17%(c)
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Net investment income 6.23% 5.32% 5.59%(c)
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Expense waiver/reimbursement (d) 0.70% 0.70% 0.83%(c)
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SUPPLEMENTAL DATA
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Net assets, end of period (000 omitted) $62,514 $72,866 $87,704
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Portfolio turnover rate 75% 20% 0%
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</TABLE>
(a) Reflects operations for the period from January 11, 1993 (date of initial
public investment) to April 30, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended April 30, 1995, which can be obtained
free of charge.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated January 9, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. In addition, the interests in this portfolio
may be offered in separate classes.
This prospectus relates only to the Trust's portfolio known as Independence One
U.S. Government Securities Fund. The Fund currently offers one class of shares.
A minimum initial investment of $1,000 is required. Subsequent investments must
be in amounts of at least $100.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek high current income. The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. As a matter of investment policy, the Fund's portfolio will also be
managed in an effort to seek total return.
INVESTMENT POLICIES
Unless indicated otherwise, the Fund's investment policies may be changed by the
Trustees without approval of shareholders. Shareholders will be notified before
any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests in U.S. government securities which
are either issued or guaranteed by the U.S. government, its agencies or
instrumentalities. These securities include, but are not limited to:
. direct obligations of the U.S. Treasury such as U.S. Treasury bills,
notes and bonds; and
. notes, bonds and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives and Banks for Cooperatives; Federal Home
Loan Banks; Federal Home Loan Mortgage Corporation; Federal National
Mortgage Association; Government National Mortgage Association;
Export-Import Bank of the United States; Commodity Credit Corporation;
Federal Financing Bank; The Student Loan Marketing Association; National
Credit Union Administration; and Tennessee Valley Authority.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These agencies and instrumentalities are supported by:
. the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
. the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
. the credit of the agency or instrumentality.
As discussed above, U.S. government securities are subject to varying levels of
backing as to payment of principal and interest by the United States. Of course,
this does not mean that the Fund itself, or the value of its shares, is
guaranteed. In the U.S. government securities market, prices move inversely to
interest rates. A decline in market interest rates results in a rise in the
market prices of outstanding U.S. government securities. Conversely, an increase
in market interest rates results in a decline in market prices. In either case,
the amount of change in market prices of U.S. government securities in response
to changes in market interest rates generally depends on the duration of the
securities; the securities with the highest duration will experience the
greatest market price changes.
RISKS. The market value of U.S. government securities, and, therefore, the
Fund's net asset value, will fluctuate due to changes in economic
conditions and other market factors such as interest rates which are beyond
the control of the adviser. The adviser could be incorrect in its
expectations about the direction or extent of these market factors.
Although U.S. government securities with longer maturities offer
potentially greater returns, they have greater exposure to market price
fluctuation. Consequently, to the extent the Fund is significantly invested
in U.S. government securities with longer maturities, there is a greater
possibility of fluctuation in the Fund's net asset value. As noted above,
the Fund will be managed with a view toward minimizing decreases in the
value of the Fund's shares.
REPURCHASE AGREEMENTS. U.S. government securities may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities to the Fund and agree at the time of sale to repurchase them at a
mutually agreed upon time and price. To the extent that the original seller does
not repurchase the securities from the Fund, the Fund could receive less than
the repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action. The Fund believes
that under regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund will only enter into repurchase agreements with
banks and other recognized financial institutions such as broker/dealers which
are deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases or sells securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause the Fund to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Fund may pay more/less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTMENT LIMITATIONS
The Fund will not:
. borrow money or pledge securities except, under certain circumstances,
the Fund may borrow up to one-third of the value of its total assets and
pledge up to 10% of the value of its total assets to secure such
borrowings.
The above investment limitation cannot be changed without approval of
shareholders. The following limitation, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not:
. invest more than 15% of its net assets in securities which are not
readily marketable or which are otherwise considered illiquid, including
repurchase agreements providing for settlement in more than seven days
after notice.
INDEPENDENCE ONE MUTUAL FUNDS INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trustees are responsible for managing the Trust's
business affairs and for exercising all of the Trust's powers except those
reserved for the shareholders. An Executive Committee of the Board of Trustees
handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Michigan National Bank, the Fund's
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee based on the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.70 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse certain
expenses of the Fund. The Adviser has also undertaken to reimburse the
Fund, up to the amount of the advisory fee, for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Michigan National Bank, a national banking
association, is a wholly-owned subsidiary of Michigan National Corporation
("MNC"). Through its subsidiaries and affiliates, MNC, Michigan's fifth
largest bank holding company in terms of total assets, as of December 31,
1994, offers a full range of financial services to the public including
commercial lending, depository services, cash management, brokerage
services, retail banking, mortgage banking, investment advisory services
and trust services.
Division has managed pools of commingled funds since 1964. In addition,
Michigan National Bank presently manages its own investment portfolio of
approximately $300 million in taxable, short-term instruments.
As part of its regular banking operations, Michigan National Bank may make
loans to public companies. Thus, it may be possible, from time to time, for
the Fund to hold or acquire the securities of issuers which are also
lending clients of Michigan National Bank. The lending relationship will
not be a factor in the selection of securities.
SUB-ADVISER. Under the terms of the sub-advisory contract between the
Adviser, Michigan National Bank, and Independence One Capital Management
Corporation ("IOCM" or "Sub-Adviser"), IOCM will assist the Adviser in the
purchase or sale of the Fund's portfolio instruments. The Sub-Adviser will
perform its duties at no cost to the Adviser or the Fund.
IOCM, a nationally recognized investment advisory subsidiary of MNC,
provides investment advisory services for trust and other managed assets.
IOCM and the Trust Division have managed and custodial assets totaling $9
billion. Of this amount, IOCM and the Trust Division have investment
discretion over $2.2 billion.
Bruce Beaumont is Vice President and Portfolio Manager for Michigan
National Bank and Independence One Capital Management Corporation in
Farmington Hills, and has been responsible for management of the Fund's
portfolio since its inception. He joined Michigan National Bank in 1987. He
earned his BA from Alma College and a MBA from Northwestern University. Mr.
Beaumont is a Chartered Financial Analyst and a Certified Public
Accountant.
On February 4, 1995, the Board of Directors of MNC approved a definitive
agreement for the acquisition of that company by National Australia Bank
Limited ("NAB"), which is a transnational banking organization,
headquartered in Melbourne, Australia. As a result, upon completion of the
merger, MNC and its subsidiaries, including the Adviser and Sub-Adviser,
would become direct or indirect subsidiaries of NAB. It is anticipated that
operations will continue to be conducted under the Michigan National
Corporation and Michigan National Bank names.
Under provisions of the Investment Company Act of 1940, completion of the
merger would result in an assignment, and termination, of the Fund's
current investment advisory contract with the Adviser and Sub-Advisory
contract with IOCM. In view of the pending merger, the Fund's Board of
Trustees has approved a new investment advisory contract ("New Advisory
Contract") between the Trust and Michigan National Bank, as a subsidiary of
National Australia Bank Limited (the "New Adviser"). The terms of the New
Advisory Contract are identical
in all material respects to the present advisory contract, i.e., Michigan
National Bank will continue to provide investment advisory services to the
Fund, and there will be no change in either the Fund's investment objective
or investment policies, or the fees payable by the Fund for advisory
services. The New Advisory Contract would become effective upon
consummation of the merger, which is subject to the satisfaction of certain
conditions including, among others, the receipt of all necessary regulatory
approvals. On June 2, 1995, the shareholders of Michigan National
Corporation voted to approve the merger agreement.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund, such as certain legal and accounting
services. Federated Administrative Services provides these at an annual rate as
specified below.
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE DAILY
FEE NET ASSETS OF THE TRUST
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
for each portfolio in Independence One Mutual Funds. Federated Administrative
Services may choose voluntarily to reimburse a portion of its fee.
CUSTODIAN. Michigan National Bank, Farmington Hills, Michigan, is custodian for
the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, and
dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat
Marwick LLP, Pittsburgh, Pennsylvania.
NET ASSET VALUE
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The Fund's net asset value per share fluctuates. It is determined by adding the
market value of all securities and other assets of the Fund, subtracting the
liabilities of the Fund, and dividing the remainder by the total number of
shares outstanding.
INVESTING IN THE FUND
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SHARE PURCHASES
Shares of the Fund may be purchased through Michigan National Bank. Texas
residents must purchase shares of the Fund through Federated Securities Corp. at
1-800-618-8573. Investors may purchase shares of the Fund on all business days
except on days which the New York Stock Exchange and the Federal Reserve Wire
System are closed. In connection with the sale of Fund shares, the distributor
may from time to time offer certain items of nominal value to any shareholder or
investor. The Fund reserves the right to reject any purchase request.
TO PLACE AN ORDER. Investors may call their Michigan National Bank or IOCM
relationship manager to purchase shares. Orders are considered received when the
Fund is notified of the purchase order.
Purchase orders through Michigan National Bank or IOCM must be received before
4:00 p.m. (Eastern time). It is the responsibility of Michigan National Bank or
IOCM to transmit orders to the Fund by 5:00 p.m. (Eastern time) in order for
shares to be purchased at that day's price. For settlement of an order, payment
must be made within three business days of receipt of the order by check or wire
transfer. Checks must be converted into federal funds to be considered received.
Federal funds should be wired as follows: Federated Services Company, c/o State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: Independence One U.S. Government Securities Fund--Trust Shares; Fund
Number (this number can be found on the account statement or by contacting the
Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number
011000028.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment by an investor in the Fund is $1,000. Subsequent
investments must be in amounts of at least $100.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund.
The net asset value of shares is determined at the close of trading on the New
York Stock Exchange, normally 4:00 p.m. (Eastern time), Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of
the Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to
purchase shares are received; and (iii) on the following holidays; New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
shareholders so request by contacting their Michigan National Bank
representative in writing.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared daily and paid monthly. Capital gains realized by the
Fund, if any, will be distributed at least once every 12 months. Dividends and
capital gains are automatically reinvested in additional shares on payment dates
without a sales charge unless cash payments are requested by shareholders in
writing to the Fund through their Michigan National Bank or IOCM relationship
manager. Shares purchased with reinvested dividends are credited to shareholder
accounts on the following day.
EXCHANGE PRIVILEGE
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All shareholders of the Fund are shareholders of the Trust, which consists of
the Fund and the following money market funds: Independence One Prime Money
Market Fund, Independence One Michigan Municipal Cash Fund, and Independence One
U.S. Treasury Money Market Fund. Shareholders of the Fund have access to these
funds ("participating funds") through an exchange program.
With the exception of Independence One Prime Money Market Fund, the
participating funds currently offer only one class of shares. If such funds
should add a second class of shares, exchanges may be limited to shares of the
same class of each fund. Shareholders of the Fund have access to both Class A
and Class B shares of Independence One Prime Money Market Fund through the
exchange program.
Shares of the Fund may be exchanged for shares of participating funds at net
asset value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least equal to the minimum investment of the participating
fund into which they are exchanging. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which an
exchange is to be made.
The exchange privilege is available to shareholders residing in any state in
which the participating fund shares being acquired may legally be sold. Upon
receipt by the transfer agent of proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the
next-determined net asset value. If the exchanging shareholder does not have an
account in the participating fund whose shares are being acquired, a new account
will be established with the same registration, dividend and capital gain
options as the account from which shares are exchanged, unless otherwise
specified by the shareholder. In the case where the new account registration is
not identical to that of the existing account, a signature guarantee is
required. (See "Redeeming Shares--By Mail.") Exercise of this privilege is
treated as a redemption and new purchase for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The Fund reserves the right to modify or terminate the exchange
privilege at any time. Shareholders would be notified prior to any modification
or termination. Shareholders may obtain further information on the exchange
privilege by calling their Michigan National Bank or IOCM relationship manager.
EXCHANGE BY TELEPHONE. Shareholders may provide instructions for exchanges
between participating funds by telephone by calling their Michigan National Bank
or IOCM relationship manager.
An authorization form permitting the Fund to accept telephone exchange requests
must first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can be
obtained through a Michigan National Bank or IOCM relationship manager.
Telephone exchange instructions may be recorded.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations. Exchange instructions given by telephone may be
electronically recorded.
Telephone exchange instructions must be received by Michigan National Bank or
IOCM and transmitted to the transfer agent before 4:00 p.m. (Eastern time) for
shares to be exchanged the same day. Shareholders who exchange into shares of
the Fund will not receive a dividend from the Fund on the date of the exchange.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through Michigan National Bank or IOCM during times of drastic economic or
market changes. If shareholders cannot contact their Michigan National Bank or
IOCM relationship manager by telephone, it is recommended that an exchange
request be made in writing and sent by mail for next day delivery. Send mail
requests to: Independence One Mutual Funds, 27777 Inkster Road, Mail Code 10-52,
Farmington Hills, Michigan 48333-9065.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, the transfer agent, by Michigan
National Bank or IOCM and deposited to the shareholder's account before being
exchanged.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending it to: Independence One Mutual Funds, 27777 Inkster Road,
Mail Code 10-52, Farmington Hills, Michigan 48333-9065.
REDEEMING SHARES
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The Fund redeems shares at their net asset value next determined after Federated
Services Company receives the redemption request. Redemptions will be made on
days on which the Fund computes its net asset value. Redemption requests cannot
be executed on days on which the New York Stock Exchange is closed and federal
holidays restricting wire transfers. Telephone or written requests for
redemptions must be received in proper form and can be made to the Fund through
a Michigan National Bank or IOCM relationship manager. Although the transfer
agent does not charge for telephone redemptions, it reserves the right to charge
a fee for the cost of wire-transferred redemptions of less than $5,000.
BY TELEPHONE. Shareholders may redeem shares by calling their Michigan National
Bank or IOCM relationship manager. Redemption requests must be received and
transmitted to the transfer agent before 4:00 p.m. (Eastern time) in order for
shares to be redeemed at that day's net asset value. The Michigan National Bank
or IOCM relationship manager is responsible for promptly submitting redemption
requests and providing proper written redemption instructions to the transfer
agent. If at any time, the Fund shall determine it necessary to terminate or
modify this method of redemption, shareholders would be promptly notified.
For calls received before 4:00 p.m. (Eastern time) proceeds will normally be
wired the next business day to the shareholder's account at a domestic
commercial bank that is a member of the Federal Reserve System or a check will
be sent to the address of record. In no event will proceeds be wired or a check
sent more than seven days after a proper request for redemption has been
received.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service can
be obtained through a Michigan National Bank or IOCM relationship manager.
Telephone redemption instructions may be recorded.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as By Mail, should be considered.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
BY MAIL. Shareholders may redeem shares by sending a written request to the
Fund through their Michigan National Bank or IOCM relationship manager. The
written request should include the shareholder's name, the Fund and class names,
the account number, and the share or dollar amount requested. Shareholders
redeeming through Michigan National Bank or IOCM should mail written requests
to: Independence One Mutual Funds, 27777 Inkster Road, Mail Code 10-52,
Farmington Hills, Michigan 48333-9065.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders requesting a redemption or exchange of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, a redemption payable other than to the shareholder of record or who
complete authorization forms for telephone exchange or redemption after their
initial application must have signatures on written redemption requests or
applications guaranteed by:
. a trust company or a commercial bank whose deposits are insured by the
Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
. a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
. a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund, which is administered by the
FDIC; or
. any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed to the shareholder within one
business day, and except under extraordinary circumstances, in no more than
seven days after receipt of a proper written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $1,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $1,000 because of changes in the Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000, or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Fund will pay all
or a portion of the remainder of the redemption in portfolio instruments, valued
in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
effecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or the Fund's operation and for the election
of Trustees under certain circumstances. As of June 6, 1995, Michigan National
Bank may for certain purposes be deemed to control the Fund because it is owner
of record of certain shares of the Fund.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use the
property of the Fund to protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder for
any act or obligation of the Trust. Therefore, financial loss resulting from
liability as a shareholder will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from its
assets.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956 or any affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as an investment adviser, transfer agent or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of such a customer. Michigan National
Bank is subject to such banking laws and regulations.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
Michigan National Bank believes, based on the advice of its counsel, that
Michigan National Bank may perform the services for the Fund contemplated by its
advisory agreement with the Trust without violation of the Glass-Steagall Act or
other applicable banking laws or regulations. Changes in either federal or state
statutes and regulations relating to the permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent Michigan National Bank from continuing to perform all or a part of the
above services for its customers and/or the Fund. If it were prohibited from
engaging in these customer-related activities, the Trustees would consider
alternative advisers and means of continuing available investment services. In
such event, changes in the operation of the Fund may occur, including possible
termination of any automatic or other Fund share investment and redemption
services then being provided by Michigan National Bank. It is not expected that
existing shareholders would suffer any adverse financial consequences (if
another adviser with equivalent abilities to Michigan National Bank is found) as
a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund intends to pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares. Shareholders are
urged to consult their own tax advisers regarding the status of their accounts
under state and local laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in shares of the Fund after reinvesting all income and
capital gain distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually
earned by the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
INDEPENDENCE ONE U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------- -------------
GOVERNMENT AGENCIES--24.4%
- ---------------------------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK--8.1%
-------------------------------------------------------------------------------------
$ 5,000,000 7.51%, 2/13/1998 $ 5,074,600
------------------------------------------------------------------------------------- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--16.3%
-------------------------------------------------------------------------------------
5,000,000 6.67%, 3/15/1996 5,014,150
-------------------------------------------------------------------------------------
5,000,000 8.15%, 5/11/1998 5,165,900
------------------------------------------------------------------------------------- -------------
Total 10,180,050
------------------------------------------------------------------------------------- -------------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST, $15,076,008) 15,254,650
------------------------------------------------------------------------------------- -------------
U.S. TREASURY OBLIGATIONS--73.2%
- ---------------------------------------------------------------------------------------------------
U.S. TREASURY BONDS--14.7%
-------------------------------------------------------------------------------------
3,700,000 7.125%, 2/15/2023 3,574,163
-------------------------------------------------------------------------------------
1,500,000 7.625%, 2/15/2007 1,523,114
-------------------------------------------------------------------------------------
2,340,000 8.00%, 11/15/2021 2,486,110
-------------------------------------------------------------------------------------
1,400,000 8.75%, 8/15/2020 1,601,530
------------------------------------------------------------------------------------- -------------
Total 9,184,917
------------------------------------------------------------------------------------- -------------
U.S. TREASURY NOTES--58.5%
-------------------------------------------------------------------------------------
7,600,000 5.875%, 3/31/1999 7,359,460
-------------------------------------------------------------------------------------
11,975,000 6.375%, 8/15/2002 11,549,049
-------------------------------------------------------------------------------------
7,035,000 7.00%, 4/15/1999 7,087,411
-------------------------------------------------------------------------------------
7,000,000 7.25%, 8/15/2004 7,083,930
-------------------------------------------------------------------------------------
3,400,000 9.25%, 1/15/1996 3,469,292
------------------------------------------------------------------------------------- -------------
Total 36,549,142
------------------------------------------------------------------------------------- -------------
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST, $45,711,143) 45,734,059
------------------------------------------------------------------------------------- -------------
</TABLE>
INDEPENDENCE ONE U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------- -------------
*REPURCHASE AGREEMENT--1.5%
- ---------------------------------------------------------------------------------------------------
$ 928,000 First Chicago Capital Markets, Inc., 5.90%, dated 4/28/1995, due
5/1/1995 (at amortized cost) $ 928,000
------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST, $61,715,151) $ 61,916,709+
------------------------------------------------------------------------------------- -------------
</TABLE>
* The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $61,715,151. The
net unrealized appreciation on a federal tax basis amounts to $201,558 which
is comprised of $673,563 appreciation and $472,005 depreciation at April 30,
1995.
Note: The categories of investments are shown as a percentage of net assets
($62,514,143) at April 30, 1995.
(See Notes which are an integral part of the Financial Statements)
INDEPENDENCE ONE U.S. GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified and tax cost $61,715,151) $ 61,916,709
- ---------------------------------------------------------------------------------------------------
Cash 170
- ---------------------------------------------------------------------------------------------------
Income receivable 920,047
- ---------------------------------------------------------------------------------------------------
Deferred expenses 19,155
- --------------------------------------------------------------------------------------------------- -------------
Total assets 62,856,081
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for shares redeemed $ 9,740
- ---------------------------------------------------------------------------------------
Income distribution payable 319,896
- ---------------------------------------------------------------------------------------
Accrued expenses 12,302
- --------------------------------------------------------------------------------------- ----------
Total liabilities 341,938
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 6,382,809 shares outstanding $ 62,514,143
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $ 64,112,985
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 201,558
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (1,800,400)
- --------------------------------------------------------------------------------------------------- -------------
Total net assets $ 62,514,143
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, ]Offering Price, and Redemption Proceeds Per Share:
($62,514,143 / 6,382,809 shares outstanding) $9.79
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INDEPENDENCE ONE U.S. GOVERNMENT SECURITIES FUND
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest $ 4,306,816
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------
Investment advisory fee $ 458,170
- --------------------------------------------------------------------------------------
Administrative personnel and services fees 84,660
- --------------------------------------------------------------------------------------
Custodian fees 16,990
- --------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 26,189
- --------------------------------------------------------------------------------------
Directors'/Trustees' fees 4,745
- --------------------------------------------------------------------------------------
Auditing fees 11,188
- --------------------------------------------------------------------------------------
Legal fees 5,198
- --------------------------------------------------------------------------------------
Portfolio accounting fees 45,487
- --------------------------------------------------------------------------------------
Share registration costs 18,689
- --------------------------------------------------------------------------------------
Printing and postage 8,166
- --------------------------------------------------------------------------------------
Insurance premiums 5,272
- --------------------------------------------------------------------------------------
Miscellaneous 5,067
- -------------------------------------------------------------------------------------- -----------
Total expenses 689,821
- --------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 458,170
- -------------------------------------------------------------------------------------- -----------
Net expenses 231,651
- --------------------------------------------------------------------------------------------------- -------------
Net investment income 4,075,165
- --------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (1,670,661)
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 1,212,851
- --------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain (loss) on investments (457,810)
- --------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 3,617,355
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INDEPENDENCE ONE U.S. GOVERNMENT SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------
Net investment income $ 4,075,165 $ 4,522,178
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments ($279,170 and $11,816,
net losses, respectively, as computed for federal tax purposes) (1,670,661) (129,739)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 1,212,851 (3,542,888)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 3,617,355 849,551
- ---------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------
Distributions from net investment income (4,075,165) (4,522,178)
- ---------------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------------
Proceeds from sale of shares 5,176,596 13,357,187
- ----------------------------------------------------------------------------------
Cost of shares redeemed (15,070,811) (24,522,870)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions (9,894,215) (11,165,683)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets (10,352,025) (14,838,310)
- ----------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------
Beginning of period 72,866,168 87,704,478
- ---------------------------------------------------------------------------------- -------------- --------------
End of period $ 62,514,143 $ 72,866,168
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INDEPENDENCE ONE U.S. GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Independence One Mutual Funds (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of three diversified portfolios and one
non-diversified portfolio. The financial statements included herein present only
those of Independence One U.S. Government Securities Fund (the "Fund"). The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--U.S. government securities are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Short-term securities with remaining
maturities of sixty days or less may be valued at amortized cost, which
approximates fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require a custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At April 30, 1995, the Fund, for federal tax purposes, had a capital loss
carryforward of $290,986, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2002 $ 11,816
2003 $ 279,170
</TABLE>
Additionally, net capital losses of $1,509,414 attributable to security
transactions incurred after October 31, 1994 are treated as arising on May
1, 1995, the first day of the Fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1995 1994
<S> <C> <C>
Shares sold 534,859 1,296,061
- ---------------------------------------------------------------------------------------
Shares redeemed (1,558,503) (2,395,771)
- --------------------------------------------------------------------------------------- ----------- -----------
Net change resulting from share transactions (1,023,644) (1,099,710)
- --------------------------------------------------------------------------------------- ----------- -----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Michigan National Bank, the Fund's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.70 of 1% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive a portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES AND PORTFOLIO
ACCOUNTING FEES-- Federated Services Company ("FServ") serves as transfer and
dividend disbursing agent for the Fund for which it receives a fee. This fee is
based on the size, type, and number of accounts and transactions made by
shareholders.
FServ also maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average net assets for the period
plus, out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $49,664 were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following October 31, 1992 (the date the Fund became
effective). For the year ended April 30, 1995, the Fund paid $6,516 pursuant to
this agreement.
GENERAL--Certain Officers of the Trust are Officers and/or Directors or Trustees
of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended April 30, 1995, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 47,783,219
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 54,009,877
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
Report of KPMG Peat Marwick LLP,
Independent Auditors
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders
INDEPENDENCE ONE MUTUAL FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Independence One U.S. Government Securities
Fund (a portfolio within Independence One Mutual Funds) as of April 30, 1995,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights, which is presented on page 2 of this prospectus, for
the years or period from January 11, 1993 (commencement of operations) to April
30, 1995. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at April
30, 1995 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Independence One U.S. Government Securities Fund at April 30, 1995, the result
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods listed above in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
June 16, 1995
INDEPENDENCE ONE
MUTUAL FUNDS
INDEPENDENCE ONE U.S.
GOVERNMENT SECURITIES FUND
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Michigan National Bank
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
INVESTMENT SUB-ADVISER
Independence One Capital
Management Corporation
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
CUSTODIAN
Michigan National Bank
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INDEPENDENT AUDITORS
KPMG Peat Marwick
One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
Independence One(R)
U.S. Government
Securities Fund
Distributed by Federated Securities Corp.
Prospectus dated
June 30, 1995
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[LOGO]
453777807
G00979-07 (6/95)
Independence One
U.S. Government Securities Fund
(A Portfolio of Independence One Mutual Funds)
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus of Independence One U.S. Government Securities Fund
(the "Fund") dated June 30, 1995. This Statement is not a
prospectus itself. To receive a copy of either prospectus, write
the Fund or call toll-free 1-800-334-2292.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated June 30, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
Table of Contents
General Information About the
Fund 1
Investment Objective and Policies 1
Acceptable Investments 1
Repurchase Agreements 1
When-Issued and Delayed
Delivery Transactions 1
Portfolio Turnover 1
Investment Limitations 1
Independence One Mutual Funds
Management 2
Fund Ownership 4
Trustees' Compensation 4
Trustee Liability 4
Investment Advisory Services 4
Adviser to the Fund 4
Advisory Fees 5
Administrative Services 5
Custodian 5
Transfer Agent and Dividend
Disbursing Agent 5
Brokerage Transactions 5
Purchasing Shares 6
Conversion to Federal Funds 6
Determining Net Asset Value 6
Determining Market Value of
Securities 6
Exchange Privilege 6
Redeeming Shares 6
Redemption in Kind 7
Tax Status 7
The Fund's Tax Status 7
Shareholders' Tax Status 7
Total Return 7
Yield 7
Performance Comparisons 8
Duration 8
General Information About the Fund
The Fund is a portfolio in Independence One Mutual Funds (the "Trust"),
which was established as a Massachusetts business trust under a
Declaration of Trust dated January 9, 1989.
Investment Objective and Policies
The Fund's investment objective is to seek high current income. This
investment objective cannot be changed without approval of shareholders.
The investment policies described below may be changed by the Board of
Trustees ("Trustees") without shareholder approval. Shareholders will be
notified before any material changes in these policies become effective.
Acceptable Investments
The Fund invests only in U.S. government securities.
Repurchase Agreements
The Fund or its custodian will take possession of the securities subject
to repurchase agreements and these securities will be marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such
a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of
such securities. The Fund will only enter into repurchase agreements
with banks and other recognized financial institutions such as brokers/
dealers which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. Settlement dates may be a
month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices. No
fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Fund sufficient to make payment
for the securities to be purchased are segregated on the Fund's records
at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an
extent that would cause the segregation of more than 20% of the total
value of its assets.
Portfolio Turnover
The Fund will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an
attempt to achieve the Fund's investment objectives. The portfolio
turnover rates for the fiscal years ended April 30, 1995 and April 30,
1994, and for the period ended April 30, 1993 were 75%, 20%, and 0%,
respectively.
Investment Limitations
Buying on Margin
The Fund will not purchase any securities on margin, but may
obtain such short-term credits as are necessary for clearance of
transactions.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may
borrow money in amounts up to one-third of the value of its total
assets, including the amounts borrowed.
The Fund will not borrow money for investment leverage, but rather
as a temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling the Fund to meet
redemption requests when the liquidation of portfolio securities
is deemed to be inconvenient or disadvantageous. The Fund will not
purchase any securities while any borrowings in excess of 5% of
total assets are outstanding.
Concentration of Investments
The Fund will not concentrate in any one industry.
Underwriting
The Fund will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of securities in accordance with
its investment objective, policies, and limitations.
Lending of Assets
The Fund will not lend any of its assets. (This shall not prevent
the purchase or holding of U.S. Treasury securities, repurchase
agreements, or other transactions which are permitted by the
Fund's investment objective and policies.)
Selling Short
The Fund will not sell any securities short.
The above investment limitations cannot be changed without approval of
shareholders. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net
assets in securities which are not readily marketable or which are
otherwise considered illiquid, including repurchase agreements
providing for settlement more than seven days after notice.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In these cases, it may
pledge assets having a market value not exceeding the lesser of
the dollar amounts borrowed or 10% of the value of total assets at
the time of the borrowing.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the investment, a later increase or decrease
in percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
Independence One Mutual Funds Management
Officers and Trustees are listed with their addresses, date of birth,
present positions with Independence One Mutual Funds, and principal
occupations.
Robert E. Baker
4327 Stoneleigh Road
Bloomfield Hills, MI
Birthdate: May 6, 1930
Trustee
Retired; formerly, Vice Chairman, Chrysler Financial Corporation.
Harold Berry
100 Galleria Officentre,
Suite 219
Southfield, MI
Birthdate: September 17, 1925
Trustee
Managing Partner, Berry Enterprises; Chairman, Independent Sprinkler
Companies, Inc.; formerly, Chairman, Executive Committee, Federal
Enterprises, Inc.; Chairman, Berry, Ziegelman & Company.
Clarence G. Frame +
W-875 First Bank Building
332 Minnesota Street
St. Paul, MN
Birthdate: July 26, 1918
Trustee
Director, Tosco Corporation, Chicago Milwaukee Corporation, and Voyageur
Funds Group; formerly, Vice Chairman, First Bank System, Inc., and
President, The First National Bank of St. Paul, a subsidiary of First
Bank System, Inc.
Harry J. Nederlander +*
231 S. Woodward,
Suite 219
Birmingham, MI
Birthdate: September 5, 1917
Trustee
Chairman, Nederlander Enterprises.
Thomas S. Wilson
Two Championship Drive
Auburn Hills, MI
Birthdate: October 9, 1949
Trustee
President and Executive Administrator, Detroit Pistons; President, Arena
Associates, Inc.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Executive Vice President, Treasurer and Director, Federated Securities
Corp.; Chairman, Treasurer and Trustee, Federated Administrative
Services; Vice President, Treasurer and Trustee, Federated Investors.
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services.
Jay S. Neuman
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 22, 1950
Secretary
Corporate Counsel, Federated Investors; prior to January, 1991,
Associate Counsel, The Boston Company Advisors, Inc.
+ Member of the Trust's Executive Committee. The Executive
Committee of the Board of Trustees handles the
responsibilities of the Board of Trustees between meetings of the Board.
* This Trustee is deemed to be an "interested person" of the Fund
or Trust as defined in the Investment Company Act of 1940.
Fund Ownership
Officers and Trustees own less than 1% of the outstanding shares of the
Fund. The following indicates the beneficial ownership of the
shareholder who is the beneficial owner of more than 5% of the
outstanding shares of the portfolio as of June 6, 1995: Michigan
National Bank, acting in various capacities for numerous accounts owned,
of record: approximately 6,340,409 shares (100%).
Trustees' Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST *
Robert E. Baker $ 9,350
Trustee
Harold Berry $ 9,350
Trustee
Clarence Frame $ 9,350
Trustee
Harry J. Nederlander $ 9,350
Trustee
Thomas S. Wilson $ 9,350
Trustee
*The information is furnished for the fiscal year ended April 30, 1995.
The Trust is the only investment company in the Fund Complex. The
aggregate compensation is provided for the Trust which is comprised of
four portfolios.
Trustee Liability
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they
are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of their
office.
Investment Advisory Services
Adviser to the Fund
The Fund's investment adviser is Michigan National Bank (the "Adviser").
The Fund's investment sub-adviser is Independence One Capital Management
Corporation (the "Sub-Adviser").
The Adviser and Sub-Adviser shall not be liable to the Trust, the Fund,
or any shareholder of the Fund for any losses that may be sustained in
the purchase, holding, or sale of any security, or for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed
upon it by its contract with the Trust.
Because of the internal controls maintained by Michigan National Bank to
restrict the flow of non-public information, Fund investments are
typically made without any knowledge of Michigan National Bank's or its
affiliates' lending relationships with an issuer.
Advisory Fees
For its advisory services, Michigan National Bank receives an annual
investment advisory fee as described in the prospectus. For the fiscal
years ended April 30, 1995 and April 30, 1994, and during the period
from January 11, 1993 (date of initial public investment) to April 30,
1993, the Fund's Adviser earned $458,170, $595,181 and $176,329,
respectively, all of which was voluntarily waived because of
undertakings to limit the Fund's expenses.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2-1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1-1/2% per year of the remaining
average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by
the amount of the excess, subject to an annual adjustment. If the
expense limitation is exceeded, the amount to be reimbursed by the
Adviser will be limited, in any single fiscal year, by the amount
of the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the fiscal years ended April 30, 1995
and April 30, 1994, and during the period from January 11, 1993 (start
of business) to April 30, 1993, the Fund incurred administrative
services costs of $84,660, $106,948 and $32,114, respectively, of which
$0, $0, and $32,114 were voluntarily waived because of undertakings to
limit the Fund's expenses.
Custodian
Michigan National Bank, Farmington Hills, Michigan, is custodian for the
securities and cash of the Fund. For the services to be provided to the
Trust pursuant to the Custodian Agreement, the Trust pays the custodian
an annual fee based upon the average daily net assets of the Fund and
which is payable monthly. The custodian will also charge transaction
fees and out-of-pocket expenses.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the
size, type and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records.
The fee paid for this service is based upon the level of the Fund's
average net assets for the period plus out-of-pocket expenses.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the Adviser will
generally use those who are recognized dealers in specific portfolio
instruments except when a better price and execution of the order can be
obtained elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the
Trustees.
The Adviser may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Fund
or to the Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of
the brokerage and research services provided.
Research services provided by brokers may be used by the Adviser for
other accounts. To the extent that receipt of these services may
supplant services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses.
Purchasing Shares
Shares are sold at their net asset value on days which the New York
Stock Exchange is open for business, except on federal holidays
restricting wire transfers. The procedure for purchasing shares of the
Fund is explained in the prospectus under "Investing in the Fund."
Conversion to Federal Funds
It is the Fund's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal funds
before shareholders begin to earn dividends. State Street Bank acts as
the shareholder's agent in depositing checks and converting them to
federal funds.
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
Determining Market Value of Securities
Market values of the Fund's portfolio securities are determined as
follows:
o as provided by an independent pricing service;
o for short-term obligations with remaining maturities of 60 days or
less at the time of purchase, at amortized cost unless the
Board determines this is not fair value; or
o at fair value as determined in good faith by the Trustees.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices. Pricing services may
consider yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data.
Exchange Privilege
Shareholders using the exchange privilege must exchange shares having a
net asset value of at least $1,000. Before the exchange, the shareholder
must receive a prospectus of the fund for which the exchange is being
made.
This privilege is available to shareholders resident in any state in
which the fund shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, shares submitted for
exchange are redeemed and the proceeds invested in shares of the other
fund.
Instructions for exchanges may be given in writing or by telephone.
Exchange procedures are explained in the prospectus under "Exchange
Privilege."
Redeeming Shares
The Fund redeems shares at the next computed net asset value after
Federated Services Company receives the redemption request. Redemption
procedures are explained in the prospectus under "Redeeming Shares."
Redemption in Kind
Although the Fund intends to redeem shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole
or in part by a distribution of securities from the Fund's portfolio. To
satisfy registration requirements in a particular state, redemption in
kind will be made (for any shareholder requesting redemption) in readily
marketable securities to the extent that such securities are available.
If this state's policy changes, the Fund reserves the right to redeem in
kind by delivering those securities it deems appropriate.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in
a manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Fund is obligated to redeem shares
for any one shareholder in cash only up to the lesser of $250,000 or 1%
of the Fund's net asset value during any 90-day period.
Tax Status
The Fund's Tax Status
The Fund intends to pay no federal income tax because it expects to meet
the requirements of Subchapter M of the Internal Revenue Code applicable
to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the
Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. These dividends, and any
short-term capital gains, are taxable as ordinary income.
Capital Gains
Shareholders will pay federal tax at capital gains rates on long-
term capital gains distributed to them regardless of how long they
have held the Fund shares.
Total Return
The Fund's average annual total return for the fiscal year ended April
30, 1995 and for the period from January 11, 1993 (date of initial
public investment) to April 30, 1995 were 5.90% and 4.96%, respectively.
The average annual total return for shares of the Fund is the average
compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment.
The ending redeemable value is computed by multiplying the number of
shares owned at the end of the period by the maximum offering price per
share at the end of the period. The number of shares owned at the end of
the period is based on the number of shares purchased at the beginning
of the period with $1,000, less any applicable sales load, adjusted over
the period by any additional shares, assuming the monthly reinvestment
of all dividends and distributions.
Yield
The Fund's yield for the thirty-day period ended April 30, 1995, was
6.78%.
The yield for shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by shares of the Fund over a thirty-day period by the
maximum offering price per share of the Fund on the last day of the
period. This value is annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period
is assumed to be generated each month over a twelve-month period and is
reinvested every six months. The yield does not necessarily reflect
income actually earned by shares of the Fund because of certain
adjustments required by the Securities and Exchange Commission and,
therefore, may not correlate to the dividends or other distributions
paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees
in connection with services provided in conjunction with an investment
in the Fund, the performance will be reduced for those shareholders
paying those fees.
Performance Comparisons
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio
securities;
o changes in the Fund's expenses; and
o various other factors.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition
of any index used, prevailing market conditions, portfolio compositions
of other funds, and methods used to value portfolio securities and
compute offering price. The financial publications and/or indices which
the Fund uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any
change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "U.S.
government funds" category in advertising and sales literature.
o Merrill Lynch 1-10 Year Government Index is an unmanaged index
tracking intermediate term U.S. government securities with
maturities between 1 and 9.99 years. The index is produced by
Merrill Lynch, Pierce, Fenner & Smith, Inc.
o Merrill Lynch 1-10 Year Treasury Index is an unmanaged index
tracking intermediate term U.S. Treasury securities with
maturities between 1 and 9.99 years. The index is produced by
Merrill Lynch, Pierce, Fenner & Smith, Inc.
o Morningstar, Inc., an independent rating service, is the publisher
of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more
than 1,000 NASDAQ-listed mutual funds of all types, according to
their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
o Lehman Brothers Treasury Bond Index is comprised entirely of U.S.
Treasury obligations. Flower bonds and foreign issues are
excluded.
Advertisements and other sales literature for the Fund may refer to
total return. Total return also represents the historic change in the
value of an investment in the Fund based on the monthly reinvestment of
dividends over a specified period of time.
Duration
Duration is a commonly used measure of the potential volatility in the
price of a bond, or other fixed income security, or in a portfolio of
fixed income securities, prior to maturity. Volatility is the magnitude
of the change in the price of a bond relative to a given change in the
market rate of interest. A bond's price volatility depends on three
primary variables: the bond's coupon rate; maturity date; and the level
of market yields of similar fixed income securities. Generally, bonds
with lower coupons or longer maturities will be more volatile than bonds
with higher coupons or shorter maturities. Duration combines these
variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values
of the cash flows of a bond or bonds, including interest and principal
payments, by the sum of the present values of the cash flows. When the
Fund invests in mortgage pass-through securities, its duration will be
calculated in a manner which requires assumptions to be made regarding
future principal prepayments. A more complete description of this
calculation is available upon request from the Fund.
453777807
2091701B (6/95)
